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

[kerryo]

Profit forecast up a little more.

Share price up a lot more. :)

[stones]

Divi flagged Dec 2013 and July 2014 - thats got to be good for the sp and the company. Keep on rockin and rollin

[kerryo]

People waking up to the options now ... dpcoa, I was picking them up for 10c ea. a few weeks ago.

[POSSUM THE CAT]

OPTIONS Need to exercised by end of Month

[bermuda]

OPTIONS Need to exercised by end of Month

And because of that people are selling the Heads to give them cash to exercise their options. Best to watch this ride out until we have reached a bottom. Both DPC and DPCOA down about 10% today. This is a very good company.

[kizame]

So have I got this right, with the excercise of options and convertible notes- 150,000,000 and 110,000,000 respectively with the additional shares issued of 30,000,000 being contained in the 150,000,000 mil figure.
Does this then equate to a maximum of 468,263,598 shares on issue after all excercised?

[bermuda]

So have I got this right, with the excercise of options and convertible notes- 150,000,000 and 110,000,000 respectively with the additional shares issued of 30,000,000 being contained in the 150,000,000 mil figure.
Does this then equate to a maximum of 468,263,598 shares on issue after all excercised?

Kizame,
Yes , that is the way I read it. I suppose the market is now saying that DPC is being diluted from 208m shares to 468m shares through the payment of 260m x 12.5 cents. Imight wait until things settle down before taking a stake.

[zigzag]

So this is going to make the price of the placement shares really interesting!

[andysh]

DORCHESTER YEAR END AHEAD OF FORECAST
Dorchester Pacific Limited (DPC) today posted its full year results for the financial year to 31 March 2013, reporting a Net Profit after Tax of $1.71 million (2012 - $1.60 million loss).
The result is ahead of the earlier profit guidance of $1.60 million.
The result includes part year trading of EC Credit, the debt recovery business acquired in November 2012, a take-up of due diligence and transaction costs relating to the acquisition, the write-off of costs relating to the early surrender of level 9 at the company's Shortland Street, Auckland premises and a partial write-back of pre-paid tax.
The balance sheet shows shareholder funds of $33.2 million (2012 - $24.2 million). Net tangible assets per share are $0.02 (2012 - $0.12) and net asset backing per share $0.16 (2012 - $0.14).
The results to 31 March 2013 have been audited by Staples Rodway. They expect to give an unmodified opinion on the financial statements.
CEO and Executive Director Paul Byrnes commented: "The result reflects profitable and improving trading performance from the finance and insurance businesses and a part year contribution from EC Credit which is also trading ahead of forecast. All legacy costs and costs of restructuring the group have been taken up. Overheads and operating costs are well under control and aligned to the level of business activity and planned growth."
Commenting on the trading subsidiaries, Mr Byrnes noted;
"The quality build of the receivables book of Dorchester Finance continues. Return and arrears metrics on new lending continue to track ahead of budget. The legacy Senate motor vehicle book is fully provided for. We continue to invest in IT and work on more efficient processing of loan applications.
The DPL Insurance business also traded ahead of budget and ahead of last year. The private motor vehicle insurance product has just been released completing the suite of new consumer insurance products under the 'Mainstream' brand. Market support and distribution are increasing. The business is meeting the timetable to achieve a full insurance licence under the new legislation administered by the Reserve Bank of New Zealand.
As reported in March, the management, governance and operational functions of newly acquired EC Credit have settled in particularly well. Two major contracts negotiated with New Zealand institutional clients last year have now been executed and earnings from this new business is starting to come through. With similar opportunities in the corporate market in Australia, we are forecasting growth of 10% for our second year of ownership.
Overall, the Dorchester group is now very well positioned. We remain quite comfortable with our earlier guidance of a profit after tax of $6 million from existing operations for the current financial year, with this increasing to $10 million over the subsequent two years.
We are also confident that M&A opportunities will add to these profit forecasts. The recently announced Capital Restructure will ensure we receive a cash injection of around $20 million next month. It will also significantly strengthen the balance sheet with shareholder funds doubling to around $65 million, providing the company with the ability to execute our organic and M&A growth strategy."
ENDS

Looking promising for them.

[tosspot]

Down, down, down she goes, where she stops nobody knows! Still think DPC will be a good buy and hold strategy once she bottoms out. Anyone willing to take a guess here? Looks like someone is egging on for 20 cents right now and the options are experiencing more trading than the heads as usual! More frenetic pace going to take shape as the 31st gets closer me thinks...
I think it will do a 20c bounce then to 26c just like BTU and RAK seems to be a mental barrier with that figure

[zigzag]

Down, down, down she goes, where she stops nobody knows! Still think DPC will be a good buy and hold strategy once she bottoms out. Anyone willing to take a guess here? Looks like someone is egging on for 20 cents right now and the options are experiencing more trading than the heads as usual! More frenetic pace going to take shape as the 31st gets closer me thinks...
The last day of trading DPCOA is the 28th, not the 31st.

[bermuda]

At 20c, if they get that low, the heads are trading on a current year P/E of around 12 and forward P/E of around 7 based on projected profit of 10m for 2014/15 – also value in the 20m in tax losses they can utilise going forward - hard to tell how cheap they may get and may depend on the price of the 30m placement.

Options exercisement is always a testing time as people scramble for money. The best time to buy would be May 29th. I WOULD EXPECT dpc TO GET BACK TO 34 PLUS QUITE QUICKLY.

[POSSUM THE CAT]

Bermuda It would be very tight to get them through the share registry and Exercised by 5PM on the 31st of May IMHO the 27th would be last practical day

[bermuda]

Bermuda It would be very tight to get them through the share registry and Exercised by 5PM on the 31st of May IMHO the 27th would be last practical day

Possum,
Sorry I meant the Head Share. The price of the Head Share always seems to fall during the month leading up to expiry.In this case DPC has gone from 34 to 24 cents. Good time to buy the Head share now.

[biker]

Bermuda I agree with your last two posts. IMO the selling of options, and or heads to fund them should be petering out about now and can't see them getting much cheaper. Wouldn't be surprised to see the heads pick up nicely next week once the uncertainty is out of the way - options, and notes sorted, and we have a simple share-only structure.

[biker]

how about this week?...... Today??

[biker]

At 20c, if they get that low, the heads are trading on a current year P/E of around 12 and forward P/E of around 7 based on projected profit of 10m for 2014/15 – also value in the 20m in tax losses they can utilise going forward - hard to tell how cheap they may get and may depend on the price of the 30m placement.


I don't think the placement will be anything like 30 million. There are only 67.5 million to be taken up other than the major shareholders so with say only a 66% take up of those, leaves 23 million to place.

To have to place 30 million would mean almost $4 million written off by ill informed or unaware investors.

i think they may get a 10% no reply from smaller investors, meaning a placement of only about 7 million.

Will be surprised if it's much more and if it is this small, that should help underpin the share price and make good press.

Paul Brynes would seem to have his head screwed on.

Disc. I am adding to my holding at around these levels. They may fluctuate a little lower, but don't think by much.

IMHO. DYOR.


I

[biker]

Also, note these comments on M&A from the full year results, which was also mentioned in the capital restructure announcement. Unless it is just wishful thinking on their part it would seem to me to indicate they probably have M and/or A already lined up, if not in the can.

....
Overall, the Dorchester group is now very well positioned. We remain quite
comfortable with our earlier guidance of a profit after tax of $6 million
from existing operations for the current financial year, with this increasing
to $10 million over the subsequent two years.

We are also confident that M&A opportunities will add to these profit
forecasts.

[kerryo]

Last day today to sell Options DPCOA.

[kerryo]

EXERCISE: DPC: Dorchester Pacific - 134 million options excercise

5 June 2013

Company Announcement

134 MILLION DORCHESTER OPTIONS EXERCISED

Dorchester Pacific Limited (DPC) today announced that approximately 134
million options of the 150 million options on issue have been exercised and
will convert into ordinary shares. The shares will be issued on the 17th
June 2013.

CEO and Executive Director Paul Byrnes said the number exercised was higher
than the 120 million to 125 million expected.

"This is a surprisingly good outcome. We are now working with major
shareholders to see if some of their holdings can be made available as a
small secondary pool to go towards meeting placement demand. As previously
advised the total of new shares issued through the exercise of options and
the share placement will be limited to 150 million shares."

ENDS

A good outcome for Dorchester ......

[biker]

.............
i think they may get a 10% no reply from smaller investors, .....

Will be surprised if it's much more and if it is this small, that should help underpin the share price and make good press............


Disc. I am adding to my holding at around these levels. They may fluctuate a little lower, but don't think by much.

IMHO. DYOR.


I
10.6% shortfall in fact. Great result.




"This is a surprisingly good outcome. We are now working with major
shareholders to see if some of their holdings can be made available as a
small secondary pool to go towards meeting placement demand.....

Placement demand? let them buy on the market!

[blackcap]

Here we go. THe sellers are starting to come out of the woodwork. With new shareholders (option converters) being allocated their shares shortly this stock (could) come under some pressure. Also those "insto" investors that got their shares at 25 cents may be inclined to sell? Or am I getting the vibe all wrong? Remember most of the profit this year will come from the gain made on the purchase of DPC 010's at a discount to book value.

[blackcap]

This stock is now available at 26 cents but I do believe it may fall a little further as the 100 million plus option converters (who paid 12.5 cents to get a share) start finding their FIN's and CSN's and get their brokers to sell at these levels for a nice (perceived) profit.
Contrary thoughts welcome as I am looking at buying some of this stock just not sure what is a fair entry level.

[RTM]

Help me out here please.

This company has 358,740,632 shares on issue as per NZX
They say $6mil profit for year ending 31 Mar 14. And 40% of that going to dividends.
So at $0.26 per share....this equals a return of 2.6%. Not overly attractive.
Does this seem correct ?

I am also somewhat confused by the number of shares.
NZX states number above.

But a Dorchester document (7 June 2013) refers to "208 million shares currently on issue".
https://www.nzx.com/companies/DPC/announcements/237177
This number makes a big difference...which is correct ? Or perhaps both ?
Have they simply created these additional shares ? If yes......then is there a risk that they continue to do so ? Thus diluting the dividend ?

Can someone educate me please.
Cheers
RTM.

[Snow Leopard]

Help me out here please.

This company has 358,740,632 shares on issue as per NZX
They say $6mil profit for year ending 31 Mar 14. And 40% of that going to dividends.
So at $0.26 per share....this equals a return of 2.6%. Not overly attractive.
Does this seem correct ?

I am also somewhat confused by the number of shares.
NZX states number above.

But a Dorchester document (7 June 2013) refers to "208 million shares currently on issue".
https://www.nzx.com/companies/DPC/announcements/237177
This number makes a big difference...which is correct ? Or perhaps both ?
Have they simply created these additional shares ? If yes......then is there a risk that they continue to do so ? Thus diluting the dividend ?

Can someone educate me please.
Cheers
RTM.

Yes your 2.6% NET figure is correct.

NZX is usually correct on shares. Between now and 7 jun 2013 lots of options were converted and a few other shares have been issued (see this (https://nzx.com/companies/DPC/announcements/237542) for instance)

Best Wishes
Paper Tiger

[RTM]

Maybe for you PT, many thanks, making progress.

[biker]

This stock is now available at 26 cents but I do believe it may fall a little further as the 100 million plus option converters (who paid 12.5 cents to get a share) start finding their FIN's and CSN's and get their brokers to sell at these levels for a nice (perceived) profit.
Contrary thoughts welcome as I am looking at buying some of this stock just not sure what is a fair entry level.

Bear in mind they placed shares with instos and others at 25c. I put my hand up for some and was scaled back as no doubt were the instos, due to the surprising take up of the options.
I would suggest that around these levels would be good buying, and at 25c or less I will be looking at buying some more, although I have quite a few already.
To me this is a growth stock, at this point any dividend is a bonus.

[blackcap]

There will soon be 468 million shares on issue... so do be aware of this. A simple conversion of convertible notes anyone?

[POSSUM THE CAT]

Blackcap The convertable notes were compulsorily redeemed in September last year.

[blackcap]

Blackcap The convertable notes were compulsorily redeemed in September last year.

You are talking about DPC010's,, yes they were. But I am talking about convertable notes of $11,000,000 issued to directors and major shareholders to be either repaid at face or at 10 cents per share. Another 110,000,000 shares to come shortly.....

[RTM]

And is there no holding period ? Can they sell them straight away ? As we are seeing with SNAK ?

[blackcap]

And is there no holding period ? Can they sell them straight away ? As we are seeing with SNAK ?

I cant tell you that off the top of my head that one RTM. They have not been converted as yet anyway. But as for the options that have recently been converted into shares at 12.5 cents there is not holding period whatsoever as far as I know. Definately not for the Joe Public who have converted their options. This fall in share price of the last 2 weeks is no surprise to me at all.

[RTM]

I clearly have chosen the wrong career path. There are a lot easier ways to make money.
Thanks blackcap.

[Romulus]

DPC 1 May announcement talks about the early redemption of the convertible notes (don't worry they won't be forcing an early redemption at a discount on those holders as they did with the DPC010 bonds}. DPC010 bond holders were originally debenture holders prior to 2007/08 meltdown. The convertible notes are held by the big boys who are only set to gain from the conversion and they vested interest to dilute non convertible notes holders when they convert them in July to ordinary shares this year. Aren't they great blokes, still going pay themselves interest to 31 July 2015, not just to 31 July 13, but wait they will be kind to other shareholders by discounting the interest for 2 years the notes are no longer-what gentleman.

Extract of announcement

The Company is also proposing an earlier conversion to ordinary shares of the
110 million ($11 million) Optional Convertible Notes, which would otherwise
be due for repayment (or conversion to ordinary shares, at the Noteholders'
option) on 31 March 2015.

"We have proposed an early July 2013 payment of interest to 31 March 2015 at
a discounted rate and a conversion of the Optional Convertible Notes to
ordinary shares following the payment. The Noteholders have indicated
acceptance of this arrangement and we will be calling a meeting of
shareholders to approve the transaction. The $11 million of debt on the
balance sheet would then become equity." said Mr Byrnes.

As a result of these transactions, shareholders' funds of approximately $29
million at 31 March 2013 would increase by $21 million to $50 million
following the exercise of the options and the share placement, and would
further increase to $61 million on conversion of the Optional Convertible
Notes to ordinary shares in July 2013.

[blackcap]

DPC 1 May announcement talks about the early redemption of the convertible notes (don't worry they won't be forcing an early redemption at a discount on those holders as they did with the DPC010 bonds}. DPC010 bond holders were originally debenture holders prior to 2007/08 meltdown. The convertible notes are held by the big boys who are only set to gain from the conversion and they vested interest to dilute non convertible notes holders when they convert them in July to ordinary shares this year. Aren't they great blokes, still going pay themselves interest to 31 July 2015, not just to 31 July 13, but wait they will be kind to other shareholders by discounting the interest for 2 years the notes are no longer-what gentleman.

Extract of announcement

T.

Hi Romulus,

Are you suggesting that the convertible debt notes are going to be converted early (ie in 2013), but the holders of the notes are still going to get interest till 2015? I may be reading it wrong but that would seem outrageous. Who are the holders of the convertible notes? Is this information publicly available?

I am trying to make sense of it. So the notes 11 million of them, will be converted to shares at 10 cents per share. At present the notes pay interest to the note holders and would normally run till March 2015 upon which either the company pays them back the $11m or converts to shares. Now they want to convert to shares early at 10 cents and also get interest till 2015. Doesn't seem fair if you ask me. But shareholders can vote on this issue can they not? I don't think I will be in a hurry to buy these shares at 25 cents anytime soon. After conversion there will be 468 million on offer. Plenty more room for the share price to slip I think.

[biker]

Hi Romulus,

Are you suggesting that the convertible debt notes are going to be converted early (ie in 2013), but the holders of the notes are still going to get interest till 2015? I may be reading it wrong but that would seem outrageous. Who are the holders of the convertible notes? Is this information publicly available? .

40 mill Business Bakery and 40 mill HGI ( Hugh Green Investments) Publicly available but you have to look for it.

[blackcap]

Thanks Biker, like I suspected. The share price seems to be reacting accordingly as well... down to 23 now.

[biker]

Thanks Biker, like I suspected. The share price seems to be reacting accordingly as well... down to 23 now.
I don't see the notes as a big issue. It is tidying up outstanding debt ( at a fairly high rate of interest) which will become equity, the capital was needed back in 2011 to help get the company to where it is now, and the notes would convert in 2015 anyway. The interest to 2015 will be paid at a discounted rate. ( not sure of the formula)
I think 23c is a buying opportunity with a medium term view. Another 12-18 months will make a big difference to this company IMHO, but DYOR

[blackcap]

I don't see the notes as a big issue. It is tidying up outstanding debt ( at a fairly high rate of interest) which will become equity, the capital was needed back in 2011 to help get the company to where it is now, and the notes would convert in 2015 anyway. The interest to 2015 will be paid at a discounted rate. ( not sure of the formula)
I think 23c is a buying opportunity with a medium term view. Another 12-18 months will make a big difference to this company IMHO, but DYOR

Thats where I differ from your view Biker. I do see the notes as a big issue. The debt could be paid back in cash but now the debt is being issued at 10 cents a share further diluting existing shareholders. I know its up to the discretion of the debt holders and not the company as to how they convert.
For me there are just too many shares outstanding to be buying at present. A lot of the profit that they will announce this year will not be from operations but "profit on repurchase of Notes (DPC010's) at a discount to face value".
Granted the company could go places and does have some interesting prospects, just not for me at a market capitalisation of $107 million. (468 million shares at 23 cents) I see this company more fairly priced on a cap of about 60-70m so about 12.8-14.9 cents per share. But that is just my two pence worth.

[percy]

Thats where I differ from your view Biker. I do see the notes as a big issue. The debt could be paid back in cash but now the debt is being issued at 10 cents a share further diluting existing shareholders. I know its up to the discretion of the debt holders and not the company as to how they convert.
For me there are just too many shares outstanding to be buying at present. A lot of the profit that they will announce this year will not be from operations but "profit on repurchase of Notes (DPC010's) at a discount to face value".
Granted the company could go places and does have some interesting prospects, just not for me at a market capitalisation of $107 million. (468 million shares at 23 cents) I see this company more fairly priced on a cap of about 60-70m so about 12.8-14.9 cents per share. But that is just my two pence worth.

I think you are right blackcap.
I compared DPC to HNZ which I think is fair comparison, and HNZ was a lot better value in my opinon.Closer to NTA,paying a good dividend and no funny notes or options.
HNZ's capital structure is very clear,while DPC's is cloudy.

[biker]

In July DPC will have no notes no options and just one type of share. Very clear I'd say!
I have HNZ also but see DPC with greater potential for growth - organic and M&A.

( and apropos CNU, I don't work for DPC!)

[percy]

In July DPC will have no notes no options and just one type of share. Very clear I'd say!
I have HNZ also but see DPC with greater potential for growth - organic and M&A.

( and apropos CNU, I don't work for DPC!)

As I don't hold DPC I hope you are wrong about greater potential for growth.! lol
I do agree with you about M&A.As a TUA shareholder I think DPC's 20% holding is a very clever move on their part.

[blackcap]

In July DPC will have no notes no options and just one type of share. Very clear I'd say!
I have HNZ also but see DPC with greater potential for growth - organic and M&A.

( and apropos CNU, I don't work for DPC!)

Very clear after July, but by then the damage will have been done. With damage I mean the dilution of ordinary shareholders share in the company. For me DPC has great potential but I would like to see them prove themselves first before venturing in again. I think Paul Byrnes is doing a stellar job and knows how to run the ship. I just cannot see DPC capitalised at over $100m. It just does not make sense. Will be watching their cash flow from operations when the financials become available as that may tell the real story.

[blackcap]

Here come the additional 110 million shares at 10 cents....
Early Conversion of Optional Convertible Notes
Resolution 8
That the early conversion of 110 million optional convertible notes into 110
million ordinary shares in the Company, as further specified in the
explanatory notes accompanying the Company's notice of annual meeting of
shareholders dated 2 August 2013, is approved for all purposes, including for
the purposes of NZSX Listing Rules 9.2, 7.3.1(a) and 7.5 and Rule 7(d) of the
Takeovers Code.

23 August to be precise but again it is dilutionary and may explain the recent lackluster performance of DPC. In addition the note holders are going to get $1.7m of interest as if the notes were to go to 2015. But they are not and they are getting shares at 10 cents. So the $11m loan will cost shareholders $1.7m in interest and a huge dilutionary factor. Not very good in my opinion.

All things going well though I believe 18-20 cents may be a good entry point if they can attain the profit they predict.

[blackcap]

That would be an excellent entry point in my view ... you may get lucky but I think it is unlikely the SP will get much lower than currently. It has been trading around .24 cents for some time now on improved liquidity since the options were converted ... I was hoping to get some cheap options in the weeks before the expiry but they never got much below .12 (.245 following conversion).

I doubt the early note conversion will make any difference as it has been well signalled and the vast majority of notes are held by current large shareholders - none of whom appear to be sellers.

Disclosure - Have a significant holding at entry around .24 cents.

Agree with you that this was signaled and if not wouldn't be hard to work out. Agree also that none of the 110m new shares will likely be sellers. (Unlike option converters) However what it does do is dilute any profit that would be coming towards me as a shareholder (yes i still hold a couple of thousand after selling the rest of my shares) and therefore reduces EPS considerably. That is why I think 18-20 cents is fair value if (and that is the question) they can attain the profits they predict.

[blackcap]

Maybe people are now starting to read between the lines in the Simmons report. Last sale at 21 cents and soon they will be cheap to buy. I just wonder who it is that is selling out. Is it the instos that got in the placement at 25 thinking "blow this for a joke" or is it the people who converted the options recently for 12.5 cents?

[blackcap]

Not sure why they (the instos) would have changed their view - AGM reports are positive - the early conversion of the notes having been well signalled. I haven't seen any signs of anyone significant selling out - no reason to. The share price goes up and down on very small volumns.
AGM reports as a rule are positive. Predicting $10m profit in 3 years time on 468 million shares. That is if they can achieve 30% growth. Not a given either. Not really setting he world on fire I would have thought. Merger activity could be interesting and they do have some good people on board. Around the 20 cent mark it could be worth a punt but plenty of other prospects out there.

[Snoopy]

Hi All,

Long time poster on this forum but first time poster on this thread. I will start out by declaring my interest. I do not hold Dorchester shares and never have. I am however a long term holder in Turners Auctions, the company in which Dorchester has this year bought a significant stake. So I have a cousinly interest in how DPC, the finance partner of TUA is going.

I have a bit of a problem with finance company shares, in that 'conventional' metrics such as PE ratio, dividend yield etc. can be suddenly made meaningless by a mismatch of cashflows between assets and liabilities. So I have taken to measuring such companies using a separate 'financial yardstick' inspired by UBS and First NZ Capital when they produced guidelines for another finance company (PGW Finance) to follow after the financial crisis to 'steer themselves clear'.

So without further ado, I will dive into the Dorchester FY2013 financial report and see how they stack up against these 'steer clear of the rocks' statistics.

SNOOPY

[Snoopy]

So without further ado, I will dive into the Dorchester FY2013 financial report and see how they stack up against these 'steer clear of the rocks' statistics.


'EBIT' not listed in the DPC FY2013 annual report so I have had to derive it from other numbers. That means adjusting the NPAT for tax refunds before finallly adding back the interest expense.

($-0.133m + $2.355m)/$2.355m = 0.9453 < 1.2

=> DPC fails the EBIT to Interest Expense Ratio test.

SNOOPY

[Snoopy]

So without further ado, I will dive into the Dorchester FY2013 financial report and see how they stack up against these 'steer clear of the rocks' statistics.


The gearing ratio in based on the underlying debt of the company, stripping out the loans made to others on the balance sheet.

$70.765m -( $7.834m + $16.370m + $4.681m ) = $41.880m

Likewise on the asset side of the balance sheet we have to strip the finance receivables from the other (underlying) company assets. From the Balance Sheet.

$103.955m - $28.757m = $75.198m

Gearing Ratio = Underlying Liabilities/Underlying Assets = $41.880m/$75.198m = 55.7% < 90%

=> Pass Test

SNOOPY

[Snoopy]

So without further ado, I will dive into the Dorchester FY2013 financial report and see how they stack up against these 'steer clear of the rocks' statistics.


We are looking here for a certain equity holding to balance a possible temporary mismatch of cashflows. The company needs basic equity capital and disclosed reserves (defined as Tier 1 capital) of > 20% of the loan book.

What is defined as 'the loan book' for Dorchester is something I am still getting to grips with. However, if we think of it as "all liabilities less 'other liabilities'" (a conservative view) we get our target minimum equity figure.

0.2($70.765m - $8.239m)= $12.505m

Since total shareholder equity is $33.190m, Dorchester has no trouble with this test.

=> PASS

SNOOPY

[Snoopy]

So without further ado, I will dive into the Dorchester FY2013 financial report and see how they stack up against these 'steer clear of the rocks' statistics.


We are looking here for a 'liquidity buffer' (including undrawn bank lines) of 10% of the loan book. My interpretation of this hurdle is that it requires us to look at how current liabilities are matched to current assets over a 12 month time horizon. It is akin to a 12 month cashflow 'stress test'.

Looking at note 25b in the annual report on liquidity risk, I see that Financial Assets that are held for availability over the next 12 months total:

$16.979m + $5.774m = $22.753m

Financial liabilities due for payment add up to:

$18.443m + $2.345m = $20.788m

That is a deficit of some $2m. Note 23 has detailed information on the bank facilities, but curiously no information on borrowing limits. Perhaps a longer term holder can advise me what is going on there?

SNOOPY

[Snow Leopard]

We are looking here for a certain equity holding to balance a possible temporary mismatch of cashflows. The company needs basic equity capital and disclosed reserves (defined as Tier 1 capital) of > 20% of the loan book.

What is defined as 'the loan book' for Dorchester is something I am still getting to grips with. However, if we think of it as "all liabilities less 'other liabilities'" (a conservative view) we get our target minimum equity figure.

0.2($70.765m - $8.239m)= $12.505m

Since total shareholder equity is $33.190m, Dorchester has no trouble with this test.

=> PASS

SNOOPY

Whilst I do not want to be seen to be hounding Snoopy I would like to clear up a couple of what I see as minor technical errors in this.

1) The loans you are concerned with are Assets of the company (money due to be repaid to the company) and not Liabilities. These are usually risk weighted but in the absence of the weightings to be applied use 100% to be safe (HNZ weighs in near 100%, ANZ is I think nearer 70%) and it comes in around $71m

2) Tier 1 Capital for Dorchester is definitely no more than $3.62m ($33.2m less intangibles less deferred tax).

$3.62m /$71m gives just over 5% which is a fail in anybodies book.

Best Wishes
Paper Tiger

[Snoopy]

Whilst I do not want to be seen to be hounding Snoopy I would like to clear up a couple of what I see as minor technical errors in this.


No problem PT. As a dog I always appear here with the expectation of being hounded!



1) The loans you are concerned with are Assets of the company (money due to be repaid to the company) and not Liabilities. These are usually risk weighted but in the absence of the weightings to be applied use 100% to be safe (HNZ weighs in near 100%, ANZ is I think nearer 70%) and it comes in around $71m

2) Tier 1 Capital for Dorchester is definitely no more than $3.62m ($33.2m less intangibles less deferred tax).


$33.190m-$26.254m-$3.317m = $3.618m

Ah, OK. I wasn't sure what to do with those intangibles. I thought that they might be included because at the time of creation they were a measure of someones confidence in future profits? But if you don't think they should be there, then I accept your argument PT.

As for the deferred tax held as an asset, well it is real cash on the books even if eventually it is earmarked for the IRD. I haven't caught up with the full tax position of DPC. But I do know that in FY2013, the main element of their declared profit was a $1.746m 'tax benefit'. So you haven't convinced me yet PT, that while that 'cash' remains on the books it should not be used as a cash asset for ratio calculation purposes. Where in the accounts is there any inkling that DPC will actually have to pay any tax, anytime soon?



$3.62m /$71m gives just over 5% which is a fail in anybodies book.


If your interpretation is correct PT, then yes that is a nasty result.

SNOOPY

[Snow Leopard]

Just to note that we are talking about a finance company and not a registered bank so Tier 1 etc do not formally apply.


Ah, OK. I wasn't sure what to do with those intangibles. I thought that they might be included because at the time of creation they were a measure of someones confidence in future profits? But if you don't think they should be there, then I accept your argument PT.
The Reserve Bank & Basel Committees agree with me on this :).



As for the deferred tax held as an asset, well it is real cash on the books even if eventually it is earmarked for the IRD. I haven't caught up with the full tax position of DPC. But I do know that in FY2013, the main element of their declared profit was a $1.746m 'tax benefit'. So you haven't convinced me yet PT, that while that 'cash' remains on the books it should not be used as a cash asset for ratio calculation purposes. Where in the accounts is there any inkling that DPC will actually have to pay any tax, anytime soon?

Deferred Tax on the Asset side is not cash on the books.
Nor is it money owed and to be paid to the IRD at some point, that would be a Liability.
It is the tax component of losses made by the company in this or prior years. These losses are very confidently expected to be offset against future years profits and thus reduce the actual (cash) tax to be paid in the future.
Note 8 tells you that they decided that $2.2m of tax from losses could be brought on to the books this year. Do not ask where it came from or why because that I do not.

Best Wishes
Paper Tiger

[Snoopy]

Just to note that we are talking about a finance company and not a registered bank so Tier 1 etc do not formally apply.


We are informal here PT, in case you hadn't noticed :-)



Deferred Tax on the Asset side is not cash on the books.
Nor is it money owed and to be paid to the IRD at some point, that would be a Liability.
It is the tax component of losses made by the company in this or prior years. These losses are very confidently expected to be offset against future years profits and thus reduce the actual (cash) tax to be paid in the future.
Note 8 tells you that they decided that $2.2m of tax from losses could be brought on to the books this year. Do not ask where it came from or why because that I do not (know).


Well they say the only two things certain in life are death and taxes. I can dodge the former by staying a cartoon character. Looks like I can take lessons from Dorchester, as to how to dodge the latter!

SNOOPY

[Snoopy]

I would like to clear up a couple of what I see as minor technical errors in this.

1) The loans you are concerned with are Assets of the company (money due to be repaid to the company) and not Liabilities. These are usually risk weighted but in the absence of the weightings to be applied use 100% to be safe (HNZ weighs in near 100%, ANZ is I think nearer 70%) and it comes in around $71m

2) Tier 1 Capital for Dorchester is definitely no more than $3.62m ($33.2m less intangibles less deferred tax).

$3.62m /$71m gives just over 5% which is a fail in anybodies book.


I should point out here that it is not in question that the DPC equity position as at 30th March 2013, the date of the published accounts, needs shoring up. That is the reason for the following placement announcement made on 7th June, which I think has been previously discussed..

-------

DORCHESTER PLACEMENT TO INSTITUTIONAL INVESTORS

Dorchester Pacific Limited (DPC) today announced the successful completion of a targeted placement following the previously advised exercise of 133.7 million options of 150 million that were on issue. Approximately 16.3 million new shares will be issued as a result of the placement.

Two major shareholders made a further 18.7 million of their existing share holdings available as a secondary pool to make up a total share placement of 35 million to institutional investors. The placement share price was 25 cents per share.

The two major shareholders, The Business Bakery and Matthew Harrison, provided 12.5 million and 6.2 million shares respectively for the 18.7m secondary pool.

The Business Bakery currently holds approximately 47.1 million shares (22.6% of the 208 million shares currently on issue) and will hold approximately 114.6 million shares (24.5% of the expanded capital) following exercise of their options and conversion of their convertible notes to shares by 31 July 2013 (subject to shareholder approval).

Matthew Harrison currently holds 14.0 million shares (6.7% of 208 million shares currently on issue) and is expected to hold approximately 40 million shares or 8.5% of the expanded capital if earn-out milestones are achieved.

The placement was well received by institutional investors in New Zealand with 7 institutional shareholders new to the Dorchester share register taking up a majority of the total 35 million shares placed.

-----

25c x 16.3m = $4.075m

OK I know that four months have gone by since balance date. But if you retrospectively add that into the DPC asset picture, the ratio of capital to loans made looks more respectable:

($3.62m+ $4.075m) /$71m gives 10.8%

even if it still falls short of my 20% target.

SNOOPY

[janner]

I should point out here that it is not in question that the DPC equity position as at 30th March 2013, the date of the published accounts, needs shoring up. That is the reason for the following placement announcement made on 7th June, which I think has been previously discussed..

-------

DORCHESTER PLACEMENT TO INSTITUTIONAL INVESTORS

OK I know that four months have gone by since balance date. But if you retrospectively add that into the DPC asset picture, the ratio of capital to loans made looks more respectable:

($3.62m+ $4.075m) /$71m gives 10.8%

even if it still falls short of my 20% target.

SNOOPY

Faint praise indeed.. Although any praise is good from you snoopy..

Must look closer.. :-)

[Snoopy]

Faint praise indeed.. Although any praise is good from you snoopy..

Must look closer.. :-)

I haven't included all the ways that Dorchester has boosted its equity over 2013. From the 1st May 2013 announcement:

-----

Dorchester Pacific Limited (DPC) today announced a proposed capital restructure and a share placement that, together with the cash injection expected from the exercise of options on issue, should boost shareholder funds from the current level of $29 million to approximately $61 million.

<snip>

Capital Restructure

The Company has approximately 150 million options on issue which convert into ordinary shares on payment of 12.5 cents per share. 82.5 million of the options are currently held by the Company’s major shareholders, who have indicated that they will be exercising their options

<snip>

“To ensure we receive the full cash injection anticipated we intend to place up to 30 million new shares in total with a mechanism that will limit the total of new shares issued through the exercise of options and the share placement to 150 million shares.”

The Company is also proposing an earlier conversion to ordinary shares of the 110 million ($11 million) Optional Convertible Notes, which would otherwise be due for repayment (or conversion to ordinary shares, at the Noteholders’ option) on 31 March 2015.

<snip>

The $11 million of debt on the balance sheet would then become equity.” said Mr Byrnes.

As a result of these transactions, shareholders’ funds of approximately $29 million at 31 March 2013 would increase by $21 million to $50 million following the exercise of the options and the share placement, and would further increase to $61 million on conversion of the Optional Convertible Notes to ordinary shares in July 2013.

------------

That means we are looking at $21m + $61m of new capital

($3.62m+ $21m + $61m) /$71m gives 120%

That means Dorchester easily exceeds my 20% target.

Of course the reason for this is made clear later on in the quoted article:

"Mr Byrnes commented, “The significantly higher shareholder funds and conservative balance sheet will fund growth of the Company’s receivables book and provide headroom for potential further M&A activity. We also believe the introduction of new shareholders through the placement, which may include one or two institutional investors, will be positive for the Company.”

Looks like lots of room to grow the loan book and plenty of room to do so, as a result of all the capital restructuring.

SNOOPY

[Snoopy]

"Mr Byrnes commented, “The significantly higher shareholder funds and conservative balance sheet will fund growth of the Company’s receivables book and provide headroom for potential further M&A activity. We also believe the introduction of new shareholders through the placement, which may include one or two institutional investors, will be positive for the Company.”

Looks like lots of room to grow the loan book and plenty of room to do so, as a result of all the capital restructuring.


OK so according to the 30th August 2013 announcement, there are now 479,342,632 ordinary DPC shares on issue. After tax profit of $6m for FY ended 31-03-2014 rising to $10m for FY ended 31-03-2015.

So we are looking at eps of 1.25c for FY2014 rising to 2.09c for FY2015. So at 22c on the market Dorchester is trading at a prospective PE of 17.6 for FY2014 and 10.5 for FY2015.

Dividend is projected as 40% of profit so dividend yield is 2.3% for FY2014 and 3.8% for FY2015. There are tax losses to use so those dividends are gross rates for shareholders - not so good.

SNOOPY

[Snoopy]

OK so according to the 30th August 2013 announcement, there are now 479,342,632 ordinary DPC shares on issue. After tax profit of $6m for FY ended 31-03-2014 rising to $10m for FY ended 31-03-2015.


"That balance sheet will have the capacity to debt fund significant, but not all of the investment in acquisitions we would hope to make. However, we are conscious of
further dilution for all shareholders and our modelling shows relatively modest further capital raising involving the issue of less than 100 million additional shares."

Slight sting from the CEO's AGM address. 100m more shares coming!

SNOOPY

[Snoopy]

Time to bring together my investigation into the 'financial factors' that sit behind Dorchester.

Leaving aside the suggestion that the term Tier 1 and Tier 2 capital strictly apply only to banks, however you measure things Dorchester was short of capital last year. Management themselves recognized this and post the 31st March balance date there has been a significant injection of equity into the business. And at the same time the somewhat cloudy financial structure of the company was cleared up. I would argue now that even if you regard all capital contained within DPC as 'tier2', capitalization is now more than adequate by any standard. The reason for this is that DPC has an 'acquisition strategy' going forwards. The plan as the CEO has laid out in the budget is to grow organically although he does note in the AGM address to shareholders:

"debt purchase in both markets (NZ/Oz) does present a step out opportunity. We will take a conservative approach to debt purchase. We will not be relying on contributions from this activity to achieve budgeted profits nor will we carry costs in anticipation of securing any debt purchase."

That means the opportunity for a step up in budgeted earnings is there if there are debt ledgers out there at the right price.

As a result of the capital raising the gearing ratio of the underlying business is very conservative (I calculate 33.7%).

The main 'thorn in the ointment' for FY2012 was underlying earnings which were negative (-$0.133m). If nothing else the recapitalized company should see the interest bill drop from last years $2.55m. Underlying borrowings after the capital restructuring is complete were forecast as $13.9m, down from $22.784m as at 31st March 2013 (balance date). That interest adjustment alone should see the company move back into the black.

Profit forecast for the year ended March 2014 is $6m, with probably 80% of that figure coming from business development and 20% from a reduction in underlying debt. That represents an ROE of:

$6m/ $67.4m = 8.9% or $6m/ ($67.4m-$26.2m) = 14.6% if you take out projected intangible assets at the time of the recapitalization. I am not sure which is the most appropriate figure of the two to use. Any views?

Business is projected to increase in FY2015 where a $10.5m profit is budgeted for. Dorchester operates in a competitive market, and the individual gains in contribution from which which division are 'blacked out' in the CEOs 'Profit Forecast with Organic Growth and M&A' slide. Essentially the message is 'trust us, we know what we are doing'. From what has been revealed the business plan looks sound and achievable. Net tangible asst backing though is only

($67.4m-$26.2m)/479.342m = 8.6cps

So at 22cps market price today you are paying a significant asset premium for management expertise. Projected dividend yield will only be 40% of gross profit, and there will be no imputation credits due to previous years losses. $6m projected profit spread around 479.342m shares is 1.3cps. While a projected 0.5cps dividend is welcome, the gross dividend yield with the share price at 22c is only 2.3%. IMO the current share price cannot be justified on projected dividend yield alone.

With earnings projected to jump to $10.5m in FY2015 that dividend yield jumps to 4%. I would say at 22c the market has already priced in further growth above that. Whether you think investing at 22c is justified will depend on just how lucrative you think the longer term growth strategy will be. I don't see any hurry to buy into this company at 22c. But I will be putting DPC on my watch and wait list.

SNOOPY

[zigzag]

Time to bring together my investigation into the 'financial factors' that sit behind Dorchester.

Leaving aside the suggestion that the term Tier 1 and Tier 2 capital strictly apply only to banks, however you measure things Dorchester was short of capital last year. Management themselves recognized this and post the 31st March balance date there has been a significant injection of equity into the business. And at the same time the somewhat cloudy financial structure of the company was cleared up. I would argue now that even if you regard all capital contained within DPC as 'tier2' capitalization is now more than adequate by any standard. The reason for this is that DPC has an 'acquisition strategy' going forwards. The plan as the CEO has laid out in the budget is to grow organically although he does note in the AGM address to shareholders:

"debt purchase in both markets (NZ/Oz) does present a step out opportunity. We will take a conservative approach to debt purchase. We will not be relying on contributions from this activity to achieve budgeted profits nor will we carry costs in anticipation of securing any debt purchase."

That means the opportunity for a step up in budgeted earnings is there if there are debt ledgers out there at the right price.

As a result of the capital raising the gearing ratio of the underlying business is very conservative (I calculate 33.7%).

The main 'thorn in the ointment' for FY2012 was underlying earnings which were negative. If nothing else the recapitalized company should see the interest bill drop from last years $2.55m. Underlying borrowings after the capital restructuring is complete were forecast as $13.9m, down from $22.784m as at 31st March 2013 (balance date).

Thanks for the summary Snoops. Now maybe someone could find your leed, a little plastic bag, and take you for a long W.A.L.K.

[Snoopy]

But I will be putting DPC on my watch and wait list.


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?

SNOOPY

[Snoopy]

Thanks for the summary Snoops. Now maybe someone could find your leed, a little plastic bag, and take you for a long W.A.L.K.


No such luck zigzag. Sitting on top of my dog kennel typing sounds much more entertaining. Of course if you want to write up your own story around Dorchester please share. Perhaps my summary is just a compostable version of 't-h-i-s' after all?

SNOOPY

[Snoopy]

Profit forecast for the year ended March 2014 is $6m, with probably 80% of that figure coming from business development and 20% from a reduction in underlying debt. That represents an ROE of:

$6m/ $67.4m = 8.9% or $6m/ ($67.4m-$26.2m) = 14.6% if you take out projected intangible assets at the time of the recapitalization. I am not sure which is the most appropriate figure of the two to use. Any views?

Business is projected to increase in FY2015 where a $10.5m profit is budgeted for.


Having just done the finance division margin calculation for TUA, I thought it was an interesting comparison to bring across to the Dorchester thread. Notwithstanding the fact that Dorchester owns nearly 20% of TUA, I think the comparison is interesting given Dorchester's already large existing exposure to motor vehicle loans.

As calculated for Turner's Auctions
"Operating margin at 1HY2009 was $0.107/$1.946 = 5.5%. Fast forward to 1HY2013 and operating margin was $0.907m/$2.668m= 34.0%"

That 34% margin is a stunning figure and compares more than favourably with Dorchesters own projected margin for the year ended March 2014 of 14.9% (best interpretation). If we take a rather optimistic projection and say the $10.5m that Dorchester predicts for FY2015 is on the same amount of revenue as FY2014, then the projected operating margin for Dorchester for FY2015 becomes:

$10.5m / ($67.4- $27.2)m = 26.1%

That is still significantly below the margins that Turners Auctions are getting right now. Perhaps it is Turners who will be teaching the finance lesson to Dorchester, and not the other way around?

SNOOPY

[Snoopy]

As calculated for Turner's Auctions
"Operating margin at 1HY2009 was $0.107/$1.946 = 5.5%. Fast forward to 1HY2013 and operating margin was $0.907m/$2.668m= 34.0%"

That 34% margin is a stunning figure and compares more than favourably with Dorchesters own projected margin for the year ended March 2014 of 14.9% (best interpretation). If we take a rather optimistic projection and say the $10.5m that Dorchester predicts for FY2015 is on the same amount of revenue as FY2014, then the projected operating margin for Dorchester for FY2015 becomes:

$10.5m / ($67.4- $27.2)m = 26.1%

That is still significantly below the margins that Turners Auctions are getting right now. Perhaps it is Turners who will be teaching the finance lesson to Dorchester, and not the other way around?


The number of shares on issue in DPC is changing rapidly. The Business Bakery SSH announcement on 30th August 2013 indicates 480m shares were on issue then.

The projected FY2015 NPAT of $10.5m spread over 480m shares equates to eps of 2.2cps. At 22c that puts DPC on a projected PE of 10, still 18 months away. The PE for FY2014 (YE 31-03-2014) is around 16 (based on 6.5c eps)

Meanwhile my comparative share TUA is looking to earn near to 15cps for FY2013. At a share price of $1.95 that is a PE of 13. With TUA apparently having the better business model and being cheaper, I can't see any reason to swap over some of my 'overweight' position in TUA into DPC, while DPC is trading at 22c. Perhaps if the DPC price were to drop below 20c I might start to get interested.

SNOOPY

[biker]

All quiet at DPC, and has been for a while now. I see this as a potential growth Company with good medium term prospects.
Some good backers and management and I'm counting on some of the work no doubt going on in the background at the moment coming to fruition before Christmas or early next year. Speculation only on my part but with a projected PE of 10 for the 2015 year and deals to be done in the meantime I see upside potential.
The only cloud is a possible grab for more capital, but I would hope to see a few more runs on the board before that happens.

Disc. Hold quite a few so I'm biased, but buying more of these at 22c.

[biker]

A bit of depth building up on the bid side?

[zigzag]

A bit of depth building up on the bid side?

Their half-year should be out in a few weeks. Perhaps some interest building ahead of this.

[zigzag]

No such luck zigzag. Sitting on top of my dog kennel typing sounds much more entertaining. Of course if you want to write up your own story around Dorchester please share. Perhaps my summary is just a compostable version of 't-h-i-s' after all?

SNOOPY

Sorry Snoops, but I do not have the time, inclination or the ability to reply to your in depth forensic analysis. Maybe when I retire! But don't mind me. Keep up the good work.

[Sgt Pepper]

As a novice share investor with modest amount of investment cash I currently have 2500 DPC shares, and aspire to own more. I like DPCs prospects a lot and it appeals to my contrarian instincts. I am in awe of the intelligent analysis and practical advise on this site and log in most days. A friend of mine is a successful investor gave his sage advice to me
1.Never listen to Brokers, in his opinion they are a complete waste of time.(his description of brokers was somewhat more colourful and shall we say very direct)
2. Read lots and do you own analysis

Is a a share price of 50cents realistic?

[Under Surveillance]

Is a a share price of 50cents realistic?

Not this week!!
Could become so if/when they look likely to deliver on the forecast profit before tax for FY 2016 of over $20M as a result of combined generic and M&A growth [see Managing Director's address to 2013 AGM]? Provided, that is, they haven't issued more than the mooted 100M additional new shares in the meantime.

[GTM 3442]

As a novice share investor with modest amount of investment cash I currently have 2500 DPC shares, and aspire to own more. I like DPCs prospects a lot and it appeals to my contrarian instincts. I am in awe of the intelligent analysis and practical advise on this site and log in most days. A friend of mine is a successful investor gave his sage advice to me
1.Never listen to Brokers, in his opinion they are a complete waste of time.(his description of brokers was somewhat more colourful and shall we say very direct)
2. Read lots and do you own analysis

Is a a share price of 50cents realistic?


It has been instructive to follow the options, consolidations, acquisitions, placements, conversions, and so on in DPC over the past year or so. And to condiser the likelihood of future options, consolidations, acquisitions, placements, conversions, and so on over coming years.

Given enough time, 50c is certainly achievable. The question is when - how much time is more than enough ? I suspect that there are likely to be better uses for your money in that time.

Then again - five, or ten, or twenty thousand or so slung in a bottom drawer may prove rewarding one day.

[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?


Have been doing a bit of cross company reference in an attempt to answer my own question. On page 92 of the FY2013 Westpac annual report there is the following quote:

"Common Equity Tier 1 capital consists of paid-up share capital, retain profits and certain reserves less the deduction of certain intangible assets, capitalized expenses and software, and investments and retained earnings in insurance funds and management subsidiaries that are not consolidated for capital adequacy purposes."

I can see why reducing the book value of the common equity tier 1 capital is reduced for capital adequacy purposes. It is because all of those exceptions are not readily convertible to cash in the event of a financial shock. But in the case of of a growing DPC, this does present a dilemma.

If DPC accumulates goodwill by buying incrementally profitable finance businesses to increase their critical mass and profitability, this will surely be good for profits. But if the goodwill accumulated through those acquisitions had to be disregarded in any capital adequacy calculations, then suddenly the capital adequacy of DPC could be judged inadequate - at least on paper. Of course DPC would have the easy solution of selling off parts of the business that it had just bought and, assuming those business units profitability has been maintained, booking that goodwill as real cash. But such a reaction would reverse the profit gains as well!

Does anyone have an answer to what seems a potential regulatory dilemma here?

SNOOPY

[Snoopy]

They are not a bank so the capital adequacy rules don't apply.


Dorchester not a bank? Quite right Black Knat. Of course Tier 1 capital is a term that generally refers to banks, so I apologise for being sloppy with my technical phrasing.

Capital adequacy rules don't apply? Not true in the general sense as Non Bank Deposit Takers (NBDT) entities are still subject to capital adequacy rules.

However, I see Dorchester was granted an exemption in 2010.

----

Dorchester Receives Deposit Takers (Moratorium) Exemption
22 February 2010

The Reserve Bank of New Zealand has issued Dorchester Finance Ltd with a Deposit Takers (Moratorium) Exemption from the rating requirement of the NBDT regime.

Dorchester Finance Ltd has been exempted from the requirement to have a credit rating on the basis that it is currently in moratorium and does not accept any subscriptions from the public for debt securities.

-----

Nevertheless, it seems this exemption was revoked on 1st March 2013. So from where I sit my original question remains valid. Please correct me if I am wrong.

SNOOPY

[Under Surveillance]

From the RBNZ website:

A minimum capital ratio is required to be included in NBDTs’ trust deeds. This ratio must be at least 8 percent for NBDTs with a credit rating from an approved credit rating agency. For those without a credit rating from an approved rating agency, the minimum capital ratio specified in the trust deed must be at least 10 percent.

[Under Surveillance]

Here you go, Snoopy.

Ken Mathews of the RBNZ has advised me (very promptly, after an email enquiry) that:

Our understanding is that Dorchester Finance does not fall within the current definition of a non-bank deposit taker (set out in s157C of the RBNZ Act) as it does not offer debt securities to the public in New Zealand. Therefore, it is not regulated or supervised as a non-bank deposit taker.

[Snoopy]

Here you go, Snoopy.

Ken Mathews of the RBNZ has advised me (very promptly, after an email enquiry) that:

Our understanding is that Dorchester Finance does not fall within the current definition of a non-bank deposit taker (set out in s157C of the RBNZ Act) as it does not offer debt securities to the public in New Zealand. Therefore, it is not regulated or supervised as a non-bank deposit taker.

Appreciate your work on this U.S..

What threw me was the expiry date on the Reserve bank supervision. Prior to the moritorium, Dorchester had been taking deposits from the public. So I guess the legislation of the "Deposit Takers (Moratorium) Exemption" was drafted on the assumption that some time far into the future (as 2013 was in 2010), Dorchester would be taking money from the general public again. As long as they don't, then no need for Reserve bank supervision of Dorchester Finance.

I see from the November half year profit announcement that:

"DPL Insurance Limited (another branch of Dorchester) was assigned a rating of B+ (good) by rating Agency A.M. Best in July 2013. The business was issued a full insurance licence under the new insurance regulations administered by the Reserve Bank in August 2013."

I take it from that there must be some financial covenants on Dorchester, even if they do not relate directly to the finance division?

SNOOPY

[Under Surveillance]

I see from the November half year profit announcement that:

"DPL Insurance Limited (another branch of Dorchester) was assigned a rating of B+ (good) by rating Agency A.M. Best in July 2013. The business was issued a full insurance licence under the new insurance regulations administered by the Reserve Bank in August 2013."

I take it from that there must be some financial covenants on Dorchester, even if they do not relate directly to the finance division?

SNOOPY
As far as I can see, DPL and DPC (and perhaps other segments of DPC) are "associated person(s)" under the Insurance (Prudential Supervision) Act. There are a cartload of requirements for licensed insurers to submit information relating to associated persons to RBNZ as required, and associated persons must cough up necessary information to licensed insurers to pass to RBNZ. I've no idea what pressure that might place through DPL on the rest of DPC to be financially circumspect.
From memory the director of DPC from the DPL side is paid more than the remaining directors (other than the Chairman). What burden that reflects I won't guess at.

[Snoopy]

The number of shares on issue in DPC is changing rapidly. The Business Bakery SSH announcement on 30th August 2013 indicates 480m shares were on issue then.

The projected FY2015 NPAT of $10.5m spread over 480m shares equates to eps of 2.2cps. At 22c that puts DPC on a projected PE of 10, still 18 months away. The PE for FY2014 (YE 31-03-2014) is around 16 (based on 6.5c eps)

Meanwhile my comparative share TUA is looking to earn near to 15cps for FY2013. At a share price of $1.95 that is a PE of 13. With TUA apparently having the better business model and being cheaper, I can't see any reason to swap over some of my 'overweight' position in TUA into DPC, while DPC is trading at 22c. Perhaps if the DPC price were to drop below 20c I might start to get interested.


I wrote the above on 28th September 2013. At the most recent market close the TUA share price last traded at $2.44, up 25%. The last trade price for DPC remains at 22c. So Mr Market has picked up on the relative mispricing of the two shares that existed back then.

Taking the comparison a bit further, I now want to look at the operating profit level. On the TUA thread I recently posted this:

--------

The return on assets to including the long term financial receivables as well as the current financial receivables (for the period 01-01-2013 to 30-06-2013) was.

($0.907m-$0.409m)x2 / $22.145m = 4.5%

I have removed the insurance commission from the finance division operating profit, and introduced a factor of 2 to 'annualise the return', reflecting the fact that these finance division operating profits were earned over six months.

(Over this six month period the loan book grew 4.2%, and all lending relates to motor vehicles)

-------

If I do the equivalent calculation for Dorchester based on the six month period 31-03-2013 to 30-09-2013 with new lending by Dorchester 70% on motor vehicles I get:

($1.397m x2) / $34.391m = 8.1%

(Over this six month period the loan book grew from $28.747m to $34.098m, up 18.6%)

This shows that if you remove the capital structure costs away and compare the underlying earning capacity of the vehicle finance business, Dorchester is approximately twice as good as generating EBIT returns as TUA is!

One reason for this could be that the loan book for DPC has a 50% higher value than the loan book for TUA. The more loans you can generate through an established cost base should result in more profit per employee.

OTOH, TUA has no term debt, whereas DPC has a debt ratio of 43% as at 30-09-2013.

SNOOPY

[Snow Leopard]

....This shows that if you remove the capital structure costs away and compare the underlying earning capacity of the vehicle finance business, Dorchester is approximately twice as good as generating EBIT returns as TUA is!...

The figure you calculate for TUA is basically net profit before tax, but after everything else (interest, admin overheads, tea & biscuits, etc) as been accounted for.

The figure for DPC is before interest, tea & biscuits etc (look at the Corporate & Other column to see how much is consumed). [Update: actually looks like biccies are included but interest is not, maybe, it is hard to tell].

So you are not actually comparing tim-tams with anzacs.

Best Wishes
Paper Tiger

[Snoopy]

The figure you calculate for TUA is basically net profit before tax, but after everything else (interest, admin overheads, tea & biscuits, etc) as been accounted for.

The figure for DPC is before interest, tea & biscuits etc (look at the Corporate & Other column to see how much is consumed). [Update: actually looks like biccies are included but interest is not, maybe, it is hard to tell].

So you are not actually comparing tim-tams with anzacs.


'Operating Profit' I regard as synonymous with 'Earnings Before Interest and Tax' (EBIT). However, as PT points out, not all companies see it this way.

So consistent with the philosophy of 'equal biscuits for all' I will have to add the interest charge back onto the TUA 'operating profit'. I shall assume that the interest paid bill related to the finance division is shared in proportion to the segment revenue of all three operational divisions. The calculation to get the apportionment of the TUA interest bill is like this:

$2.580m /($2.580m+$19.961m+$21.191m) =5.9%

I also add back a proportional share of the income tax paid to complete the calculation for an annualised Turners finance division EBIT.

[($0.907m-$0.490m)+0.059x$0.904m+(907/2992)($1.006m)]x2
=[ $0.417m + $0.053m + $0.305m ] x2
= $1.551m

This gives an annualised 'Operating Margin' for TUA finance on an end of year loan book of $22.415m of:

$1.551m / $22.415m = 6.9%

Returning to Dorchester, as PT points out some interest expense has already been deducted from the operating result. But almost all of the company interest bill has been shuffled off to corporate and other. For comparative purposes, I believe it is better to distribute this 'corporate' interest bill among the operational divisions according to revenue. This means the percentage allocation of corporate interest to the DPC finance division is calculated as follows:

$3.167m/($3.167m + $3.237m + $9.121m)= 20.4%

Consequently the annualized 'operating margin' (EBIT) for the largely vehicle finance division of DPC is

([$1.397m+$0.089m+0.204x$2.997m]x2) / $34.391m
= 12.2%

Result: DPC still comes out on top

SNOOPY

[Snoopy]

'Operating Profit' I regard as synonymous with 'Earnings Before Interest and Tax' (EBIT).

<snip>

This gives an annualised 'Operating Margin' for TUA finance on an end of year loan book of $22.415m of:

$0.856m / $22.415m = 3.8%

<snip>

The annualized 'operating margin' (EBIT) for the largely vehicle finance division of DPC is

([$1.397m+$0.089m+0.204x$2.997m]x2) / $34.391m
= 12.2%

Result: DPC still comes out on top


Postscript Thought: DPC Finance having an operating margin higher than TUA Finance does make sense. DPC need a higher margin to pay the interest on their substantial term debt. By contrast TUA Finance is only an add on, a support arm to the core auction business. If TUA can obtain higher auction prices by dint of having a finance arm to support the auction buyer, it must be good for the TUA business overall.

SNOOPY

[Snoopy]

'Operating Profit' I regard as synonymous with 'Earnings Before Interest and Tax' (EBIT).

<snip>

This gives an annualised 'Operating Margin' for TUA finance on an end of year loan book of $22.415m of:

$0.856m / $22.415m = 3.8%

<snip>

The annualized 'operating margin' (EBIT) for the largely vehicle finance division of DPC is

([$1.397m+$0.089m+0.204x$2.997m]x2) / $34.391m
= 12.2%

Result: DPC still comes out on top


Postscript Thought: DPC Finance having an operating margin higher than TUA Finance does make sense. DPC need a higher margin to pay the interest on their substantial term debt. By contrast TUA Finance is only an add on, a support arm to the core auction business. If TUA can obtain higher auction prices by dint of having a finance arm to support the auction buyer, it must be good for the TUA business overall, even if the finance business, segmented on its own, is not that profitable.

SNOOPY

[Snoopy]

As at 30th September 2013, Dorchester owned 5,432,088 shares in Turner's Auctions. In the 30th September 2013 DPC half year accounts , among the assets listed is an 'equity accounted investment' valued at $9.679m. This represents the shares held in Turners Auctions by DPC. Do the division and you will see those shares are valued on the books at:

$9.679m / 5.432m = $1.78 per share.

The majority of this stake was acquired from Milford Asset Management at $1.82. Since that time Dorchester have acquired more shares on market, which is why the average book price is now lower.

There are 493,971,377 Dorchester Pacific shares now on issue. If the TUA share price were to increase by 45c this would create an additional.

5.432m x 0.45 = $2.444m in wealth for DPC shareholders.

Spread over the number of DPC shares on issue, this will increase net DPC asset backing by:

$2.444m / 493.971m = 0.5cps

Of course this has already happened, because with TUA last trading at $2.40, the increase in share price has been book value has been 62cps. This means NTA of DPC has increased by 0.7cps since the 30th September balance date.

None of this is really enough to affect the fortunes of DPC going forwards IMO, even if it is nice to have a bit more 'capital in the bank' than you think.

SNOOPY

[Valuegrowth]

During last couple of years some finance companies went into receiver ships due to global financial crisis. Still DPC is continuing their business. How do you think about financial companies as a general in New Zealand? In the fast I had some shares of Dominion Finance bought them on the basis of broker research. When it went into receiverships I had few shares.

I don’t blame anybody because in the investment world there are risks and returns. Beside it we cannot win all the times. Moreover in some period some industries can struggle due to some types of crisis globally.

[Snoopy]

During last couple of years some finance companies went into receiver ships due to global financial crisis. Still DPC is continuing their business. How do you think about financial companies as a general in New Zealand?


I think there will always be a need for finance companies in New Zealand. But I also believe, as investors, we should be extra careful with due diligence before we buy shares in finance companies. DPC is only in business because a group of new investors got behind the company with an offer for more capital. And because existing shareholders and deposit holders agreed on a moratorium while the existing business was sorted out. DPC came very close to not being in business in sympathy with the majority of finance companies that collapsed.

Going forwards we have a new DPC, better capitalized and better focused.



In the past I had some shares of Dominion Finance bought them on the basis of broker research. When it went into receivership I had few shares.

I don’t blame anybody because in the investment world there are risks and returns. Beside it we cannot win all the time. Moreover in some period some industries can struggle due to some types of crisis globally.


Sorry to hear about your Dominion Finance loss. But if it helps you understand the potential weaknesses in finance companies you may have learned a worthwhile if costly lesson.

DPC has a very high return on its asset base. But it probably needs it. Motor vehicles depreciate. Repossessing a car does not mean a finance company will get their money back on that car if it is resold. Repossessing a house you are much more likely to get your loan capital back, even though in general the profit margins are not as great.

SNOOPY

[Valuegrowth]

Thank you snoopy. I really appreciate. As I said before we cannot win all the times due to so many factors. I consider loss making as part of my investment process. Actually I am ready to make some looses now if I find great investment opportunities depend on the situation. Because not only we can recover our losses but also we can outperform the market. However after years of experience I have my own successful strategy to pick winning stocks now. I believe New Zealand market could have long term investment opportunities especially during next two decades. Kind regards MW.

[percy]

During last couple of years some finance companies went into receiver ships due to global financial crisis. Still DPC is continuing their business. How do you think about financial companies as a general in New Zealand? In the fast I had some shares of Dominion Finance bought them on the basis of broker research. When it went into receiverships I had few shares.

I don’t blame anybody because in the investment world there are risks and returns. Beside it we cannot win all the times. Moreover in some period some industries can struggle due to some types of crisis globally.

I was very lucky to make very good money with Dominion Finance shares.The prospectus was excellent.Years of solid growth.
Ended up it was all lies.I was lucky to sell as I needed the money to help a friend out,at the time.
Today there are more regulations, maybe a lot safer,however it pays to be careful.

[Valuegrowth]

I was very lucky to make very good money with Dominion Finance shares.The prospectus was excellent.Years of solid growth.
Ended up it was all lies.I was lucky to sell as I needed the money to help a friend out,at the time.
Today there are more regulations, maybe a lot safer,however it pays to be careful.

I had some Domino Finance Debentures as well. Originally my broker gave some idea about Provincial finance debentures. I compared it with Dominion Finance and finally bought DF Debentures. Fortunately I sold them to travel aboard. I knew Dominion Finance was last to go in that finance crisis. If I am correct some property developers also partly responsible for the crisis specially by developing property in Queens town. I have another perspective for this type of global crisis. We cannot blame anybody. Still we haven’t found once and for all solutions to the global financial system. This time thanks to bailouts some banks survived from the crisis. There could be different types of crisis such as currency crisis, property crisis and other crisis time to time globally at different times. Thanks.

[percy]

Greed drives the crooks.
Fraud and lies and greed catches out investors.
You can not change human nature.
The fraudsters just get cleverer and more cunning.
Most investors take people at their word,or face value.
I believe the safest way is to manage your own affairs/investments.Watch and listen to what others are doing,but do your own thing.
If I can't fully understand some company or investment I stay away from it.
With shares I try to sell on the first bit of bad news,or the company does something I don't like or understand.

[biker]

Depth building up a little more than has recently been the case? (but then I did post the same thing at the end of October)

Waiting patiently for a break out from current levels. ( hopefully upwards! )

Disc. hold quite a few so I'm biased

[biker]

Some interest here for the first time in a while on the back of the TUR result - of which DPC owns 19.5%.

Yes, this is great but they are going to have to show they are performing in their own right for the share price to get a really significant lift.
Interesting to see the TUA result, indicating that by selling TUA at 1.82 Milford don't always get it right. Hope they have some DPC. Also a nice indication that DPC have some foresight.
Waiting patiently for some good DPC progress

Disc. hold quite a few so Im biased

[couta1]

Out of the 5 finance companies I lost money in,in 2008 Dorchester has been the only one where I have received all my money back,I sold my shares a while back but retain the property trust units,get good cheap accommodation at the Goldridge in QTown during the ski season,these guys have so much more integrity than the directors of Hanover and strategic finance ever had

[blackcap]

Out of the 5 finance companies I lost money in,in 2008 Dorchester has been the only one where I have received all my money back,I sold my shares a while back but retain the property trust units,get good cheap accommodation at the Goldridge in QTown during the ski season,these guys have so much more integrity than the directors of Hanover and strategic finance ever had

Be careful with your statements Couta :), I think you will find you have received about 80 cents in the $ back, that over about 4 years with no interest. That said, DPC have done a lot better than others and I for one think that Paul Byrnes after having met him on a couple of occasions is the right person to take them into their next phase.
BTW, what was the Goldridge in Queenstown like? I see it has recently been re-rated to a 3 1/2 star rating but some anecdotal stories would be nice.

[Snoopy]

Some interest here for the first time in a while on the back of the TUR result - of which DPC owns 19.5%.


Actually the TUA result, for TUR (Turners and Growers) is an entirely different company now with no connection, other than the name, to TUA (Turners Auctions) . Don't forget though that if the TUA share price rises by 90c to $2.72 from the $1.82 acquisition price paid by DPC, this still only raises the net asset backing of DPC by a single cent. A legacy of the huge number of DPC shares now on issue!

SNOOPY

[Snoopy]

TUR is a typo.


I suspected that might be the case black knat. Not wishing to be too niggly. But in this instance I thought it was worth pointing out because others might not realize it. Even on the radio business news at midday they mentioned that "Turners" was up 22c as at lunch time. I wondered to myself which one? Usually typos and slips of the tongue are of little consequence as you can guess from the context what is meant. This isn't so in the case of "Turners", as of course TUA and TUR were related once.

SNOOPY

[couta1]

Be careful with your statements Couta :), I think you will find you have received about 80 cents in the $ back, that over about 4 years with no interest. That said, DPC have done a lot betterIthan others and I for one think that Paul Byrnes after having met him on a couple of occasions is the right person to take them into their next phase.
BTW, what was the Goldridge in Queenstown like? I see it has recently been re-rated to a 3 1/2 star rating but some anecdotal stories would be nice.
Hi blackcap,I wasnt thinking of the interest side of things and included the profit from converting my options to shares and selling the shares for a profit,Strategic was the top ranked out of the 5 companies i held and has been a disaster in terms of money returned.The Goldridge is great,Penny runs a good ship down their and she is also a Dorchester director,we found the staff excellent,the food very good,the room comfortable and the location great being about 3k from town centre with the bus a minutes walk away and ski bus right there for pick up and drop off,they also have a free shuttle into town and back twice a day,we stayed there for 2 weeks last year at an excellent rate,would reccomend it.

[biker]

I like the look of this. Nothing spectacular just steady add-on growth and more to come no doubt.
I'm liking their style.
I'm picking that at some stage the market will respond to this company's performance and potential.

Disc. Hold quite a few so Im biased.

ASSET: DPC: Dorchester Acquires Oxford Finance and Forecast Profit Lift

DPC
17/03/2014 09:36
ASSET

REL: 0936 HRS Dorchester Pacific Limited

ASSET: DPC: Dorchester Acquires Oxford Finance and Forecast Profit Lift

17 March 2014
Company Announcement

DORCHESTER ACQUIRES OXFORD FINANCE
Forecasts Profit Lift

Dorchester Pacific Limited (DPC) today announced it has entered into an
unconditional agreement to purchase Levin based Oxford Finance Limited on
1 April 2014.

Oxford Finance was established in 1987 and acquired by lines company Electra
Limited in 2003. Electra has driven strong revenue and profit growth in the
business with the value of the loan book now over $50 million. Oxford
Finance loans are originated through a mix of channels, including motor
vehicle dealers, finance brokers, strategic partnerships with a number of
smaller finance companies and direct lending. Over 75% of loans are motor
vehicle financing. The business has a strong presence in the Wellington,
Wairarapa, Taranaki, Hawkes Bay, Waikato and Bay of Plenty areas.

Dorchester CEO and Executive Director, Paul Byrnes, said the acquisition was
an excellent fit in all respects with loan type, average interest rate, term
and loan portfolio metrics all in line with the receivables book Dorchester
Finance is building. The geographical concentration of Oxford Finance's
customer base ideally complements the strength of Dorchester Finance in the
Auckland and Hamilton regions.

"The acquisition will boost the value of our total loan book to close to $90
million and there remains good growth potential for both Dorchester Finance
and Oxford Finance. Oxford Finance is well established with a diversified
and loyal customer base, an experienced management team and a strong
operational platform. We will continue to operate the business under the
Oxford brand.

We expect Oxford Finance to contribute $3 million of earnings before interest
and tax in the first year to 31 March 2015. Additional synergies will arise
for Dorchester in areas such as insurance, IT and compliance costs although
we have not factored these in to our acquisition pricing or forecast returns.

The final purchase price will be between $11.3 million and $12.3 million
depending on earnings of the business for the 12 months to 31 March 2015.
The consideration for the acquisition will be paid in cash which will be
funded from retained earnings and the proceeds of last year's capital
raising.

Earnings from this acquisition and our investment in Turners Auctions will
add to the improved trading performance of Dorchester's existing finance,
insurance and debt recovery businesses that has already been signalled. We
are now forecasting the Dorchester group net profit before tax at $10 million
- $11 million for the next financial year to 31 March 2015 with this
increasing to $14 million - $15 million for the financial year to 31 March
2016."

Dorchester Chairman, Grant Baker, said the acquisition of Oxford Finance met
all Dorchester's merger and acquisition criteria.
"It aligns with our strategic plan for growth we have previously communicated
to the market, it has scale to boost group earnings quite significantly and
there is a low integration risk. We have acquired the business on a similar
earnings multiple to our EC Credit acquisition and we are very comfortable
with the value proposition.

We are continuing to evaluate further consolidation, merger and acquisition
opportunities."

ENDS

[noodles]

With the effect of the 20m tax losses available
Their last interim has a deferred tax asset of $3.3mill. Where does the 20m come from?

[noodles]

Hang on noodles... have you deleted your post on EPS and PE? I was just about to have a proper look at that.

Sorry. I deleted because it made an assumption of $3.4mill tax credits. I accept I was wrong in that assumption. I am still concerned that the recent capital raising would have reduced the tax credit balance. However, I'm not sure on this. Do you know?

[zigzag]

Just as a matter of interest, but have you guys actually figured out the number of shares out there, on a diluted basis. The figure I am seeing is 480million, which seems like an awful lot, if you'll pardon the expression. I have a small holding in DPC, and am generally positive about its outlook.

[biker]

Just as a matter of interest, but have you guys actually figured out the number of shares out there, on a diluted basis. The figure I am seeing is 480million, which seems like an awful lot, if you'll pardon the expression. I have a small holding in DPC, and am generally positive about its outlook.

It's not something you 'figure out', it's a public fact and 493,970,000 is I believe, the correct number. If shareholders aren't aware of something as basic as shares on issue, they should be investing somewhere else.

[biker]

Anyone see tv3 news tonight? Alex Hayde from ASB securities announced "DPC has today announced a new acquisition of Turners Auctions". WTF??
Visions of Anchor Man following the auto cue. Is this guy an employee or just a stooge for the camera.
What a joke. A plague on both their houses.

[Under Surveillance]

Anyone see tv3 news tonight? Alex Hayde from ASB securities announced "DPC has today announced a new acquisition of Turners Auctions". WTF??
Visions of Anchor Man following the auto cue. Is this guy an employee or just a stooge for the camera.
What a joke. A plague on both their houses.The ASB securities people offer the very best of unintentional comedy night after night. Don't knock them too much, please, they're gems one and all.

[noodles]

No I don't know. If that was the case it would make the May 2013 announcement quite misleading.

My my main reason for liking this company is they are quietly going about their business executing on their growth strategy, doing what they say they are going to do.

I think the off-balance sheet tax losses are still there after the capital raising and option take up.

See attached youtube preso at the 4 min mark
http://www.youtube.com/watch?v=P5AqhUUo_mY&list=PL5yfunAcL8mDi_85FUc6FhnvLXUz1ZZsS

[Snow Leopard]

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

[blackcap]

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

Hi there Paper Tiger,
I have been somewhat skeptical and scathing of this company in the past but with their latest acquisition on a very good PE, I am coming around to having a look and dipping my toe in the water. It seems that Paul Byrnes et al are doing exactly as they stated they would do and adding shareholder wealth. THere are a lot of shares on issue and existing shareholders have been diluted but now it seems this has been countered by a huge explosion in profits or projected profits.
I would like to know what metrics you use for your valuation of the company. Ie what discounting factor you use and I disagree slightly with your 6% growth p.a following 2016 as I believe merger and acquisition activity and general organic growth will be greater than this. So I think at 25 cents that this company may be a good prospect. Acquiring.

[noodles]

as per forecasts with basically no tax paid as past losses are used up.
Hi PT,
The tax losses are somewhere between 17-20million. Most of these are off balance sheet. I don't know why they are off balance sheet. In a recent presentation, Paul Bryners, reiterated that these losses still existed and would be utilised. http://www.youtube.com/watch?v=P5AqhUUo_mY&list=PL5yfunAcL8mDi_85FUc6FhnvLXUz1ZZsS
So I don't think they will be utilised by 2017. EDIT: This is wrong. See PT comment below

p.6,7 of the AGM make interesting reading
http://www.dorchester.co.nz/Modules/LSDocumentManager/DocumentDownload.aspx?DocumentId=159

It targets NPBT of $20mill. This assumes 2 new business streams, organic growth, and acquisitions. They indicate that they can reach this target using current equity plus the issue of 100mill shares. Obviously there is a lot of execution risk in reaching these targets. At least they have a vision and a target. A lot of companies these days are focused on cutting costs. DPC are focused on building scale in their business.

If this target can be reached, it would significant increase your valuation as FY2017 NPAT would exceed $14.4mill. I actually think it will be higher as there will still be tax credits.

I really value your analysis on this because it highlights that the current share price does not excessively exceed what I consider your conservative valuation.

Thanks for performing some analysis.

noodles

[Snow Leopard]

...I would like to know what metrics you use for your valuation of the company. Ie what discounting factor you use and I disagree slightly with your 6% growth p.a following 2016 as I believe merger and acquisition activity and general organic growth will be greater than this. So I think at 25 cents that this company may be a good prospect. Acquiring.

I am not actually prepared to reveal the details of how I arrive at my valuations, but it tends to give more conservative results than others and I find it more useful for the way I go about making and losing money on shares.

I am happy to stick to 6% pa it looks forward about a decade from now and I think realistically reflects the likely ups and downs.

You, of course may be right.

Best Wishes
Paper Tiger

[Snow Leopard]

Hi PT,
The tax losses are somewhere between 17-20million. Most of these are off balance sheet. I don't know why they are off balance sheet. In a recent presentation, Paul Bryners, reiterated that these losses still existed and would be utilised. http://www.youtube.com/watch?v=P5AqhUUo_mY&list=PL5yfunAcL8mDi_85FUc6FhnvLXUz1ZZsS
So I don't think they will be utilised by 2017.

p.6,7 of the AGM make interesting reading
http://www.dorchester.co.nz/Modules/LSDocumentManager/DocumentDownload.aspx?DocumentId=159

It targets NPBT of $20mill. This assumes 2 new business streams, organic growth, and acquisitions. They indicate that they can reach this target using current equity plus the issue of 100mill shares. Obviously there is a lot of execution risk in reaching these targets. At least they have a vision and a target. A lot of companies these days are focused on cutting costs. DPC are focused on building scale in their business.

If this target can be reached, it would significant increase your valuation as FY2017 NPAT would exceed $14.4mill. I actually think it will be higher as there will still be tax credits.

I really value your analysis on this because it highlights that the current share price does not excessively exceed what I consider your conservative valuation.

Thanks for performing some analysis.

noodles

One of the few downsides of living here is that broadband internet is not very broad and I have not looked at the video. I have read the AGM doc though.

But I am 99% confident that the $17-20M is the amount of losses that can be offset against future profits before taxation (note 18 of the FY2013 report supports this view). So the actual benefit would be say $20M * 28% = $5M6.
This would mean that during 2016 they would start paying tax and reduce the 2016 profit figure.

The thing with tax losses as an asset is that they are only an asset if you can use them, so when DPC was in deep trouble the accountants would have written them off. Now that there are profits you can write them back more or less as you can use them.

If we factor in the modified tax above and NPBT of $20M with 100M new shares (we will assume in FY2017) and then leave the growth thereafter the same then we can have

Edit: This is wrong:
Value at 31-Mar-2014: $0.274
Value at 31-Mar-2015: $0.296

Which I guess would make a few people happier.

This is correct - the 100m extra shares did not get into the works:
Value at 31-Mar-2014: $0.234
Value at 31-Mar-2015: $0.248

And I guess not so many people are happy - So Sorry.

Best Wishes
Paper Tiger

[Sgt Pepper]

As a holder of DP shares is any prospect of 30cps simply unobtainable in your opinion? I value your insight and analysis.

[Snow Leopard]

As a holder of DP shares is any prospect of 30cps simply unobtainable in your opinion? I value your insight and analysis.

You should take my valuations with a pinch of salt, Pepper :rolleyes:. I am not sure that they really cut the mustard :blink:, some seem to believe that they are as sour as vinegar :t_down:.


Well I have just taken the available information and management projections as far as they go and then made a simple assumption beyond that and done my calculation.

Once the company starts to achieve the profits it is forecasting it will be reasonably efficient, so then it get more difficult to expand earnings per share without over-extending itself.

So that is what I see as the value of the company - the actual price it attains is another matter.

If I currently owned shares in this company (which I do not) I would not be selling them, and if it were to rise to $0.30, well I don't sell shares that are going up, no matter what I feel the value is.

For comparison purposes only, as you may know I own HNZ, if I do the same value calculation for HNZ then:

HNZ value at 31-Mar-14: $1.092
HNZ value at 31-Mar-14: $1.161

This currently trades at $0.88, so as you see no-one takes my valuations seriously :mellow:.


There is a prize for the first person to tie the title to the contents: a free trip down memory lane.

Best Wishes
Paper Tiger

[Snoopy]

It's not something you 'figure out', it's a public fact and 493,970,000 is I believe, the correct number. If shareholders aren't aware of something as basic as shares on issue, they should be investing somewhere else.

Here is an excerpt from the May 2013 press release, talking about the increase in shareholder capital over 2013:

"As a result of these transactions, shareholders' funds of approximately $29 million at 31 March 2013 would increase by $21 million to $50 million following the exercise of the options and the share placement, and would further increase to $61 million on conversion of the Optional Convertible Notes to ordinary shares in July 2013."


Total number of shares on issue before the 2013 capital injections were 208,263,598

Substantial shareholder changes notified as part of the capital raising process were as follows:

Notified 7th June 2013:
"On 7 June 2013, Harrigens Trustees Limited qualified its beneficial ownership of 6,121,801 shares by its agreement to sell those shares to institutional shareholders arranged by Craigs Investment Partners at 25 cents each for settlement on 18 June 2013". (On 18 June 2013, Harrigens Trustees Limited settled the sale of 6,121,801 shares to institutional shareholders arranged by Craigs Investment Partners
at $0.25 each, as earlier notified on 7 June 2013.)

Notified 7th June 2013:
"The Business Bakery L.P.'s percentage shareholding in Dorchester Pacific Limited has been diluted by allotments made on 12 November 2012 on the settlement of the acquisition of EC Credit Control Limited.
On 7 June 2013, the Business Bakery qualified its beneficial ownership of 12.5 million shares by its agreement to sell those shares to institutional shareholders arranged by Craigs Investment Partners at 25 cents each for settlement on 18 June 2013. The Business Bakery LP has also exercised all 40 million share options due for settlement on 17 June 2013."

Notified 18th June 2013.
On 17 June 2013 John Jeffers Harrison was issued 875,000 shares on exercise of options held in Dorchester at an exercise price of $0.125 each.Dorchester also issued additional shares to other persons that exercised share options, which has diluted his holding (John Jeffers Harrison has not sold any shares - total number held in class now 15,000,000).

Notified 18th June 2013

"On 17 June 2013 Hugh Green Investments Limited was issued 40,000,000 shares on exercise of options held in Dorchester at an exercise price of $0.125 each. Dorchester also issued additional shares to other persons that exercised share options. Hugh Green Investments Limited's percentage shareholding in Dorchester Pacific Limited has been diluted by allotments made on 12 November 2012 on the settlement of the acquisition of EC Credit Control Limited (Hugh Green Investments Limited has not sold any shares)."

Notified 30th August 2013.

"On 30 August 2013, Paul Anthony Byrnes was issued 20,000,000 ordinary shares in Dorchester Pacific Limited (DPC) following the early conversion of 20,000,000 optional convertible notes (OCNs) that were
held by Mr Byrnes. The OCNs were issued to Mr Byrnes between December 2011 and September 2012 at an issue price of $0.10 per OCN."

Notified 30th August:
"On 30 August 2013, Hugh Green Investments Limited was issued 40,000,000 ordinary shares in Dorchester Pacific Limited (DPC) following the early conversion of 40,000,000 optional convertible notes (OCNs) that were held by Hugh Green Investments Limited. The OCNs were issued to Hugh Green Investments Limited between December 2011 and September 2012 at an issue price of $0.10 per OCN."

Notified 30th August:
"On 30 August 2013, The Business Bakery L.P. was issued 10,000,000 ordinary shares in Dorchester Pacific Limited (DPC) following the early conversion of 10,000,000 optional convertible notes (OCNs) that were held by The Business Bakery L.P. The OCNs were issued to The Business Bakery L.P. between December
2011 and September 2012 at an issue price of $0.10 per OCN."

The above quotes covers the issue of 110,875,000 new shares since May 2013. The rest of the new shares, nearly another 200m, must have been issued to shareholders who did not break the 5% disclosure threshold as a result of acquiring new shares. My point is, with so many new shares issued there must come a point where those tax credits on the books are no longer available due to a significant change in the controlling shareholders.

More than 50% of the shares on issue now are new in comparison with the comparable period last year. But the tax credits should remain accessible, as long as 50% of the total capital has not gone to all new shareholders. I am not sure there is enough information in the public to know how many more shares are allowed to change hands before those off the books tax credits that DPC may have access to are forfeited.

SNOOPY

[blackcap]

Snoopy, I think you will find most of those shares went to Baker Boys, Hugh Green Investments, and Paul Byrnes so as not to disrupt the continuity requirements too much.

[percy]

493,971,377 shares on issue,at 24.5cents gives a market cap of $121,022,987.
EPS 1.4 cents.PE 17.5 ,NTA 7.98cents .Not paying a dividend [or tax].
Paying over three times NTA for a finance company not paying a dividend [or tax] ,seems a lot to me!
You do not have the added safety of them being registered as a bank either.

[blackcap]

493,971,377 shares on issue,at 24.5cents gives a market cap of $121,022,987.
EPS 1.4 cents.PE 17.5 ,NTA 7.98cents .Not paying a dividend [or tax].
Paying over three times NTA for a finance company not paying a dividend [or tax] ,seems a lot to me!
You do not have the added safety of them being registered as a bank either.

Percy, that EPS is old news. Their new acquisition is going to add $3m to the bottom line and thus the projected profits in 2015 and 2016 are 10-11m and 14-15m respectively which gives a EPS of 2-2.2 cps in 2015 and 2.8-3 cps in 2016 which is a PE of 8.75 which to me is very adequate with further merger and acquisition activity possible.

[percy]

Percy, that EPS is old news. Their new acquisition is going to add $3m to the bottom line and thus the projected profits in 2015 and 2016 are 10-11m and 14-15m respectively which gives a EPS of 2-2.2 cps in 2015 and 2.8-3 cps in 2016 which is a PE of 8.75 which to me is very adequate with further merger and acquisition activity possible.

Thanks Blackcap.Very modest PE.
Is the NTA old news too?
The profit projections seem to mean to me the $39.5mil of assets are being worked very hard.
Your 3 cents per share is a profit of $14.8 mil. 37% return on assets ??
That's Incredible!

[blackcap]

Thanks Blackcap.Very modest PE.
Is the NTA old news too?

I have no idea about their NTA at present Percy. All I know is that to date they have done what they have promised since the restructuring in 2010 and till now have not disappointed. They go about their business quietly as another member has alluded and I have met Paul Byrnes on a few occasions and think he is the right man for the job going forward.

[percy]

I have no idea about their NTA at present Percy. All I know is that to date they have done what they have promised since the restructuring in 2010 and till now have not disappointed. They go about their business quietly as another member has alluded and I have met Paul Byrnes on a few occasions and think he is the right man for the job going forward.

Cetainly seem to be on track.
Just each time I have looked at them I am left wondering!??
Looking a little deeper,I am still left wondering. I do a lot of wondering!!! lol.

[noodles]

Thanks Blackcap.Very modest PE.
Is the NTA old news too?
The profit projections seem to mean to me the $39.5mil of assets are being worked very hard.
Your 3 cents per share is a profit of $14.8 mil. 37% return on assets ??
That's Incredible!

Percy,

Great to see you joining the conversation.

You will see that intangible assets increased significantly on the purchase of EC credit. In fact the net tangible assets of EC credit is around $1mill. Yet in the last six months they managed to make NPBT $2.358mill. So this type of business does not require an assets base to make a decent profit. EC Credit currently make up over half the NPBT for DPC.

In addition, you will need to add 2 years of profits($25mil+) to the NTA position (assuming no divi) for the FY16 return on assets.

So I don't think 37% return on assets will be accurate. It will be much lower. Also, I think you should only use this metric for the finance portion of the business. DPC are so much more than finance:)

cheers,
noodles

[blackcap]

The profit projections seem to mean to me the $39.5mil of assets are being worked very hard.
Your 3 cents per share is a profit of $14.8 mil. 37% return on assets ??
That's Incredible!

I do not have a problem with that at all. Many companies work on a low NTA but still manage great profits.

[percy]

Percy,

Great to see you joining the conversation.

You will see that intangible assets increased significantly on the purchase of EC credit. In fact the net tangible assets of EC credit is around $1mill. Yet in the last six months they managed to make NPBT $2.358mill. So this type of business does not require an assets base to make a decent profit. EC Credit currently make up over half the NPBT for DPC.

In addition, you will need to add 2 years of profits($25mil+) to the NTA position (assuming no divi) for the FY16 return on assets.

So I don't think 37% return on assets will be accurate. It will be much lower. Also, I think you should only use this metric for the finance portion of the business. DPC are so much more than finance:)

cheers,
noodles
I am further in the dark.
We are talking about a finance company who borrows money from depositors and lends it out to borrowers,and the difference between the borrowing and lending is their margin?
Love to know how DPC can earn a margin on intangibles?
If they are a finance company then the return on assets and quality of assets is most important.Therefore the NTA and the incredible 37% return on them [$39.5mil ] giving projected profit of $14.8mil stills leaves me wondering.
Noodles.Earning $2.358mil NPBT in six months on $1mil of net tangible assets,leaves me at a total lost???

[noodles]

I am further in the dark.
We are talking about a finance company who borrows money from depositors and lends it out to borrowers,and the difference between the borrowing and lending is their margin?
Love to know how DPC can earn a margin on intangibles?
If they are a finance company then the return on assets and quality of assets is most important.Therefore the NTA and the incredible 37% return on them [$39.5mil ] giving projected profit of $14.8mil stills leaves me wondering.
Noodles.Earning $2.358mil NPBT in six months on $1mil of net tangible assets,leaves me at a total lost???
Percy,

EC Credit is a debt collector. They do not buy debt from the banks (unlike Collection house). Instead they receive a fee from the bank for successful collection.

Thus, their main asset to earn that profit is the relationship with banks, systems and processes, and people. A lot of this is intangible.

Hope that clears it up.

noodles

[percy]

Percy,

EC Credit is a debt collector. They do not buy debt from the banks (unlike Collection house). Instead they receive a fee from the bank for successful collection.

Thus, their main asset to earn that profit is the relationship with banks, systems and processes, and people. A lot of this is intangible.

Hope that clears it up.

noodles

Certainly does thank you.
I wonder whether "Henry The Heavy" is classified as an asset or an impregnable?
Whatever,he/it is very successful and profitable.
Do they show photos of their "collection team" on DPC website? lol.

[noodles]

What really bothers me about DPC is the FY16 profit forecast.
Lets sumarise the forecasts
FY14 $6mill - They seem to be on target if you exclude one-off interest payment
FY15 $10-11mill - This seems reasonable with the Oxford acquisition and organic growth
FY16 $14-15mill. A 40% increase in profit. Wow. i just don't understand where this is coming from. They have flagged new business streams. Perhaps it is from them? Some organic growth. Previously they said insurance and finance can grow at 30% pa. Another acquisition? Perhaps? But they have previously excluded acquisitions from forecasts (apart from the $20mil forecast from AGM). Maybe(like me), they think TUA can double their NPAT by FY16:)

I just wish they could be more specific on the breakdown.

They have been very aggressive with their forecasts. So far they have not disappointed.

Any thoughts?

[hilskin]

FORECAST: DPC: Dorchester Expects Higher Year End Profit of $8 Million
DPC
30/04/2014 09:47
FORECAST

REL: 0947 HRS Dorchester Pacific Limited

FORECAST: DPC: Dorchester Expects Higher Year End Profit of $8 Million

Dorchester Pacific Limited (NZX: DPC) today advised that its net profit after
tax for the financial year to 31 March 2014 is now expected to be
approximately $8 million. Its earlier profit guidance was an after tax
trading profit of $6 million.

The revised profit guidance is subject to audit review.

Dorchester CEO, Paul Byrnes, said the profit from the three trading
operations is expected to come in at around $6.5 million.

"Additionally, there will be two extraordinary items that will have the net
effect of increasing the net profit after tax to around $8 million.

"The first item is the pre-payment of $1.6 million interest on convertible
notes for the term to 31 March 2015, prior to their conversion to ordinary
shares on 30 August 2013. This was noted in the interim results to 30
September 2013.

"The second item results from bringing approximately $11 million of tax
losses on to the balance sheet, resulting in a positive impact on profit of
around $3.1 million.

"There is no contribution in the expected $8 million profit from the recently
announced acquisition of Oxford Finance Limited, with that settlement
completed on 1 April 2014.

"The guidance for group net profit before tax of $10 million - $11 million
for the financial year to 31 March 2015 and $14 million - $15 million for the
year to 31 March 2016, provided at the time of the Oxford Finance
acquisition, remains unchanged.

"The guidance does not include any contribution from further M & A activity
or the benefit of additional tax losses of approximately $5 million remaining
after the $11 million is recognised in the 31 March 2014 accounts," he said.

Chairman, Grant Baker, said: "This latest profit guidance would bring profit
to a level in line with the highest profit achieved in the history of
Dorchester, since it listed in 1985.

"These continued upgrades to profit guidance reflect both the outstanding
progress the company has made over the last 18 months and the significant
further growth opportunities for Dorchester in the broader financial services
sector."

ENDS

[biker]

Great result, first dividend in 7 years and things looking good for the current year and the future. Nothing flashy, just good steady management and growth and the meeting or exceeding of forecasts and budgets.
And what a turnaround success story.

Disc: hold quite a few so I'm biased


Transformed Dorchester Posts Record Year End Profit
11:49am, 22 May 2014 | FLLYR
22 May 2014
Company Announcement

TRANSFORMED DORCHESTER POSTS RECORD YEAR END PROFIT
Dividend Declared
2 Year Profit Guidance Affirmed

Dorchester Pacific Limited (NZX:DPC) today posted its full year results for the financial year to 31 March 2014, reporting a net profit after tax of $8.21 million (2013, $1.72 million).

The result is ahead of the earlier forecast profit of $6.0 million and just ahead of the April revised guidance of $8.0 million. It includes the full year trading for Dorchester Finance, DPL Insurance and the EC Credit debt recovery business, but no contribution from Oxford Finance which was settled on 1 April 2014.

The $8.21 million profit includes two extraordinary items;
1. a one-off interest prepayment expense of $1.67 million relating to $11 million of convertible notes, converted to ordinary shares in August 2013; and
2. a gain of $3.23 million from bringing tax losses on to the balance sheet.

The balance sheet at 31 March 2014 shows shareholder funds of $74.1 million (2013, $33.2 million).

The results to 31 March 2014 have been audited by Staples Rodway. They expect to give an unmodified opinion on the financial statements.

Directors have declared a final dividend of a half cent per share for the year ended 31 March 2014. The total un-imputed dividend of $2.5 million equates to approximately 40% of the underlying trading profit of $6.7 million before extraordinary items, in line with the dividend policy guideline advised to the market last year.
The dividend will be paid on Wednesday 23 July 2014. For the purposes of determining shareholder entitlements, the record date will be 5.00 pm, Wednesday 16 July 2014.

Dorchester CEO and Executive Director, Paul Byrnes, said the results reflect a completely transformed business with a strong, conservatively geared balance sheet and sustainable and growing trading profits.

The funding model and financial structure of the new Dorchester business reflects lessons learned from the finance sector collapse in the global financial crisis.

“Equity is currently funding over 50% of total assets and there is no funding from the public. We have no exposure to property development lending. With the strong financial position and an increasing diversity of earnings, we enjoy very good support from our banking partner,” Mr Byrnes said.

“Trading profits are expected to increase to around $15 million before tax within two years, without any contribution from further M & A activity.

“What is particularly pleasing is the real potential we can see for organic growth in trading activity for each of the three existing businesses and for the just acquired Oxford Finance business.

“Dorchester Finance is achieving or exceeding all performance metrics month on month. The receivables book is building well, although we are not specifically chasing market share. The focus remains on a quality build that we believe will result from a high and consistent level of servicing of our dealer and broker client network.

“For DPL Insurance, new policy sales of motor vehicle insurance, mechanical breakdown insurance and loan repayment insurance under the ‘Mainstream’ brand are consistently ahead of forecast and new distribution channels and cross selling opportunities are opening up. Loss ratios across the suite of Mainstream and Dorchester Life products are tracking at better than budgeted levels.

“EC Credit’s New Zealand revenues, including contingency collection commission from bank and institutional clients, have remained buoyant and ahead of last year. Australian market revenues were slower in the months around the recent election. However, recent initiatives including an improved Australian sales territory structure to better target SME businesses, additional institutional debt recovery work and the launch of a new service offering around Personal Property Securities Registration (PPSR) will see an increasing Australian profit contribution over the next six months”.

Dorchester’s Chairman, Grant Baker, said: “This has been a milestone turnaround year for Dorchester. The result is a record profit for the company and the dividend is the first dividend return to shareholders for 7 years.

“We are very positive about the three acquisition investments - EC Credit, 20% of Turners Auctions and Oxford Finance - we have made over the last 18 months.

“While further merger and acquisition activity remains key to the growth strategy, we will continue to evaluate these opportunities very carefully to ensure we make the right acquisitions and investments”.

ENDS

[percy]

An excellent result.
Well done holders.!

[biker]

With current businesses doing well, organic growth, possible M&A and excellent management, I think DPC is looking increasingly good value at 24c but the market may take a while yet to recognise it.

[blackcap]

Yip - I am pretty happy with that.

Ditto, been acquiring for a while now (I was a seller a year plus ago above the 30 cent mark) and really think that management are doing the right thing. Forward looking PE is acceptable but I like the potential for more Merger and Acquisition activity as Byrnes et al have shown in the last 2-3 years that they are very selective at what they purchase and seem to buy low PE assets that exhibit organic growth or assets that supplement their own operations (eg, Turners). 24 cents could be looking cheap in a year or 2.

[Snoopy]

'EBIT' not listed in the DPC FY2013 annual report so I have had to derive it from other numbers. That means adjusting the NPAT for tax refunds before finallly adding back the interest expense.

($-0.133m + $2.355m)/$2.355m = 0.9453 < 1.2

=> DPC fails the EBIT to Interest Expense Ratio test.


Updating the performance metrics for the financial year just gone. I am interested in the underlying performance of the finance business at DPC. So I am leaving out the equity accounted earnings of Turner's Auctions in which DPC has a significant stake.

In addition, I leave out the effect of the substantial tax losses brought back onto the books which benefitted DPC shareholders during the year. While the benefit of bringing these losses back onto the books is very real for DPC shareholders, they are not useful when assessing the performance of the underlying business going forwards.

DPC paid no income tax for FY2014. So EBIT can best be estimated by adding to operating profit (huh, I thought EBIT was operating profit - obviously not so in the case of DPC) the interest expense:

($4.171m + $2188m)/$2.188m = 2.91 > 1.2

=> a big improvement from last year. DPC now passes the EBIT to Interest Expense Ratio test.

SNOOPY

[Snoopy]

The gearing ratio in based on the underlying debt of the company, stripping out the loans made to others on the balance sheet.

$70.765m -( $7.834m + $16.370m + $4.681m ) = $41.880m

Likewise on the asset side of the balance sheet we have to strip the finance receivables from the other (underlying) company assets. From the Balance Sheet.

$103.955m - $28.757m = $75.198m

Gearing Ratio = Underlying Liabilities/Underlying Assets = $41.880m/$75.198m = 55.7% < 90%

=> Pass Test



Updating the above FY2013 figures

The gearing ratio in based on the underlying debt of the company, calculated by stripping out the already contracted future liabilities eventually payable to insurance policy holders on the balance sheet.

$52.630m -( $6.733m + $15.293m + $6.420m ) = $24.184m

Likewise on the asset side of the balance sheet we have to strip the finance receivables, and this case the equity investment in TUA, from the total company assets. From the Balance Sheet.

$126.682m - $37.726m - $10.209m = $78.747m

Gearing Ratio = Underlying Liabilities/Underlying Assets = $24.184m/$78.747m = 30.7% < 90%

=> Pass Test, and a large improvement on the previous year

SNOOPY

[Snoopy]

1) The loans you are concerned with are Assets of the company (money due to be repaid to the company) and not Liabilities. These are usually risk weighted but in the absence of the weightings to be applied use 100% to be safe (HNZ weighs in near 100%, ANZ is I think nearer 70%) and it comes in around $71m

2) Tier 1 Capital for Dorchester is definitely no more than $3.62m ($33.2m less intangibles less deferred tax).

$3.62m /$71m gives just over 5% which is a fail in anybodies book.

Best Wishes
Paper Tiger

I made a hash of this last year, but PT put me straight. So let's see if I can get it right this year.

I do realise that Tier 1 and Tier 2 capital are usually terms reserved for banks, and that DPC is not a bank. But to enable a comparison with other listed entities in the finance sector, please bear with me.

We are looking here for a certain equity holding to balance a possible temporary mismatch of cashflows. The company needs basic equity capital and disclosed reserves defined as:

Tier 1 capital > 20% of the loan book.

(Dorchester has only Tier 1 capital for these calculation purposes.)

Tier 1 Capital = (Shareholder Equity) - (Intangibles) - (Deferred tax)
= $74.052m - $25.912m - $6.761m
= $41.379m

Not sure if I should make another deduction for 'Investment in Associate' (the Turners shareholding) but my gut feeling is no, so I won't.

The money to be repaid to the company (assets of the company) can be found as assets on the balance sheet. This is the sum total of:

1/ 'Financial Assets at fair value through profit or loss'
2/ 'Finance Receivables'
3/ 'Receivables and deferred expenses'
4/ 'Reverse annuity mortgages'

For the FY14 year these come to $77.65m

$41.379m / $77.65m = 53.3% > 20%

This is a big improvement on the fail grade of last year, and shows the result of the recapitalisation of the company during the year.

SNOOPY

[Snoopy]

We are looking here for a 'liquidity buffer' (including undrawn bank lines) of 10% of the loan book. My interpretation of this hurdle is that it requires us to look at how current liabilities are matched to current assets over a 12 month time horizon. It is akin to a 12 month cashflow 'stress test'.

Looking at note 25b in the annual report on liquidity risk, I see that Financial Assets that are held for availability over the next 12 months total:

$16.979m + $5.774m = $22.753m

Financial liabilities due for payment add up to:

$18.443m + $2.345m = $20.788m

That is a deficit of some $2m. Note 23 has detailed information on the bank facilities, but curiously no information on borrowing limits. Perhaps a longer term holder can advise me what is going on there?


It is rather curious that despite DPC releasing a rather full set of their accounts to the NZX, these accounts do not contain any explanatory notes. Why would DPC have done that? It looks like I will have to wait until the actual full year report is published before I can assess 'current asset' 'current liability' liquidity issues.

SNOOPY

[Snoopy]

Likewise on the asset side of the balance sheet we have to strip the finance receivables, and this case the equity investment in TUA, from the total company assets. From the Balance Sheet.

$126.682m - $37.726m - $10.209m = $78.747m


'Finance receivables' are the outstanding loan book, and are not assets than can be readily 'called in' by the company. To do so would unravel the very nature of the business as a going concern, and practically may not be possible in a reasonable time frame. I am making the same call on the TUA shares that DPC holds. An alternative view is that these shares are readily convertible to cash as they can be sold at any time on the sharemarket. I disagree with this because:

1/ Liquidity of TUA is poor and you cannot easily dump a substantial stake.
2/ In time the intention is to increase DPC motor vehicle lending, and financially you could argue that the motor vehicle loan book of TUA will become an integral part of the DPC business that cannot easily be unpicked.

Not sure I am right on those two points though. In this instance, if I am wrong, it means the DPC equity position is even stronger than I have already calculated.

SNOOPY

[Snoopy]

Maybe(like me), they think TUA can double their NPAT by FY16:)


I note the smiley Noodles. But how about some actual "dividends to be received calculations" on how DPC will fare as a result of their TUA shareholding?

I wrote this in my post 908.
"Don't forget though that if the TUA share price rises by 90c to $2.72 from the $1.82 acquisition price paid by DPC, this still only raises the net asset backing of DPC by a single cent. A legacy of the huge number of DPC shares now on issue!"

But what about future dividends consolidated from TUA?

Over FY2013 the TUA dividend payout was 16cps. Let's say that doubles to 32cps by FY2016. It isn't too difficult, using the same proportionality formula as above, to see that the net annual dividend received by DPC will be a modest one third of a cent per DPC share should that happen, up from one sixth of a cent per DPC share today. The dividend income growth would be the difference between those two figures, and is also just one sixth of a cent per DPC share. Put another way that represents an increase of under 1% when looked at as part of DPC's total (potential) dividend yield to their own shareholders.

In summary then, TUA will affect DPC going forwards.
But if DPC double their own profit by FY2016, then the TUA dividend cashflow contribution to that doubling - even if TUA has a stellar performance (doubling profit themselves) - will only be a small effect (0.1666/2.04 = 8% of any mooted doubling of DPC profit from FY2014).

SNOOPY

[Snoopy]

Dorchesters projected margin for the year ended March 2014 is 14.9% (best interpretation). If we take a rather optimistic projection and say the $10.5m that Dorchester predicts for FY2015 is on the same amount of revenue as FY2014, then the projected operating margin for Dorchester for FY2015 becomes:

$10.5m / ($67.4- $27.2)m = 26.1%



The operating margin figure for FY2014 can now be calculated:

$4.171m / $31.327m = 13.3%

From the previous 30th April 2014 press release:

-----

Dorchester CEO, Paul Byrnes, said the profit from the three trading operations is expected to come in at around $6.5 million.

“Additionally, there will be two extraordinary items that will have the net effect of increasing the net profit after tax to around $8 million."

-----

The headline profit came in above guidance at $8.210m. But the operating profit was only $4.892m, a substantial fall on the $6.5m projected weeks earlier. Did DPC substantially underperform, then write back some more tax benefits than planned to mask this fact?

Not according to the 30th April 2014 press release.

-----

The second item results from bringing approximately $11 million of tax losses on to the balance sheet, resulting in a positive impact on profit of around $3.1 million.

------

Actual taxation benefits brought on board were $3.225m, which is close enough to the $3.1m projected.

Also brought on board in the previous half year was the bringing forward of interest payments due on capital notes converted early to shares. This is listed as a $1.669m loss and comes in as part of the operating loss. I think this is misleading as this payment is not part of normal operations. The operating profit is more correctly:

$4.892m + $1.669m = $6.561m

Interesting that that figure does line up with the 30th April 2014 forecast!

So the 'real' margin ( NPAT/revenue )for FY2014 was:

$6.561m / $31.327m = 20.9%

That figure is boosted by DPC paying no income tax because of previous losses. But it is still a good figure.

SNOOPY

[Snoopy]

Also brought on board in the previous half year was the bringing forward of interest payments due on capital notes converted early to shares. This is listed as a $1.669m loss and comes in as part of the operating loss. I think this is misleading as this payment is not part of normal operations. The operating profit is more correctly:

$4.892m + $1.669m = $6.561m

Interesting that that figure does line up with the 30th April 2014 forecast!

So the 'real' margin ( NPAT/revenue ) for FY2014 was:

$6.561m / $31.327m = 20.9%

That figure is boosted by DPC paying no income tax because of previous losses. But it is still a good figure.


FY2014 is done and dusted so time to look forwards. The biggest change has been the acquisition of Oxford Finance, settled on 1st April 2014 the first day of the new financial year.

From the 17th March 2014 press release:

-----

Value of the (Oxford) loan book now over $50 million. Oxford Finance loans are originated through a mix of channels, including motor vehicle dealers, finance brokers, strategic partnerships with a number of smaller finance companies and direct lending. Over 75% of loans are motor vehicle financing. The business has a strong presence in the Wellington, Wairarapa, Taranaki, Hawkes Bay, Waikato and Bay of Plenty areas.

The acquisition will boost the value of our total loan book to close to $90 million and there remains good growth potential for both Dorchester Finance and Oxford Finance. Oxford Finance is well established with a diversified and loyal customer base, an experienced management team and a strong operational platform. We will continue to operate the business under the Oxford brand.

We expect Oxford Finance to contribute $3 million of earnings before interest and tax in the first year to 31 March 2015. Additional synergies will arise for Dorchester in areas such as insurance, IT and compliance costs although we have not factored these in to our acquisition pricing or forecast returns.

The final purchase price will be between $11.3 million and $12.3 million depending on earnings of the business for the 12 months to 31 March 2015. The consideration for the acquisition will be paid in cash which will be funded from retained earnings and the proceeds of last year’s capital raising.

------

The Oxford acquisition more than doubles the size of the new combined Dorchester/Oxford loan book. Finance receivables go from $37.725m to near $90m. But how will this acquisition affect the margin going forwards?

Without information on the state of the Oxford books pre acquisition it is difficult to know.

SNOOPY

[Brain]

I have been reading the heartland thread as well as this one. my understanding of finance companies and banks is limitted but my guess is that between the two the heartland bank offers much better prospects than Dorchester. Would Percy , PT and Snoopy agree with that?

Brain

[Snow Leopard]

I have been reading the heartland thread as well as this one. my understanding of finance companies and banks is limitted but my guess is that between the two the heartland bank offers much better prospects than Dorchester. Would Percy , PT and Snoopy agree with that?

Brain

Read this post (http://www.sharetrader.co.nz/showthread.php?4371&p=469044&viewfull=1#post469044) and this other post (http://www.sharetrader.co.nz/showthread.php?4371&p=469192&viewfull=1#post469192) to derive you view of my view.

My major problem with DPC remains the liquidity being to low to buy a minimum amount, but otherwise I think it is OK.
(Mind you, I would also like to see increased liquidity with HNZ)

Best Wishes
Paper Tiger

[percy]

I have been reading the heartland thread as well as this one. my understanding of finance companies and banks is limitted but my guess is that between the two the heartland bank offers much better prospects than Dorchester. Would Percy , PT and Snoopy agree with that?

Brain
Hi Brain.
I don't think I would be the right person to answer your question.I feel I know Heartland well,and my posts on Heartland thread have been correct.My post 3446 on that thread sums up how I feel.As each bit of good news comes out I have brought more shares.
Yet on this DPC thread I am a "weak link". I have tried to understand DPC,but do feel I have failed.I have found noodles' posts on this thread, No.938 and No.941 show I still do not understand DPC.
That said, I would think you would do well investing in either.Sorry I can't be of more help.

[noodles]

I have been reading the heartland thread as well as this one. my understanding of finance companies and banks is limitted but my guess is that between the two the heartland bank offers much better prospects than Dorchester. Would Percy , PT and Snoopy agree with that?

Brain
Brian,
This is how I see the 2 companies:
1. HNZ on a FY15 pe under 10. This tells me the market is not pricing in any growth. The HER business may be that catalyst for growth. I hope so as I hold a meaningful amount in HNZ
2. DPC is on a FY15 tax adjusted pe of around 15. So a moderate amount of growth is already priced in. I have a small holding in DPC. Small enough that I won't care if the price drops.

Being a value investor, I prefer HNZ because there is not much downside. DPC on the other hand, can't miss a beat with the earnings or they will be punished.

DPC may have more potential for growth, but I like to hold stocks where I can sleep well at night.

[Snoopy]

I have been reading the Heartland thread as well as this one. my understanding of finance companies and banks is limited but my guess is that between the two the Heartland bank offers much better prospects than Dorchester. Would Percy , PT and Snoopy agree with that?


Without wishing to start a flame war, I will stick to what is indisputable.

When Heartland made a significant acquisition they had to go back to their shareholders for more money. When Dorchester made a significant acquisition they opened their war chest of cash and just bought it.

Dorchester currently operates a higher margin business than Heartland.

Pay $1 for Heartland shares and you get around $1 worth of underlying assets.
Pay $1 for Dorchester shares and you get only 30c worth of underlying assets.

One line summary: Dorchester is the better run business as of now (EOFY2014). But Heartland looks to be, superficially at least, the better value buy.

SNOOPY

discl: hold neither, still evaluating both

[noodles]

Without wishing to start a flame war, I will stick to what is indisputable.

When Heartland made a significant acquisition they had to go back to their shareholders for more money. When Dorchester made a significant acquisition they opened their war chest of cash and just bought it.


Ok, you started the war;-) Where did that war chest of cash come from? A massive capital raising along with option redemption. How is that different from Heartland? At least HNZ shareholders are in the money on their capital raising.

[blackcap]

Ok, you started the war;-) Where did that war chest of cash come from? A massive capital raising along with option redemption. How is that different from Heartland? At least HNZ shareholders are in the money on their capital raising.

Can I join the war too :) I would counter your strike and say that "most" DPC shareholders who participated in the capital restructuring would also be in the money. Except maybe the instos who paid 25 cents recently. (Not saying old debenture holders are in the money because they are still worse off).
But if we go back pre capital restructuring I would venture to say most DPC shareholders are still well behind the 8 ball. But till now Byrnes et al seem to know what they are doing and are hitting targets and showing that they are not in rash acquisition mode but are prepared to pay a little to get a lot.
Do not know enough about HNZ to be able to comment on them.

[Snoopy]

Ok, you started the war;-) Where did that war chest of cash come from? A massive capital raising along with option redemption. How is that different from Heartland? At least HNZ shareholders are in the money on their capital raising.


I stated my judgement position as at EOFY2014. You are right noodles, in that DPC has raised more shareholder funds in proportion to their EOFY2013 position than Heartland did in this current year. But we are talking about investing in either Heartland or Dorchester (or both!) now, not at EOFY2103.

The key difference I saw was that Dorchester raised their new capital first, then made the acquisition of Oxford. Heartland on the other hand announced the acquisition of Sentinal, then went to shareholders to raise the money.

I don't really like raising money in advance for some nebulous purchase as a rule (trust us we know what we are doing!). But by waiting until Dorchester was recapitalised, the acquisition announced, then buying in, there is now an avenue to get around my dislike of this practice. Dorchester have stated they have enough money now to fund even more acquisitions without calling on shareholders again. Heartland cannot say the same.

SNOOPY

[noodles]

But till now Byrnes et al seem to know what they are doing and are hitting targets and showing that they are not in rash acquisition mode but are prepared to pay a little to get a lot.

Yes, he has delivered up till now. He has made some aggressive targets and exceeded them. FY16 targets are very aggressive.

[blackcap]

Yes, he has delivered up till now. He has made some aggressive targets and exceeded them. FY16 targets are very aggressive.
Agreed targets are aggressive and I have been scathing in the past on this stock as you may well know not seeing how DPC could justify a share price of above 30 cents at the time with a forward profit of less than $6m. But since then (about 2 years ago) acquisitions have "magically" alleviated the pressure on attaining targeted earnings and have actually increased these greatly. We need to remember that the recent acquisition of Oxford was on a low PE and will help to getting the $15m target in 2 years. That (forward looking) puts DPC on a PE of 8.3 (15/493 =3 cps) If and it is still a big if DPC attains the profit of $15m and posts a 1 cent dividend I wonder what the share price will be?

[Snow Leopard]

...and will help to getting the $15m target in 2 years. That (forward looking) puts DPC on a PE of 8.3 (15/493 =3 cps) If and it is still a big if DPC attains the profit of $15m and posts a 1 cent dividend I wonder what the share price will be?

Remember, as per previous discussion on this very thread, that the $14M - $15M guidance for 2016 is Net Profit Before Tax.
It looks highly likely that by FY2016 they will have used all their tax losses up.

Best Wishes
Paper Tiger

[Brain]

Paper Tiger, Percy,Noodles and Snoopy - Thank you for the replies Gentlemen.

Brain

[noodles]

Dorchester have stated they have enough money now to fund even more acquisitions without calling on shareholders again. Heartland cannot say the same.

SNOOPY
This is incorrect. Dorchester have stated that will require further a capital raising. Check out the CEO's address from the 2013 AGM

"That balance sheet will have the capacity to debt fund significant, but not all of the investment in acquisitions we would hope to make. However, we are conscious of
further dilution for all shareholders and our modelling shows relatively modest further
capital raising involving the issue of less than 100 million additional shares.
"

I don't think Heartland have made any such statements.

[blackcap]

Remember, as per previous discussion on this very thread, that the $14M - $15M guidance for 2016 is Net Profit Before Tax.
It looks highly likely that by FY2016 they will have used all their tax losses up.

Best Wishes
Paper Tiger

Ah yes thank you for that PT. I had sorta forgotten about that. It does make a difference in reported profit after tax but more importantly on the cash flow of the business.

[Snoopy]

We need to remember that the recent acquisition of Oxford was on a low PE and will help to getting the $15m target in 2 years.


From the 17th March press release:
"We expect Oxford Finance to contribute $3 million of earnings before interest and tax in the first year to 31 March 2015. Additional synergies will arise for Dorchester in areas such as insurance, IT and compliance costs although we have not factored these in to our acquisition pricing or forecast returns."
"The final purchase price will be between $11.3 million and $12.3 million depending on earnings of the business for the 12 months to 31 March 2015. The consideration for the acquisition will be paid in cash which will be funded from retained earnings and the proceeds of last year’s capital raising."

There is enough info in that press release to work out a 'P / EBIT' ratio but not a P/E ratio.

So how to work out the P/E ratio of the Oxford Finance acquisition? From my post 951, I see an underlying DPC debt of $24.184m and underlying assets of $78.747m at balance date. If the Oxford purchase price ends up being $12.3m, then the underlying debt goes up to $36.484m. A 50% increase in debt implies a 50% rise in the interest bill. Last years interest expense was $2.188m. So we are looking at an extra $1.094m in interest to fund the Oxford purchase. DPC is not forecasting paying any tax in FY2015, so the 'T' in EBIT is zero. Bringing all that together, we can now calculate the implied 'PE' ratio of the Oxford purchase:

$12.3m / ($3m - $1.094m) = 6.5

That looks cheap. But what about any underlying debt that Oxford has? Isn't that acquired by DPC too? Unfortunately we aren't told what underlying debt Oxford has. So I don't think we have sufficient information to calculate a PE acquisition figure. Would love to be proved wrong on this though!

SNOOPY

[Snoopy]

493,971,377 shares on issue,at 24.5cents gives a market cap of $121,022,987.
EPS 1.4 cents.PE 17.5 ,NTA 7.98cents .Not paying a dividend [or tax].
Paying over three times NTA for a finance company not paying a dividend [or tax] ,seems a lot to me!
You do not have the added safety of them being registered as a bank either.


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?

SNOOPY

[Snoopy]

Percy,

Great to see you joining the conversation.

You will see that intangible assets increased significantly on the purchase of EC credit. In fact the net tangible assets of EC credit is around $1mill. Yet in the last six months they managed to make NPBT $2.358mill. So this type of business does not require an assets base to make a decent profit. EC Credit currently make up over half the NPBT for DPC.

In addition, you will need to add 2 years of profits($25mil+) to the NTA position (assuming no divi) for the FY16 return on assets.

So I don't think 37% return on assets will be accurate. It will be much lower. Also, I think you should only use this metric for the finance portion of the business. DPC are so much more than finance:)


I think I can offer some numbers on the earnings potential of the debt collection division. The divisional operating profit is shown as $3,501m for FY2014. Just like the finance division that I have just analysed, I believe you have to take off a share of corporate costs to get a true EBIT picture. For the debt collection division, this works out to be $11,310. so

EBIT (debt collection) = $3.501m - $0.01131m = $3,490m

We are told segment assets are $13,615m

So EBIT / Segment Assets = $3,490m / $13,615m = 25.6%

That is an astonishing rate of return, three times better than their own well performed finance business when measured with the same measuring stick. Not too far short of that 37% that Percy, perhaps only slightly optimistically, calculated. More evidence that the premium price that DPC trades at with respect to other finance companies is justified?

SNOOPY

[percy]

Thanks Snoopy.I have been a very naughty boy.I brought quiet a few more HNZ this morning.
I am watching DPC with the view of buying a small parcel,so I can get the printed copy of the annual report,to help me understand them. I seem to be able to "focus my attention" when I actually own some of a company's shares.At present DPC looks a bit weak on the charts,however I will most probably buy when they look a bit healthier.
Am well underwater with SCT.!!! lol.

[noodles]

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?

SNOOPY
Snoopy,

You are not comparing apples with apples.

1. DPC puts there interest costs at the corporate level. TUA at the segment level. So to compare, you need to take out the 2179 in interest costs
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!

So TUA have a better finance division.

noodles

[Snoopy]

Snoopy,

You are not comparing apples with apples.

1. DPC puts there interest costs at the corporate level. TUA at the segment level. So to compare, you need to take out the 2179 in interest costs


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.



2. You have taken insurance profit from the TUA figure, ...


Yes that is correct. That is because insurance is part of the TUA finance division, and I am interested in the underlying profitability of the Turners loan book, excluding insurance.



but not external revenue from the DPC figure.


I left the other external revenue in to the DPC calculation, because it was still "finance income" and part of the "finance division". However because there are no notes released with the DPC accounts, I don't know what this 'other external revenue' is. I will be receptive to removing it if you can supply more information as to why I should do so.



So to compare, you need to take 1310 off the figure


Debatable?

SNOOPY

[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 (NZX:DPC) 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 For:DPC Type:TAKEOVER Time:2014-07-28 09:55:33

[hilskin]

http://www.sharechat.co.nz/article/e0bb1e42/dorchester-pacific-to-bid-3-share-for-turners-auctions-wins-support-from-chairman.html?utm_medium=email&utm_campaign=Dorchester+Pacific+to+bid+3share+for+ Turners+Auctions+wins+support+from+chairman&utm_content=Dorchester+Pacific+to+bid+3share+for+T urners+Auctions+wins+support+from+chairman+CID_8ee b81c6cf3bdcd50443997ad33e767e&utm_source=Email%20marketing%20software&utm_term=httpwwwsharechatconzarticlee0bb1e42dorche ster-pacific-to-bid-3-share-for-turners-auctions-wins-support-from-chairmanhtml

[percy]

I was very impressed that DPC tied up the Bartel Holdings shares.
I brought in this afternoon at 23.5cents.

[biker]

I was very impressed that DPC tied up the Bartel Holdings shares.
I brought in this afternoon at 23.5cents.

nice timing percy.

[Okebw]

Prospectus for the turners takeover bonds is out.
They have no intention to list the so I suppose this belongs here rather than the NZDX section.

The bonds are 2 year 9% with quarterly payments and a conversion option.
I'm fairly keen to apply for some but if anyone with insight in to the business/default risk wants to chime in it would be greatly appreciated.

and yes I'm aware that given the small size of the issue and that turners/Dorchester shareholders get priority odds are I won't get any anyway.

https://www.nzx.com/files/attachments/199326.pdf

[percy]

Well today's market update had the "smell of money" about it to me.Doubled my holding at 25cents this afternoon.

[noodles]

Well today's market update had the "smell of money" about it to me.Doubled my holding at 25cents this afternoon.

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/programmes/businessnews/audio/20148930/dorchester-lifts-its-earnings-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

[percy]

EPS 2.62 cents.
Thanks for working out the fundamentals.
I very much doubt such a growth company, with increasing capacity to pay higher dividends, will stay on a projected PE of under 10 for long.
All the "one offs" etc, will certainly strengthen the balance sheet.
Feel as though we are "well positioned."

[noodles]

EPS 2.62 cents.

Thanks, fixed that error

[biker]

EPS 2.62 cents.
Thanks for working out the fundamentals.
I very much doubt such a growth company, with increasing capacity to pay higher dividends, will stay on a projected PE of under 10 for long.
All the "one offs" etc, will certainly strengthen the balance sheet.
Feel as though we are "well positioned."

Agree Percy, and maybe ONE day the market will agree also!
I think there is money to be made here over the next couple of years, but I hold quite a few so I'm biased.

[Joshuatree]

Awesome noodles ; i really appreciate ( and i know many lurkers will too:)you doing this research and doing some figs; thanks JT.

QUOTE=noodles;503711]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/programmes/businessnews/audio/20148930/dorchester-lifts-its-earnings-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 $38mill @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= 152mill 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[/QUOTE]

[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/programmes/businessnews/audio/20148930/dorchester-lifts-its-earnings-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/business/bus-mnr-20140910-0649-dorchester_hopes_for_more_turners_shareholders-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/programmes/businessnews/audio/20150064/dorchester-pacifc-upbeat-about-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/programmes/businessnews/audio/20150064/dorchester-pacifc-upbeat-about-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.



FY2013FY2014


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

[blackcap]

Snoopy,

At the AGM, I think I can remember Grant Baker saying (someone questioned them on the RAMS and how they were doing) that the RAMS were something that they were winding down and that this was a leftover from pre-2008. So that is why the total assets may be diminishing yet profit holding? (ie they have not written a new RAM in quite a while)

[percy]

Snoopy,

At the AGM, I think I can remember Grant Baker saying (someone questioned them on the RAMS and how they were doing) that the RAMS were something that they were winding down and that this was a leftover from pre-2008. So that is why the total assets may be diminishing yet profit holding? (ie they have not written a new RAM in quite a while)

Paul Byrnes confirmed this when I spoke to him.
Now I get a bit mixed up here,but DPC's insurance business uses part of the RAMs as capital requirements.The insurance business also writes policies for RAMs,and will continue to offer policies in this area.[very profitable]
DPC see their immediate future in motor vehicle,machinery, equipment finance,and insurance based around these areas.
The TUA acquisition opens up further distribution channels in this area for DPC.

[noodles]

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
I think the bonds are a decent option. However, you may have to pay up to 30c for your DPC shares in 2 years time versus 25c now. While you would get 9% yield, you wouldn't get the DPC dividend. The lack of liquidity is a bit of an issue for me as well.

I'm thinking of taking half cash and half DPC shares. The TUA acquisition is a game changer.

[blackcap]

I think the bonds are a decent option. However, you may have to pay up to 30c for your DPC shares in 2 years time versus 25c now. While you would get 9% yield, you wouldn't get the DPC dividend. The lack of liquidity is a bit of an issue for me as well.

I'm thinking of taking half cash and half DPC shares. The TUA acquisition is a game changer.

Noodles, the bonds pay 9% which by all accounts is more than the DPC dividend. If the DPC share price is in excess of 30 cents in 2 years time you are well in the money. If not, you still get the DPC shares at a 5% discount to the market value at the time. To me it is a no lose scenario. (sometimes also called win win)

[Snoopy]

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?


OK, I will attempt to answer my own question.

The reverse equity loan (REL) business is very different from other kinds of lending businesses. When people take out a reverse equity loan, they do so retaining ownership of their property. But this isn't how the bank lending them the money sees it. The bank takes the money that they leant on the REL, then turns that 'financial receivable' into an asset on the bank's balance sheet. Our 'owners' loan agreement with the bank means that the bank has effectively taken over the ownership of a substantial part of the property, despite the 'owner' still being listed as 'the person who took out the loan' on the property title.

Even better than this (from the bank's perspective) is that the value of their asset (finance receivable) keeps going up as the interest bill keeps rising. Short of being unable to recover the value of the property when it is finally sold, the bank simply cannot lose on this deal. The bank's asset (finance receivable) can only increase in value over time. So you can run an REL business on hardly any capital because that capital will never be called upon to bail out the loan.

Capital 'never be called upon to bail out the loan'? That sounds too good to be true, and it is. But by limiting the amount of capital loaned on a property to say 50% of its market value (I made that figure up) and using the expected life of the people who took out the loan as a calculation input figure the bank can virtually eliminate the possibility of the loan going bad. Any property slump can be ridden out by just making the residual balance required to be retained by the property owner high enough. You would have to be a very incompetant banker to lose on such a deal.

SNOOPY

[Snoopy]

Snoopy,

At the AGM, I think I can remember Grant Baker saying (someone questioned them on the RAMS and how they were doing) that the RAMS were something that they were winding down and that this was a leftover from pre-2008. So that is why the total assets may be diminishing yet profit holding? (ie they have not written a new RAM in quite a while)

Thanks for this. There was certainly no mention of RAMS being in a wind up mode in the bond offer prospectus. I wonder why they are winding RAMS down though? Return on equity is fantastic:

Return on Equity FY2014: $0.175m/$0.234m = 74.8%

Wow! No wonder the likes of Heartland see their average ROE rising going forwards with the acquisition of the Sentinal REL business!

SNOOPY

[Snoopy]

I think the bonds are a decent option. However, you may have to pay up to 30c for your DPC shares in 2 years time versus 25c now. While you would get 9% yield, you wouldn't get the DPC dividend.


The more people take up the bonds, the higher the debt servicing cost is for DPC. Hence the lower the profit for DPC, and the less likely the DPC share price is to rise. And the more favourable the bond to share conversion price will be in two years time. If you are going for the bonds, apply for all you can I reckon! Milk those DPC shareholders for all you can!



The lack of liquidity is a bit of an issue for me as well.


The bond prospectus sends mixed messages on this point. They state in black and white there is no intention to list the bonds and so holders should be prepared to hold for two years. But then on page 20 there is this statement:

"ii/ The price at which the bondholders are able to sell their bonds is lower than the amount originally paid owing to changes in market interest rates or the perceived credit worthiness of the bonds."

Bondholders holding until maturity will receive the fixed predeclared interest rate of 9%. So the above statement only has meaning if a market for the bonds, prior to maturity, exists.

I think a secondary market for the bonds will emerge, because they are such a desirable investment. I note that DPC don't rule out a secondary market for the bonds, even if they have no plans to set one up. My pick is that once the bonds are issued a secondary market will emerge. The fact that DPC are not being definitive on the bond secondary market is because DPC would rather shareholders accepted shares, not bonds. Don't be scared off the bonds because of perceived liquidity limitations folks.



I'm thinking of taking half cash and half DPC shares. The TUA acquisition is a game changer.


I am leaning towards retaining half of my TUA shares, and converting the other half to DPC bonds. I am waiting on the independent advisors report before I finally decide though.

SNOOPY

[Snoopy]

Paul Byrnes confirmed this when I spoke to him.
Now I get a bit mixed up here,but DPC's insurance business uses part of the RAMs as capital requirements.The insurance business also writes policies for RAMs,and will continue to offer policies in this area.[very profitable]


Yes the insurance side of the business has definitely been regrouped Percy. I would be very pleased to see the reverse equity mortgage business within DPC still alive. But is there any hard evidence of this? It seems strange DPC should separate out the RAMs as a legacy business, then continue to offer RAMs under another umbrella.

SNOOPY

[Snoopy]

Noodles, the bonds pay 9% which by all accounts is more than the DPC dividend. If the DPC share price is in excess of 30 cents in 2 years time you are well in the money. If not, you still get the DPC shares at a 5% discount to the market value at the time. To me it is a no lose scenario. (sometimes also called win win)


Keep in mind the downside protection offered by the bonds too. If DPC has a bad couple of years and the share price goes down to 20c, we bondholders will be buying our DPC shares at only 19c in two years time. Plus we will have had the benefit of 9% paid on our capital in the interim.

I don't predict DPC will get into any real trouble though. Look on page 40 of the bond prospectus.

----

"Nevertheless there are financial covenants on (Dorchester) bank facilities"
<snip>

"The total tangible asset equity ratio shall be greater than or equal to 20% for the period up to 30th September 2015, and 25% thereafter (because they will need more cash on hand to repay bondholders who want out a few months later)."

-----

This is exactly the kind of capital adequacy test I have been applying to financial companies for years. Those on the Heartland thread thought I was being unrealistic in asking for so much capital to be on the books. Yet here is Dorchester looking to satisfy my requirement without fuss.

Don't get me wrong, I think Heartland is an OK investment. But Heartland is less well capitalised than DPC and IMO has lower growth prospects. Why bother investing in Heartland, when an alternative investment in DPC looks so much better?

SNOOPY

[bunter]

Don't get me wrong, I think Heartland is an OK investment. But Heartland is less well capitalised than DPC and IMO has lower growth prospects. Why bother investing in Heartland, when an alternative investment in DPC looks so much better?

SNOOPY

I'd like know you rate the management of DPC compared to HNZ.

I don't know much about either board - seems HNZ has an ex-senior Westpac exec running it, and, DPC is chaired by a venture capitalist - ex Ecoya, 42 Below, Moa.

Look at how the Ecoya, 42 Below and Moa deals were structured - whose money was at risk?

Whose money is at risk in the DPC bond offer?

There will be another crash some time. They seem to come around every 10 years or so. The last one was in 2008. How would this company do in a crash?

FWIW I sold my TUA on-market at a small discount to the net offer price two weeks ago - for a sure return.

[Snoopy]

I'd like know you rate the management of DPC compared to HNZ.

I don't know much about either board - seems HNZ has an ex-senior Westpac exec running it, and, DPC is chaired by a venture capitalist - ex Ecoya, 42 Below, Moa.

Look at how the Ecoya, 42 Below and Moa deals were structured - whose money was at risk?


I respect the boards of both HNZ and DPC. Both companies have had large capital raisings since the GFC (in fact HNZ was created by a large capital raising out of PGC). Since 2011 I don't think either board has put a foot wrong. HNZ I think has perhaps faced the most difficult transition as they unwound their difficult property portfolio. But as of FY2014, I would say both companies are on track.

I guess DPC has a residual cloud of doubt to overcome, as a survivor of the NZ financial sector meltdown. But it is transforming into quite a different business compared to what was there before. Maybe those entrepreneurial people on the DPC board are helping here?



Whose money is at risk in the DPC bond offer?

There will be another crash some time. They seem to come around every 10 years or so. The last one was in 2008. How would this company do in a crash?


Heartland has a BBB credit rating which, on average, means it might fail within 30 years. Or looked at another way it has about a one in five chance of failing in the next GFC.

Dorchester has no rating because it no longer takes public deposits. The insurance arm of Dorchester has a rating of B+. So if Dorchester did have a rating it would probably be lower than Heartland. To make up for this Dorchester has a higher equity ratio though.

The other thing I like about Dorchester is the bad debt recovery business it does for the major banks. Perversely the more bad debts start to rack up at the major banks, the better for Dorchester's debt recovery business. So Dorchester has a natural hedge in their business model if the economy starts to go bad.

As for whose money is at risk, I have niggling doubts about all the second tier finance companies. This is why I favour converting some of my TUA shares into DPC bonds. As a bondholder I can watch from outside the tent for a couple of years. If I don't like how DPC is progressing then I will redeem my bonds for cash. If I like how DPC is going I can convert to shares in two years. My DPC bonds will be paid back before shareholders capital if DPC does run into trouble. But as you have assessed Bunter, the bonds are not a totally risk free investment.



FWIW I sold my TUA on-market at a small discount to the net offer price two weeks ago - for a sure return.


And no doubt you made a tidy profit and have since reinvested. Me, I will wait until that independent TUA valuation report comes out before I make my final decision.

SNOOPY

[percy]

The DPC takeover of TUA has now reached the 90% mark and can now move to 100%.
Congratulations to Paul Byrnes for driving the takeover so well.No hic-ups.
The distribution channels secured for Dorchester with this takeover will secure a bright future for DPC.
The two businesses are now totally aligned.

[Snoopy]

Hello- where are we heading now. The Bakery buy a big stake. If anything it may be an intersting ride. Or is this just some swapping of share/cash with no relevance?


The above quote referenced the following press release:

--------

SSH: DPC: DPC - The Bakery acquires cornerstone stake in Dorchester

31 August 2009

The Bakery acquires cornerstone stake in Dorchester

The Business Bakery LP (The Bakery) announced today that it has purchased 7,117,226 shares in Dorchester Pacific Limited (Dorchester) for $400,000 or 5.6 cents per share. The purchase price is a discount of 18% against the volume weighted average market price over the last 30 business days and represents 19.47% of the Dorchester shares on issue. The shares were purchased from Auguste Holdings Limited.

The Bakery believes that while Dorchester has had some challenges, which the market is well aware of, there are also significant opportunities in the financial services sector which Dorchester, if well capitalised, would be able to take advantage of.

The Bakery will seek to work with the Dorchester board and shareholders in order to improve the future prospects of the company.

The Bakery is a limited liability partnership founded and managed by Geoff Ross, Grant Baker and Stephen Sinclair. As well as Dorchester, The Bakery has investments in The Hyperfactory International Limited, Foundry Asset Management Limited and Ecoya Pty Limited.

----

Five years on, I think we can say thst 'The Bakery's' move into DPC was astute. Perhaps then we should also pay attention to today's NZX announcement from DPC:

------

Summary of substantial holding to which disclosure relates
Class of listed voting securities: ordinary shares in Dorchester Pacific
Limited (DPC)
Summary for The Business Bakery L.P.

For this disclosure,--
(a) total number held in class: 84,617,226
(b) total in class: 616,463,185
(c) total percentage held in class: 13.726%

For last disclosure,--
(a) total number held in class: 84,617,226
(b) total in class: 479,342,632
(c) total percentage held in class: 17.653%

-----

The number of shares have not changed so the Bakery are not selling down. But neither are they putting any more money into the company via the recent capital raising by 'committed shareholders' even though some say 25c is a bargain. So perhaps the Bakery is not as 'committed' to financing the further expansion of DPC as they were?

SNOOPY

[Snoopy]

,

------
Summary of substantial holding to which disclosure relates
Class of listed voting securities: ordinary shares in Dorchester Pacific
Limited (DPC)
Summary for The Business Bakery L.P.

For this disclosure,--
(a) total number held in class: 84,617,226
(b) total in class: 616,463,185
(c) total percentage held in class: 13.726%

For last disclosure,--
(a) total number held in class: 84,617,226
(b) total in class: 479,342,632
(c) total percentage held in class: 17.653%

-----

The number of shares have not changed so the Bakery are not selling down. But neither are they putting any more money into the company via the recent capital raising by 'committed shareholders' even though some say 25c is a bargain. So perhaps the Bakery is not as 'committed' to financing the further expansion of DPC as they were?


Weetbix still a very popular breakfast cereal. I know that because the number of Dorchester shares continue to increase. We are now up to 624 million. There are also 23.147m bonds on issue. Let's say they convert in just under two years time at 33c per share. That means there are in effect 693m DPC shares out there in the future. Let's round things up and call it 700m for ease of calculation in the future.

Meanwhile Bartel Holdings appear on the share register as a substantial holder with just over 7% of the company.

The share price seems very strong at the moment, up 3.8% today to 27.5c. I woudl say mimicing that other listed finance company Heartland. But I think in percentage terms, the share price rise is even better.

SNOOPY

[percy]

Weetbix still a very popular breakfast cereal. I know that because the number of Dorchester shares continue to increase. We are now up to 624 million. There are also 23.147m bonds on issue. Let's say they convert in just under two years time at 33c per share. That means there are in effect 693m DPC shares out there in the future. Let's round things up and call it 700m for ease of calculation in the future.

Meanwhile Bartel Holdings appear on the share register as a substantial holder with just over 7% of the company.

The share price seems very strong at the moment, up 3.8% today to 27.5c. I woudl say mimicing that other listed finance company Heartland. But I think in percentage terms, the share price rise is even better.

SNOOPY

Owning Heartland and Dorchester I am enjoying the upward trajectory of both..!!!

[blackcap]

I know that because the number of Dorchester shares continue to increase. We are now up to 624 million. There are also 23.147m bonds on issue. Let's say they convert in just under two years time at 33c per share. That means there are in effect 693m DPC shares out there in the future. Let's round things up and call it 700m for ease of calculation in the future.



SNOOPY

Hi Snoopy, you seem to have an obsession with the number of shares that DPC have issued. If as you say shares issued have "doubled" but profits have more than doubled... what is the problem?
Their strategy also enhances the capitalisation of the company and will help get insto's on board and help drive future shareholder value.

You can either grow slowly organically or grow quickly through merger and acquisition (meaning off course either debt increases/equity increases or a mix of the two)

[percy]

Hi Snoopy, you seem to have an obsession with the number of shares that DPC have issued. If as you say shares issued have "doubled" but profits have more than doubled... what is the problem?
Their strategy also enhances the capitalisation of the company and will help get insto's on board and help drive future shareholder value.

You can either grow slowly organically or grow quickly through merger and acquisition (meaning off course either debt increases/equity increases or a mix of the two)


I see DPC the same way Blackcap.Their acquisitions have been very astute.
The number of shares or share price does not alter the market capitalisation which is still under $170mil.

[Snoopy]

The number of shares or share price does not alter the market capitalisation which is still under $170mil.


I am going to assume that Percy has had a brain fade moment here.

The Market Capitalisation = (No.shares on Issue) x (Market Share Price)

SNOOPY

[Snoopy]

Hi Snoopy, you seem to have an obsession with the number of shares that DPC have issued. If as you say shares issued have "doubled" but profits have more than doubled... what is the problem?


The problem, if you want to put it that way, is that doubling the profit while doubling the number of shares on issue means the share price goes nowhere. However, I don't see a problem with issuing more shares in general, if the shares issued result in the associated acquisition being earnings per share accretive.

The critical bit is the italics. If new shares are issued to one party for the purposes of an acquisition that are earnings per share dilutive, that is equivalent to robbing all existing shareholders excluded from participating in the increased capitalisation of the company.

Company directors crow long and loudly about record profits. But as shareholders what matters are record earnings per share. IME, companies that issue lots of shares have a tendency to gloss over eps figures.

SNOOPY

[percy]

I am going to assume that Percy has had a brain fade moment here.

The Market Capitalisation = (No.shares on Issue) x (Market Share Price)

SNOOPY
No brain fade here.Just you did not use your imagination.!!!!
Have a 1 for 10 share consolidation,or a 10 for 1 bonus issue the important issue remains the market cap,which in DPC is still under $170mil.

[Snoopy]

No brain fade here.Just you did not use your imagination.!!!!
Have a 1 for 10 share consolidation,or a 10 for 1 bonus issue the important issue remains the market cap,which in DPC is still under $170mil.

Ah, OK Percy I see your point. But Dorchester is not consolidating or expanding an existing share base, which as you rightly say has no effect on the market capitalisation.

Dorchester is issuing hundreds of millions of new shares acquiring new businesses, which is quite a different thing. That certainly does affect market capitalisation.

SNOOPY

[percy]

Ah, OK Percy I see your point. But Dorchester is not consolidating or expanding an existing share base, which as you rightly say has no effect on the market capitalisation.

Dorchester is issuing hundreds of millions of new shares acquiring new businesses, which is quite a different thing. That certainly does affect market capitalisation.

SNOOPY

Exactly right.
When shares are earnings accretive the market cap will increase.
The most important ratios to watch therefore are ROE and EPS.
As we know buying TUA proves this point.

[noodles]

Ah, OK Percy I see your point. But Dorchester is not consolidating or expanding an existing share base, which as you rightly say has no effect on the market capitalisation.

Dorchester is issuing hundreds of millions of new shares acquiring new businesses, which is quite a different thing. That certainly does affect market capitalisation.

SNOOPY

Snoopy, Now the share price has reached 28.5c, my return on converting TUA to DPC shares at 25c has nearly surpassed the 18% return on the bonds that you will get in 2 years.

I'm happy with the DPC strategy of issuing shares if they are eps accretive.

Half year results are imminent.

[percy]

Snoopy, Now the share price has reached 28.5c, my return on converting TUA to DPC shares at 25c has nearly surpassed the 18% return on the bonds that you will get in 2 years.

I'm happy with the DPC strategy of issuing shares if they are eps accreditive.

Half year results are imminent.

That is some return.Well done.
EPS accretive is what we want.
Certainly looking forward to the half year result

[Snoopy]

Snoopy, Now the share price has reached 28.5c, my return on converting TUA to DPC shares at 25c has nearly surpassed the 18% return on the bonds that you will get in 2 years.

I'm happy with the DPC strategy of issuing shares if they are eps accretive.

Half year results are imminent.

I got the bonds for certainty of income noodles. Get back to me when the interim dividend is released. As for your 'spot' return being 18%, I am happy for you. Get back to me in December 2016 to tot up your return over the whole investment period.

SNOOPY

[Sgt Pepper]

That is some return.Well done.
EPS accretive is what we want.
Certainly looking forward to the half year result

I e-mailed them, results out next Thursday/Friday, what do you think SP 40 cents in 6 months? or sooner??

[janner]

I e-mailed them, results out next Thursday/Friday, what do you think SP 40 cents in 6 months? or sooner??


Bubble.. I could be wrong.

Not for me !!..

[bull....]

showing up on the radar now that tua takeover completing maybe interesting going ahead

[biker]

showing up on the radar now that tua takeover completing maybe interesting going ahead

What radar?

[Sgt Pepper]

What radar?

Just received an emailed report from Dorchester,

net profit 6 months $5.06 million full year forecast up from $11.4 to $14 million
interim divdend 0.05cps
share buy back offer for blocks under 4000 shares @ 0.25 cps

[Under Surveillance]

Just received an emailed report from Dorchester,

net profit 6 months $5.06 million full year forecast up from $11.4 to $14 million
interim divdend 0.05cps
share buy back offer for blocks under 4000 shares @ 0.25 cps
You're being short changed; the rest of us are getting a 0.4 cps dividend according to DPC's notice to NZX.

[percy]

You're being short changed; the rest of us are getting a 0.4 cps dividend according to DPC's notice to NZX.

Something tells it does not add up.!!!!
100,000 shares at 29cents = $29,000.
Dividend of 0.4 is $40,000.
Maybe it should read 0.004 which would work out at $400.

[Under Surveillance]

Something tells it does not add up.!!!!
100,000 shares at 29cents = $29,000.
Dividend of 0.4 is $40,000.
Maybe it should read 0.004 which would work out at $400.
It is 0.4 cents, or 0.004 dollars, per share. Either way it is $400 gross for 100,000 shares.

[Snoopy]

It is rather curious that despite DPC releasing a rather full set of their accounts to the NZX, these accounts do not contain any explanatory notes. Why would DPC have done that? It looks like I will have to wait until the actual full year report is published before I can assess 'current asset' 'current liability' liquidity issues.


The FY2014 report came out many months ago now. Unfortunately the disclosure of banking arrangements is very poor, and leaves me none the wiser. I have however gone back to the Simmons report issued in late 2013. On page 10 it says this:

"Under the current terms of the OCNs (Optional Convertible Notes) , the Company may not grant a first ranking security over the assets of the Company and its subsidiaries (excluding DPLI) exceeding $25 million, effectively limiting bank borrowings to this level. The Company has current bank facilities of approximately $22 million. The Board is of the view that additional bank funding will be required to fund organic growth and M&A activity over the next 18 months."

We can take it from this that banking facilities at the end of FY2014 were at least $22m.

SNOOPY

[Snoopy]

We are looking here for a 'liquidity buffer' (including undrawn bank lines) of 10% of the loan book. My interpretation of this hurdle is that it requires us to look at how current liabilities are matched to current assets over a 12 month time horizon. It is akin to a 12 month cashflow 'stress test'.

Looking at note 25b in the annual report on liquidity risk, I see that Financial Assets that are held for availability over the next 12 months total:

$16.979m + $5.774m = $22.753m

Financial liabilities due for payment add up to:

$18.443m + $2.345m = $20.788m

That is a deficit of some $2m. Note 23 has detailed information on the bank facilities, but curiously no information on borrowing limits. Perhaps a longer term holder can advise me what is going on there?


Why is the liquidity buffer ratio important? It doesn't matter how profitable a finance company is. If there is a need for cash in the current year, and the company cannot call on enough current assets to pay up, then the company will likely go out of business. This is effectively what happened when almost the whole finance sector in New Zealand collapsed a few years ago. So with that still fresh in the memory of high interest hunting debenture investors (and finance company shareholders) , this is probably the most important financial statistic of all. It is very frustrating when a company's annual report does not detail the headroom in their banking facilities. However, with a little sleuthing I know have it (a minimum of $22m with the banks). So, at last, we can see where DPC stood at the end of their financial year.

From note 26b in AR2014, we can see that the company's Financial Assets that are due to mature in the next twelve months are:

$26.463m + $8.229m = $34.692m

On the same page we see that borrowings that must be repaid or refinanced with Dorchester's banking syndicate amount to:

$0.723m + $7.648m = $8.371m

Under note 24 secured bank borrowings are $17.565m. That still leaves borrowing headroom of:

$22m - $17.565m = $4.435m

This is the extra amount of capital that DPC could borrow at 31-03-2014 -should they need to- without any renegotiations with their bankers.

However, in this case the $34.692m in maturing business more than covers the $8.371m of capital due. So there is no need to resort to borrowing headroom. DPC's liquidity is just fine.

SNOOPY

[Snoopy]

Why is the liquidity buffer ratio important? It doesn't matter how profitable a finance company is. If there is a need for cash in the current year, and the company cannot call on enough current assets to pay up, then the company will likely go out of business. This is effectively what happened when almost the whole finance sector in New Zealand collapsed a few years ago. So with that still fresh in the memory of high interest hunting debenture investors (and finance company shareholders) , this is probably the most important financial statistic of all. It is very frustrating when a company's annual report does not detail the headroom in their banking facilities. However, with a little sleuthing I know have it (a minimum of $22m with the banks). So, at last, we can see where DPC stood at the end of their financial year.

From note 26b in AR2014, we can see that the company's Financial Assets that are due to mature in the next twelve months are:

$26.463m + $8.229m = $34.692m

On the same page we see that borrowings that must be repaid or refinanced with Dorchestewr's banking syndicate amount to:

$0.723m + $7.648m = $8.371m

Under note 24 secured bank borrowings are $17.565m. That still leaves borrowing headroom of:

$22m - $17.565m = $4.435m

This is the extra amount of capital that DPC could borrow at 31-03-2014 -should they need to- without any renegotiations with their bankers.

However, in this case the $34.692m in maturing business more than covers the $8.371m of capital due. So there is no need to resort to borrowing headroom. DPC's liquidity is just fine.


Time to update this most critical of statistics for the just finished half year. On 21st August 2014 Dorchester announced they had renegotiated their banking facilities, presumably to rather more than the previously disclosed $25m ceiling, in anticipation of the takeover of Turners Auctions.

On 9th September 2014, Dorchester announced they had secured a bank debt facility of up to $39.55m to fund the acquisition.

In the same press release the projected debt required to be taken on in repect of 100% acquisition of Turners (which is what happened) was declared as:

(iii) Acquisition of 100% Shareholding
(Purchase of 80% in addition to the current 20% shareholding)
Share issue at $0.25 $30.0m
Bonds $18.0m
Bank Debt $18.0m
$66.0m

So this means the bank debt facility projected to be available to the rest of DPC was:

$39.55m - $18m = $21.55m

Unfortunately the detail in the HY2015 press release, outlining the match or mismatch of maturing customer loans to the underlying bank debt was non existent. So until more detail is published in the half yearly annual report, this is as far as my analysis can go.

SNOOPY

[percy]

Well today's market update had the "smell of money" about it to me.Doubled my holding at 25cents this afternoon.
Above posted 09/09/2014
Always good to know the nose can still "smell the money."
DPC are forecasting a profit before tax of approx. $23mil for year ending 31/3/2016 while the balance sheet at 31/3/2015 should show shareholders' funds of approx. $120mil and total assets of $265mil.

[golden city]

i am looking look 40c sp soon

[janner]

Bubble.. I could be wrong.

Not for me !!..


Have cast my eyes back over this one ..

Now a holder.. ..

[biker]

i am looking look 40c sp soon

I think it's easy to pluck figures out of the air but I'm sure 40c is attainable on current form.
Not so sure about soon, but a nice steady upwards trend would be just fine.

[bull....]

those updated profit figures make the pe looks cheap

[percy]

Have cast my eyes back over this one ..

Now a holder.. ..

Janner buying has certainly propelled the sp to new heights
Welcome aboard.

[Snoopy]

I think it's easy to pluck figures out of the air but I'm sure 40c is attainable on current form.
Not so sure about soon, but a nice steady upwards trend would be just fine.


If it does go to 40c, some of us (the bondholders) will only have to pay 30c to pick up what the rest of you will be buying at 40c. I am more than happy with that deal.

SNOOPY

[bunter]

Yes, I sure wish I'd had the intelligence and foresight to take bonds instead of shares for my TUA shares. Oh well, too late now.

[percy]

Yes, I sure wish I'd had the intelligence and foresight to take bonds instead of shares for my TUA shares. Oh well, too late now.

Why???
Your bonds are unsaleable,while your shares have increases 28%.and you with receive a divie.

[Snoopy]

Why???
Your bonds are unsaleable.<snip>

My bonds are unsaleable are they?

Anyone buying a DPC bond off me will be able to buy DPC shares for 30c (The actual number of shares being calculated from the face value of the bond) in October 2016. As a bonus, while you are waiting, you will receive 9.0% interest (gross) on the face value of the bond. However if the share price goes down below 30c by October 2016, you retain the option of getting the face value of the bond back in cash in October 2016.

Now, how much would you Bunter, (or anyone else), pay me for say $10,000 worth of bonds at face value on those terms? (genuine question)

SNOOPY

[percy]

My bonds are unsaleable are they?

Anyone buying a DPC bond off me will be able to buy DPC shares for 30c (The actual number of shares being calculated from the face value of the bond) in October 2016. As a bonus, while you are waiting, you will receive 9.0% interest (gross) on the face value of the bond. However if the share price goes down below 30c by October 2016, you retain the option of getting the face value of the bond back in cash in October 2016.

Now, how much would you Bunter, (or anyone else), pay me for say $10,000 worth of bonds at face value on those terms? (genuine question)

SNOOPY

Great post.
I really don't see why you could not sell them,and use an off market transfer form.
I think it would pay to check with the share registry first of all, to make sure they will process the transfer.

[bull....]

dividend ex date wednesday, 2 days left to buy

[blackcap]

dividend ex date wednesday, 2 days left to buy

Tis only 0.4 cents (unimputed) so not really much to worry about :)

[percy]

Tis only 0.4 cents (unimputed) so not really much to worry about :)

Well I very much apprieciate it.Nice surprise for Xmas.
Will pay for the Ham,Turkey,Crackers,Strawberries,Raspberries,icecr eam,beer,and wine.!! lol,

[Sgt Pepper]

Well I very much apprieciate it.Nice surprise for Xmas.
Will pay for the Ham,Turkey,Crackers,Strawberries,Raspberries,icecr eam,wine and beer.

As a novice share investor with a small holding probably only buy me some strawberries. However I take some comfort that I picked, and bought this share two years ago as having real potential. However I think it will reach its ceiling soon, so perhaps time to sell

[percy]

As a novice share investor with a small holding probably only buy me some strawberries. However I take some comfort that I picked, and bought this share two years ago as having real potential. However I think it will reach its ceiling soon, so perhaps time to sell

Be careful.
The company was a mess.MD Paul Byrnes with board support put the business back onto strong footing.The business is now moving forward.My view is the fun is only just beginning,and the next two or three years will provide you with the Ham and Turkey.Not sure about the wine and beer,but you will be well feed.!! lol.

[BFG]

Sgt P, please note my latest remarks on HNZ. ;)

[golden city]

should be settle for a while., has make a reasonable profit..quitting

[Sgt Pepper]

Sgt P, please note my latest remarks on HNZ. ;)

Thanks'

Actually for a novice I think I have picked ok, my wish list a year ago was

Tower : profitable , and a takeover target
Heartland NZ; excellent prospects
Genesis: reliable dividend flow
Dorchester Pacific well managed , appealed to my contrarian instincts.

My friend who has invested successfully in shares for some time, has one rule.

1.Look at the brokers share pick list published in January in NBR and Sunday Star times

2. NEVER buy those shares

[Sgt Pepper]

Be careful.
The company was a mess.MD Paul Byrnes with board support put the business back onto strong footing.The business is now moving forward.My view is the fun is only just beginning,and the next two or three years will provide you with the Ham and Turkey.Not sure about the wine and beer,but you will be well feed.!! lol.

Is a band of 40-45 cents a realistic proposition?

[golden city]

not fo the short term., one or two years time50c..acheivable i think

[biker]

The feeling I get, and alluded to in recent announcements, is that DPC is actively and enthusiastically pursuing new opportunities and I wont be surprised if there are some very positive announcements in H2.

Disc. A holder so I'm biased.

[bull....]

Is a band of 40-45 cents a realistic proposition?

they say aquisitions still possible so depending if/when this happens and what it could change things considerably, now they have turners it increases there cashflow considerably

[bunter]

Thanks'

Actually for a novice I think I have picked ok, my wish list a year ago was

Tower : profitable , and a takeover target
Heartland NZ; excellent prospects
Genesis: reliable dividend flow
Dorchester Pacific well managed , appealed to my contrarian instincts.

My friend who has invested successfully in shares for some time, has one rule.

1.Look at the brokers share pick list published in January in NBR and Sunday Star times

2. NEVER buy those shares

Great picks.

Suggest having a look at the Sharetrader Stock Picking Contest top 5 too.
Last year those five miserably underperformed the NZSE50 and the brokers' picks.

This year (so far) they are:


HNZ
7


DIL
6


XRO
6


PEB
5


ATM
4


POT
4


SUM
4



HNZ I like but the rest you can keep.