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

[percy]

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.

I too expect more very positive announcements.....
Biased...You have been right on the money with DPC,so I don't think you are biased at all.!!!

[percy]

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

Right on the money too.!!!

[blackcap]

I see the market cap is now over $200m. They must be getting pretty close to a top 50 stock in NZ and if that did happen would that mean instos would be climbing on board? Or is the top 50 a while off because too much of DPC is closely held? Does anyone know which stock is the number 50 at the moment?

[bull....]

needs to trade above 25c for at least 6mths for starters

[blackcap]

needs to trade above 25c for at least 6mths for starters

cheers Bull and I do note that currently NZO and STU are at about $260m-$280m so its going to be a little way off yet.

[bunter]

I see the market cap is now over $200m. They must be getting pretty close to a top 50 stock in NZ and if that did happen would that mean instos would be climbing on board? Or is the top 50 a while off because too much of DPC is closely held? Does anyone know which stock is the number 50 at the moment?

DPC has a 19.9% shareholder. The following is a list of shares that are (by my guesswork) nearly in or nearly out of the NZX50.
It assumes that DPC 19.9% stake is part of the free float.
DPC would need to make 42c to be in contention (i.e. ahead of Synlait at 264m) and I've been assured on this forum that this 'just ain't going to happen'.
If my assumptions are right, Vista, MPG and Synlait are in, and SKL, NZO and NZX are out.





ff%
Curr ff



RBD
100%
364


IN
VGL
100%
307



STU
100%
293



PEB
100%
290


IN
MPG
82%
286


OUT
SKL
94%
268


IN
SML
50%
264


OUT
NZX
100%
256



ERD
100%
234



HBY
73%
222



IQE
75%
222


OUT
NZO
80%
215



DPC
100%
208



THL
100%
189



HLG
100%
179



PGW
50%
177

[percy]

Look it is a ways off the NZX at this stage but give it 6 months. To me the current business, on its own and as it is, is not far off fair value - I think the fair value is .33/.34. on a forward PE of 10/12. However the company is managed by clever people with money on the line. They have indicated, and are executing an aggressive growth by acquisition business model. They are in a market where there are numerous acquisition opportunities. To me it feels like Ebos in the early days. So what do you reckon the business should trade at, PE wise, for the likely growth over the next 5 years. I say a PE of 20 or more is reasonable. Makes a value well over .50c.

Disclosure - I am a top 30 holder in this company.

I agree with you.I think the likely growth demands the higher PE ratio you mentioned.
Being a top 30 holder means you will have all the trimmings this Xmas [and every future Xmas].Well done.!! lol.

[Sgt Pepper]

Just one further observation... best thing of all about this company is there are none of the usual cast of dickheads on this thread.

As a novice I am curious, why do analysts ignore this stock?

[janner]

Very poor background with the fiance company sector, has spent years rebuilding. Is also too small for most of the analysts.

I agree.

As one with knowledge of its poor background .. Also having scoffed a few posts back ... I re-cast my eyes over it.. and purchased an infinitesimal amount..

Enough to place a little cheer on the table on the 25th if i was so inclined.. with the up coming dividend.

Will be building :-)))

[blackcap]

DPC has a 19.9% shareholder. The following is a list of shares that are (by my guesswork) nearly in or nearly out of the NZX50.
It assumes that DPC 19.9% stake is part of the free float.
DPC would need to make 42c to be in contention (i.e. ahead of Synlait at 264m) and I've been assured on this forum that this 'just ain't going to happen'.
If my assumptions are right, Vista, MPG and Synlait are in, and SKL, NZO and NZX are out.





ff%
Curr ff



RBD
100%
364


IN
VGL
100%
307



STU
100%
293



PEB
100%
290


IN
MPG
82%
286


OUT
SKL
94%
268


IN
SML
50%
264


OUT
NZX
100%
256



ERD
100%
234



HBY
73%
222



IQE
75%
222


OUT
NZO
80%
215



DPC
100%
208



THL
100%
189



HLG
100%
179



PGW
50%
177



Thanks for your work there. I really appreciate that. I called the NZX but they were rather coy about releasing this kind of info as they said they could "sell" it to third parties and it was worth $ to them. But for DPC to get to 42 is not that much of a stretch. THe NZX also said they do their weightings for index in and exclusion on a 6 month weighted average capitalisation to smooth out any dips and rebounds etc.
As to why there is no analysts covering this stock... once they are included in an index, this may change and will provide even more share price appreciation as the market "wakes" up to its potential. Lets see what Byrnes et al can bring this year.

[percy]

Will need an announcement of a new acquisition to trade substantially higher levels, but that may not be far away. And they have to change their name "Dorchester" is super stuffy and a real 2000s finance company name. Needs to be Turners.

Do you have a 12 month price target Percy?

The takeover of Turners worked well for DPC with more than expected TUA shareholders taking DPC shares/bonds.This , with the capital raised has left DPC with funds for another acquisition.
DPC will change their name to Turners to take advantage of Turners excellent/strong brand name.
12 month target price? With strengthening balance sheet,possible further acquisitions,name change to Turners,and more runs on the board,I think 50 to 60 cents is possible.

[bull....]

i get valuations going forward between 37c - 53c
If you look at sector pe for financial services they can range from regular pe of 15 to shiller pe of 21.5 based on a sample of 66 stocks

[bull....]

sorry thats all i can say - its only become worthy of looking at now they have taken over turners and the potential which can come from that in my opinion

[percy]

No problem - found it myself.

http://www.gurufocus.com/sector_shiller_pe.php

HELP PLEASE.
I clicked onto the link,and have had an email
"You've recently agreed to share your Yahoo information with "Guru Focus.""
Could some kind person yell me, what sort of information I have agreed to share?

[percy]

Not sure percy - didn't happen to me!!

Unsubscribed myself as I did not know what I had agreed to share??!!!!

[biker]

The takeover of Turners worked well for DPC with more than expected TUA shareholders taking DPC shares/bonds.This , with the capital raised has left DPC with funds for another acquisition.
DPC will change their name to Turners to take advantage of Turners excellent/strong brand name.
12 month target price? With strengthening balance sheet,possible further acquisitions,name change to Turners,and more runs on the board,I think 50 to 60 cents is possible.Turners Name Lives On Following Takeover By Dorchester
3:11pm, 18 Dec 2014 | NAME
18 December 2014
Company Announcement

TURNERS NAME LIVES ON FOLLOWING TAKEOVER BY DORCHESTER

The Board of Dorchester Pacific Limited (NZX : DPC) today confirmed that, following its takeover of Turners Auctions, it will consolidate its interests into a single listed entity, but that this will carry the Turners name. The change will take effect from 1 February 2015.

“It doesn’t make sense to maintain two listed companies, so we had a decision to make,” said Dorchester CEO & Executive Director, Paul Byrnes.

“Although proud of the achievements of Dorchester and its very successful turn-around, we also recognise the inherent value and goodwill in the Turners name, which has a lot of history and affection attached to it.”

Mr Byrnes said the company had earlier undertaken focus group research which highlighted many positive values associated with the Turners brand, including words like trust, integrity, reputable, honest, well recognised, “Kiwiness”, championing the public, heritage and longevity.

“These values represent a positive brand platform on which to develop our group businesses,” he said.

Mr Byrnes reiterated that, as has been the case with other acquisitions such as EC Credit, and Oxford Finance, the Turners Auctions business will continue to operate independently , but share some ‘back office’ functions. The Dorchester brand will still remain an important banner for the group with Dorchester Finance continuing to grow in the motor vehicle and consumer lending market.

“We are excited about this next phase of our business growth and to welcome Turners Auctions and the great team of people attached to that business into our group,” Mr Byrnes said.

“As the new guardians of the Turners brand, we are very committed to making this successful and rewarding for all involved”.

ENDS

[percy]

My dividend is in the bank.!

[junh]

My dividend is in the bank.!

Me too.

First post here on the forum. I enjoyed reading your comments!

[percy]

Me too.

First post here on the forum. I enjoyed reading your comments!

Welcome aboard.

[percy]

Article in yesterday's The Press headed "Turners gains from rebuild" stated just how well Turners are doing.
"Turners CEO Todd Hunter said the firm was conducting two multimillion dollar auctions this month for businesses which had gone into receivership or liquidation.Both were construction companies- one based in Auckland and one in Christchurch."
"The company was experiencing record highs of bidding on truck and machinery auctions,and the company had seen sales double over the past three years."
"Demand is high across the country,with imports of new and used trucks increasing by 36% in 2014 compared to 2013."
So it is not only car sales that Turners are doing well with.
Those posters who thought DPC's takeover of TUA was well timed, were right.

[blackcap]

Those posters who thought DPC's takeover of TUA was well timed, were right.

Not too difficult for DPC to work that one out though with Paul Byrnes being on the TUA board :)

[bull....]

http://www.stuff.co.nz/the-press/business/the-rebuild/65629698/Turners-Auctions-gains-from-rebuild

Good that they are expanding into other areas, Do they do fleet leasing?

[noodles]

http://www.stuff.co.nz/the-press/business/the-rebuild/65629698/Turners-Auctions-gains-from-rebuild

Good that they are expanding into other areas, Do they do fleet leasing?
No they don't

[bull....]

No they don't

Another potential bolt on for turners?

[dagoldtoof]

A cent here and there is becoming a cheap sweetie

[BFG]

A cent here and there is becoming a cheap sweetie

Looking for a break of 35 into blue sky

[bull....]

Looking for a break of 35 into blue sky

yea previous highs should go soon still under valued looking ahead in my opinion

[blackcap]

Not meaning to pick nits but they did get to 37 cents 2 years ago...

[BFG]

Not meaning to pick nits but they did get to 37 cents 2 years ago...

Yup just noticed that. 37 it is!

[Snoopy]

Not meaning to pick nits but they did get to 37 cents 2 years ago...

Two years ago (31-03-2013) there were 358.740m DPC shares on issue. Today there are 631.496m DPC shares on issue. Dorchester has changed so much in that time, with acquisitions and divestments, it is almost a completely different business (edit: to reflect this they are going to change their name).

To suggest that a 37c support level, based on some share price two years ago will have any effect on Dorchester today is ludicrous IMO. Dorchester may indeed get to 37c. But if it does it will have nothing to do with anything that happened two years ago when Dorchester was quite a different thing.

SNOOPY

[bull....]

http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11396066

Demand for vehicles has surged, underpinned by a buoyant local economy, record migration and a higher local currency, which reduces the cost of imports. The used car market is also benefiting as lower prices flow through and the country's ageing fleet comes up for replacement.

[biker]

Two years ago (31-03-2013) there were 358.740m DPC shares on issue. Today there are 631.496m DPC shares on issue. Dorchester has changed so much in that time, with acquisitions and divestments, it is almost a completely different business (edit: to reflect this they are going to change their name).

To suggest that a 37c support level, based on some share price two years ago will have any effect on Dorchester today is ludicrous IMO. Dorchester may indeed get to 37c. But if it does it will have nothing to do with anything that happened two years ago when Dorchester was quite a different thing.

SNOOPY

So time to change the title of this thread to TURNERS.
Will be interesting to see what else is cooking with 'Turners'.
I suggest Grant Baker has a lot more in mind for this company.
Disc. Hold so I'm biased

[Snoopy]

So time to change the title of this thread to TURNERS.
Will be interesting to see what else is cooking with 'Turners'.
I suggest Grant Baker has a lot more in mind for this company.


I hope to see a more stable future for DPC/Turners. There has been a lot of change over the last two years. Time to bed things down and think about a succession plan with the ultimate departure of Paul Byrnes. If DPC can keep doing what they are doing well then I see a bright future.



Disc. Hold so I'm biased


I hope you meant to say that you are an interested party and so have skin in the game going forwards.

If you are really biased, that means you will have altered your opinion of what is the right way to go forwards, solely because you are now an owner of the shares. Being a shareholder does not require you to be a cheerleader for the company at the same time.

SNOOPY

[golden city]

is there another acquistion on the card

[junh]

Does anyone know the approximate share price of DPC in order to be part of NZX50?

[Snoopy]

Does anyone know the approximate share price of DPC in order to be part of NZX50?


At 36c, DPC has a market capitalisation of $227.4m. But it has several substantial shareholders.

1/ Harrigans Trustees on 7.009% (consideration for purchase of EC control business)
2/ Bartel Holdings on around 7% (associated with Turners Auctions takeover)
3/ The Business Bakery, around 13%
4/ Hugh Green Investments, around 22%

I am not sure if all or any of these would be considered as reducing the free float of shares available. Assuming none of them do, then comparing the capitalisation of companies towards the bottom of the NZX50.

STU at $2.84, worth $251.2m
PEB at $0.77, worth $245.3m
SKL at $1.39, worth $268.0m
NZO at $0.64, worth $269.5m

means DPC is not quite there yet.

Based on the current number of shares on issue (631.496m), the DPC share price would need to rise to 40c for the market capitalisation to crack $250m.

SNOOPY

[bunter]

At 36c, DPC has a market capitalisation of $227.4m. But it has several substantial shareholders.

1/ Harrigans Trustees on 7.009% (consideration for purchase of EC control business)
2/ Bartel Holdings on around 7% (associated with Turners Auctions takeover)
3/ The Business Bakery, around 13%
4/ Hugh Green Investments, around 22%

I am not sure if all or any of these would be considered as reducing the free float of shares available. Assuming none of them do, then comparing the capitalisation of companies towards the bottom of the NZX50.

STU at $2.84, worth $251.2m
PEB at $0.77, worth $245.3m
SKL at $1.39, worth $268.0m
NZO at $0.64, worth $269.5m

means DPC is not quite there yet.

Based on the current number of shares on issue (631.496m), the DPC share price would need to rise to 40c for the market capitalisation to crack $250m.

SNOOPY
50c+ I reckon. 270m free float probably needed.
HG definitely not part of the free float. Any now you mention it, those others might not be either.
See PGW thread.

[BFG]

Good times :)

http://www.stuff.co.nz/business/industries/65892229/Lower-prices-rev-up-demand-for-used-cars

[percy]

here it is

Thank you.
A great story watching Paul Byrnes turn the ailing DPC into a strong business that TNR is.
So few turn arounds work,so the history makes good reading.

[Snow Leopard]

...[from 21-Mar-14]...

Value at 31-Mar-2014: $0.234
Value at 31-Mar-2015: $0.248
...

Nearly a year ago now I came up with that :).
Things have changed a little since then.

Best Wishes
Paper Tiger

[noodles]

Nearly a year ago now I came up with that :).
Things have changed a little since then.

Best Wishes
Paper Tiger

That was before the TUA acquisition. Time to redo the model?

[biker]

All quiet on the TNR front. Would be nice to see a profit upgrade in the next week or two.

[couta1]

All quiet on the TNR front. Would be nice to see a profit upgrade in the next week or two.
Needs something looks a bit sad right now, where are the buyers? Disc-Holding at 34c

[noodles]

Needs something looks a bit sad right now, where are the buyers? Disc-Holding at 34c
It is a funny old thing the sharemarket. Those who bought in at a higher price are starting to get nervous. Those who bought in at a lower price are looking to top up.

Support is 30c

[percy]

I would have thought we would have seen a trading update late last month.
We may have to wait until mid/end May for the full year result.
I am expecting a very good result.
Paul Byrnes doesn't strike me as the type who nods off after lunch.!!

[Under Surveillance]

Lot's I like about this company, but I still haven't got my head around the SP increase since the take over.

DPC @ 25cps x 40% increase = 35cps
TUA @ $3.00 x 40% increase = $4.20

I don't know all the fundamentals about the increasing NPAT of either at the time of the takeover, and the synergies they have experienced since…..and therefore what the TNR NPAT may look like at year end. I am just purely looking at the overnight increase in the original TUA business's value?

Don't fry your brain with all that, just take note of the latest forecast for FY 2015 from DPC/TNR [from the H1 interim report notice to NZX, 22 December 2014]:
Group trading net profit before tax for the financial year to 31 March 2015 is now forecast to be around $14 million, up on the previous guidance of $11.5 million, as a result of the inclusion of 4 months of full profit contribution from Turners Group NZ Limited. In addition there will be abnormal profits of between $3.5 million and $4 million, the net result of bringing Dorchester’s earlier 19.85% holding in Turners into line with market value (being the $3.00 per share takeover offer price) and the write-off of all acquisition and transaction costs related to the Turners takeover.

On 2 December 2014 DPC/TNR had advised NZX that:

With the full ownership and control of Turners achieved, it is now expectedthat profit before tax [for FY 2016] will be around $23 million. Current tax losses should besufficient to cover forecast profits through to 31 March 2016. The group isexpected to be in a tax paying position from the financial year commencing 1April 2016.

To convert profit forecast numbers to a per share basis, the number of shares on issue at the moment is 630,765,588.

[percy]

Lot's I like about this company, but I still haven't got my head around the SP increase since the take over.

DPC @ 25cps x 40% increase = 35cps
TUA @ $3.00 x 40% increase = $4.20

I don't know all the fundamentals about the increasing NPAT of either at the time of the takeover, and the synergies they have experienced since…..and therefore what the TNR NPAT may look like at year end. I am just purely looking at the overnight increase in the original TUA business's value?

Since the takeover we know Turners Auctions are trading well.Turners Auctions opened up a lot of sale channels for TNR[DPC] products and services such as insurance and finance.
The synergies should be cutting overhead and increasing margin.The merger means one lot of director's fees and costs are saved as are the listing fees etc.
TNR have brought back a lot of the small shareholdings which will also save costs.
Now to get back to your overnight values, we will have to wait until the result is in,before we have the figures to make an informed judgement.

[noodles]

Since the takeover we know Turners Auctions are trading well.Turners Auctions opened up a lot of sale channels for TNR[DPC] products and services such as insurance and finance.
The synergies should be cutting overhead and increasing margin.The merger means one lot of director's fees and costs are saved as are the listing fees etc.
TNR have brought back a lot of the small shareholdings which will also save costs.
Now to get back to your overnight values, we will have to wait until the result is in,before we have the figures to make an informed judgement.
Nice summary percy.
The current forecast(made in Dec 2014) for FY16 NPBT = $23m. This will include a full year of turners, synergies, and organic growth.

[Under Surveillance]

I should have added that the forecast profits for FYs 2015 and 2016 are before tax (DPC/TNR expects to resume paying tax in FY 2017).

So, the $23M pre-tax forecast for FY 2016 amounts to 3.65 cents per share (spread over the number of shares issued as of today). Were tax to have been deducted at the company rate of 28%, NPAT would be 2.63 cents per share.

[Under Surveillance]

And what would the total dividend most likely be as a % of EPS for FY16? appreciate your comments.

I understand the current dividend policy is to pay about 40% of profits as dividends. In the instances of the 2 dividends paid since DPC got back on its feet, it seems that the 40% was applied to NPBT stripped of abnormals. Consistent with that, for FY 2016 as forecast with $23M NPBT, the FY dividend(s) would be 3.65 x 0.4 = 1.5 cents per share allowing that the $23M contained no significant abnormals and that the number of qualifying shares is static. {{I think, happy to be corrected.}}

[janner]

Now to get back to your overnight values, we will have to wait until the result is in,before we have the figures to make an informed judgement.

Hear, hear, perc..

Disc. Slowly Accumulating.

[blackcap]

On the acquisition trail again... wonder what the metrics are for this purchase...


https://www.anzsecurities.co.nz/DirectTrade/dynamic/announcement.aspx?id=3846937

[noodles]

On the acquisition trail again... wonder what the metrics are for this purchase...


https://www.anzsecurities.co.nz/DirectTrade/dynamic/announcement.aspx?id=3846937

Seems like profit is not material.
http://podcast.radionz.co.nz/business/bus-mdr-20150410-1217-turners_buys_greenwich_lifes_assets-048.mp3


But they want to grow in sure to around $5m EBIT in next couple of years
http://www.nbr.co.nz/article/turners-subsidiary-buys-small-insurance-company-seeks-more-build-scale-bd-171225

[RTM]

I am wondering if I have missed an announcement ? TNR should be reporting their full year result soon....right ?
Does anyone have a date of when we can expect it ? Can not manage to find on NZX or TNR / DPC website.


I would have thought we would have seen a trading update late last month.
We may have to wait until mid/end May for the full year result.
I am expecting a very good result.
Paul Byrnes doesn't strike me as the type who nods off after lunch.!!

[biker]

I am wondering if I have missed an announcement ? TNR should be reporting their full year result soon....right ?
Does anyone have a date of when we can expect it ? Can not manage to find on NZX or TNR / DPC website.

It was 22nd May last year, so maybe end of next week?

[couta1]

Finished on a 52wk low mind you most of the market looks a bit sick at the moment.

[noodles]

Finished on a 52wk low mind you most of the market looks a bit sick at the moment.
lol. Not sure what chart you are looking at? 52 week low is 20c

[couta1]

lol. Not sure what chart you are looking at? 52 week low is 20c
ANZ Securities 52wk range shows 31-35c.

[noodles]

ANZ Securities 52wk range shows 31-35c.
Get a decent broker then:) Perhaps ANZ failed to account for the change of name?
http://stocknessmonster.com/stock-chart?S=TNR&E=NZSE

[bull....]

report this week?

[percy]

report this week?

I rang the company secretary yesterday.She said we should see it today.

[bull....]

https://www.nzx.com/companies/TNR/announcements/264866

results out

[vin]

I thought there would have been a big jump with the SP with an announcement like that?

[winner69]

Where's Percy? We need a rave anda bit of detail.

[couta1]

I thought there would have been a big jump with the SP with an announcement like that?
Market in bad headspace at the moment bears having large picnic, just take a glance over at MRP and SPK to view snapshot.

[vin]

Must be the doom & gloom weather :/

[black knat]

Post the acquisition of Turners they were saying 2016 profit of 23m - now 20m - because of timing of one offs? Might be the issue. Still think it is a great result.

[percy]

A very pleasing result,very much in line with previous updates.ie NPBT of $14mil while the abnormals were$1mil higher at $5mil.

The balance sheet is strong with equity ratio at 36.78%,and operating cash flow was an excellent $10.485mil.

Very rough figures sp at 31cents,eps 3.28 gives a PE of 9.45 or using diluted eps of 3,01 the PE 10.3.
Still growing but at a more modest rate..

Please note I have altered this post, as I had made a number of errors.Basically taking the one offs as continuing earnings,which unfortunately they are not..

[janner]

A very pleasing result,.

Indeed yes percy.

Very happy that I took a second look at this one and left the HNZ to DRP only..

Will continue to accumulate..

[percy]

Yesterday I misread the TNR result.I got mixed up with taking the abnormals as normal.
The result offcourse did not include a full year of the "Turners auctions".
I also failed to factor in the fact TNRs are not paying full tax.
The 2016 projection was downgraded from $23mil to $20mil.
The result was not what I expected, therefore I have sold my holding.
To achieve the $23mil TNR will have to make an acquisition.Depending on what the acquisition is,the terms of the acquisition,and whether I think it is good or not,will guide me as to whether I will buy in again.

[janner]

Yesterday I misread the TNR result.I got mixed up with taking the abnormals as normal.
The result offcourse did not include a full year of the "Turners auctions".
I also failed to factor in the fact TNRs are not paying full tax.
The 2016 projection was downgraded from $23mil to $20mil.
The result was not what I expected, therefore I have sold my holding.
To achieve the $23mil TNR will have to make an acquisition.Depending on what the acquisition is,the terms of the acquisition,and whether I think it is good or not,will guide me as to whether I will buy in again.


Do I defer to your obvious wisdom; obtained over many .. many .. years. percy ??.

Hmmmm...

As a fellow traveller over those years .. I beg to differ..

Maybe it was your sales that I picked up :-)))

Accumulating..

[percy]

Do I defer to your obvious wisdom; obtained over many .. many .. years. percy ??.

Hmmmm...

As a fellow traveller over those years .. I beg to differ..

Maybe it was your sales that I picked up :-)))

Accumulating..
I hope you do as well as I did,23.5% in a matter of months,plus a divie.
Back on to the watch list,until either the next announcement, or acquisition gets me back on board.

[janner]

I hope you do as well as I did,23.5% in a matter of months,plus a divie.
Back on to the watch list,until either the next announcement, or acquisition gets me back on board.

Not quite as good as yours..

It was after all you that had me looking twice..

Happy to hold .. And accumulate

[percy]

Not quite as good as yours..

It was after all you that had me looking twice..

Happy to hold .. And accumulate

I thought it was only right that I posted my misgivings,and the fact I had sold my holding,as I had been very positive about the company's prospects,and was concerned that I had steered other sharetraders to "look twice" at the company.
Hopefully my misgivings are groundless,and I will have to buy back in a lot higher prices.!!!

[janner]

I thought it was only right that I posted my misgivings,and the fact I had sold my holding,as I had been very positive about the company's prospects,and was concerned that I had steered other sharetraders to "look twice" at the company.
Hopefully my misgivings are groundless,and I will have to buy back in a lot higher prices.!!!

Look twice at all purchases perc..

Think thrice before parting with the money :-))))

[bull....]

im out as well, normally I trade so would have sold at 36 but thought I would go for a long termer for once lol ( should stick to my strategy ) but like article below says good times may be over

http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11459434

[couta1]

im out as well, normally I trade so would have sold at 36 but thought I would go for a long termer for once lol ( should stick to my strategy ) but like article below says good times may be over

http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11459434
This is still a well run company with a bright future so still good long term hold IMHO.

[biker]

This is still a well run company with a bright future so still good long term hold IMHO.

I agree. The monthly sales 'decline' was 30 vehicles! off a base of over 10,000.
Lots more from TNR yet IMO but patience required.

[zigzag]

Divy was a bit less than I was expecting. Forgot about the lack of imputation credits. Bugger. But, if someone plonks some money in your bank, one shouldn't really complain about paying tax on it.

[blackcap]

I should have added that the forecast profits for FYs 2015 and 2016 are before tax (DPC/TNR expects to resume paying tax in FY 2017).

So, the $23M pre-tax forecast for FY 2016 amounts to 3.65 cents per share (spread over the number of shares issued as of today). Were tax to have been deducted at the company rate of 28%, NPAT would be 2.63 cents per share.

Granted and the forecast is now $20m. However if TNR did pay tax... they would be able to pass this on to us with Imputation credits. So either way it makes no difference does it?

The reason I am highlighting this now is the prior post and my own experience of paying RWT off my dividend to the IRD. Having Imputation credits nullifies this payment thus for the shareholder it is a moot point if the company posts their profits as pre-tax (gross)

At these prices starting to get back on the accumulate radar again :)

[biker]

..............


At these prices starting to get back on the accumulate radar again :)

Agree blackcap.
Also latest disclosure showed director Matthew Harrison buying over 4 million shares off Geoff Ross for $1.2 million.( 27c per share.) A fairly convincing vote of confidence I would have thought.
(One could speculate that Geoff Ross needs the money for another MOA cash issue. )

Disc. Hold quite a few and bought more recently at 27c

[Jay]

They must be doing alright on the car sales.
Mate just sold a car via auction, was offered $2000 by them cash and they would then sell - their estimated auction price was $2500 -$3500.
He put up for auction, go rung up before hand as someone had offered $2500 (the reserve) - went to auction - sold for $4200 and so got about $3800 after commission and auction fee - not sure why they have both!
So if he just took the cash they would up 2 grand instead of $400

[Leftfield]

Interesting developments...

Turners Limited (NZX : TNR) today announced it has entered into an
unconditional agreement to purchase Christchurch based Southern Finance
Limited (incorporating South Island Vehicle Finance and K Finance).

Southern Finance is an established finance company in the used vehicle
finance market and has been active in the South Island for close to 20 years
with extensive client and referrer networks in Christchurch and throughout
the South Island. Loans are originated through motor vehicle dealers,
finance brokers, strategic partnerships and direct lending.

"We expect the acquired business to immediately contribute around $750,000
p.a. earnings before interest and tax with this increasing to $1 million
after the first year. Additional synergies will arise in areas such as
insurance, IT
and compliance costs although we have not factored these in to our forecast
returns".

The purchase price is $5.0 million for the net assets of approximately $3.3
million and goodwill of $1.7 million. The consideration will be paid in
cash on the settlement date, 31 July 2015, and will be funded from bank
borrowings.

[Hmm]

https://www.nzx.com/companies/TNR/announcements/267673

Turners acquires another small business on a forward looking P/E of 5. Seems strange that this wasn't considered a price sensitive announcement?

[biker]

[QUOTE

.....Seems strange that this wasn't considered a price sensitive announcement?[/QUOTE]

Typical TNR low key approach.
Another good purchase.
One day the market will wake up to the consistent positive management of this company. Until then the only thing required is patience.

Disc. Hold quite a few so I could be biased

[percy]

Although not a big acquisition it gives TNR a beach head to build on in the South Island.
A positive step.

[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.

How things have turned. Noodles wrote the above in November 2014. The shares went on to peak at 35c, but now they are back to 25.5c, just above the 25c issue price. No doubt noodles sold out on the high at a profit and reinvested the proceeds earning 2% in his bank account. But maybe not. If we don't hear from him in the next few days we can safely assume he is still hunkered down in the Turner's share bunker, cursing his inaction.

Next year in September 2016 I have a chance to convert by bonds in to shares at a 5% discount to market price. So at 25.5c, my Turners bonds will convert to shares at only 24.2c. Much better than the 25c noodles got his shares at. Of course in the interim my 9% bonds have given me a much better cash return as well. I am so much better off taking all but a token of my TUA converted holding as TNR bonds! Of course markets change and so by September 2016 I may be the one who looks a bit foolish.

SNOOPY

[blackcap]

Gotta love that bit at the end of the announcement :) Time for you to get back in Percy?

TNR
10/09/2015 13:51
ASSET
NOT PRICE SENSITIVE
REL: 1351 HRS Turners Limited

ASSET: TNR: Turners buys property for truck and machinery growth

10 September 2015

Company Announcement

TURNERS BUYS FURTHER PROPERTY FOR TRUCK AND MACHINERY GROWTH

Turners Limited (NZX : TNR) today announced its subsidiary Turners Group NZ
(formerly Turners Auctions) has purchased a property in Hillsborough,
Christchurch for $2.5 million to accommodate its growing truck and machinery
business.

The move reflects the strategy of separating trucks and machinery premises
from the traditional car business.

In the last 12 months, two new premises, a $4 million property purchased in
Roscommon Road, Auckland and a leased site in Christchurch have been
developed as part of the focus on trucks and machinery. However, with sales
tracking at over 40% up on the same period last year, both sites are already
constantly full.

Turners Limited CEO and Executive Director, Paul Byrnes commented:
"The significantly higher used trucks and heavy machinery sales activity has
more than justified the property investments; but the whole Turners Group
NZ business is performing particularly well with profit for this financial
year up over 30% on the corresponding pre-acquisition period".

Turners Limited Annual Meeting will be held at the Aotea Centre, Auckland on
Wednesday, 16 September 2015 at 11.00 am.

ENDS

For further information please contact:

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

Grant Baker
Chairman
Turners Limited
Mobile: 021 729 800
End CA:00269934 For:TNR Type:ASSET Time:2015-09-10 13:51:18

[Snoopy]

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


Looks like Dorchester's actual three way funding mechanism for acquiring TUA was a little different to what management expected. From p4 of the interim HY2015 report.

Share issue at $0.25: 125.8m at 25c = $31.4m (4.8% higher than projected)
Bonds: $23.2m@ $1.00 =$23.2m (28.9% higher than projected)
New Bank Debt: $10.0m (45% lower than projected)

The closing comment in the interim report says:

"The final consideration mix and successful capital raise to fund the Turners acquisition has resulted in a balance sheet with headroom for further merger and acquisition activity." ($29.55m of borrowing headroom by my calculation)

The subsequent acquisition of "Greenwich Life" announced on 10-04-2015, and "Southern Finance" on 30-07-2015 certainly made sure the 'new' TNR made those acquisitive ambitions a reality!

I should note that although this information is in the HY2015 interim report with accounts dated 30th September 2014, the new shares, bonds and new debt were allotted after balance date. So the interim account figures do not represent the post Turners Auctions acquisition position.



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.


TNR has transformed remarkably since HY2015 (30-10-2014) balance date. So the following figures from HY2015 are rather historical.

Finance Segment Assets: $94,909m
Finance Segment Liabilities: $72,763m

Nevertheless it is comforting to know that the finance sector assets were on the books at a 30% premium to the finance sector liabilities at the time.

SNOOPY

[percy]

Gotta love that bit at the end of the announcement :) Time for you to get back in Percy?

TNR
10/09/2015 13:51
ASSET
NOT PRICE SENSITIVE
REL: 1351 HRS Turners Limited

ASSET: TNR: Turners buys property for truck and machinery growth

10 September 2015

Company Announcement

TURNERS BUYS FURTHER PROPERTY FOR TRUCK AND MACHINERY GROWTH

Turners Limited (NZX : TNR) today announced its subsidiary Turners Group NZ
(formerly Turners Auctions) has purchased a property in Hillsborough,
Christchurch for $2.5 million to accommodate its growing truck and machinery
business.

The move reflects the strategy of separating trucks and machinery premises
from the traditional car business.

In the last 12 months, two new premises, a $4 million property purchased in
Roscommon Road, Auckland and a leased site in Christchurch have been
developed as part of the focus on trucks and machinery. However, with sales
tracking at over 40% up on the same period last year, both sites are already
constantly full.

Turners Limited CEO and Executive Director, Paul Byrnes commented:
"The significantly higher used trucks and heavy machinery sales activity has
more than justified the property investments; but the whole Turners Group
NZ business is performing particularly well with profit for this financial
year up over 30% on the corresponding pre-acquisition period".

Turners Limited Annual Meeting will be held at the Aotea Centre, Auckland on
Wednesday, 16 September 2015 at 11.00 am.

ENDS

For further information please contact:

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

Grant Baker
Chairman
Turners Limited
Mobile: 021 729 800
End CA:00269934 For:TNR Type:ASSET Time:2015-09-10 13:51:18

On the face of it "profit up over 30% on the corresponding pre-acquisition period" reads well.
But didn't we expect that.?

[blackcap]

We did and do expect that but since then the share price has come down a fair way. I bought some yesterday at 25.5, seems less risky than at 35 cents a while back anyway.

[percy]

We did and do expect that but since then the share price has come down a fair way. I bought some yesterday at 25.5, seems less risky than at 35 cents a while back anyway.

I think your timing will prove to be excellent.
25.5 to 27 cents cents looks pretty good buying to me.

[Snoopy]

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.



Updating for the FY2015 financial year (ended 31-03-2015)

The underlying interest expense is shown under note 7 (AR2015) to be $7.381m.

The underlying EBIT is a bit more complicated. There is a $7.058m gain recorded because of the write up in the value of the then Dorchester's existing stake in TUA to 'market bid value' level. But the market bid was made my Dorchester. So Dorchester have in effect bid up the value of their pre-owned TUA shares to a market level that they themselves have chosen. $7.058m is a one off self controlled capital gain that is not repeatable. IMO this should not be included in any underlying EBIT to Interest Expense ratio.

(EBT +Interest Expense)/(Interest Expense) = [($18.264m-$7.058m)+$7.381m]/$7.381m = 2.52 > 1.2

=> Pass Test

SNOOPY

[Snoopy]

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



The gearing ratio in based on the underlying debt of the company, calculated by stripping out the already contracted future liabilities (from AR2015 Balance Sheet p32) eventually payable to insurance policy holders on the balance sheet. I have additionally removed the deferred revenue ($7.476m) from these underlying liabilities

$207.970m -($9.260m + $16.378m + $7.476m) = $174.850m

Likewise on the asset side of the balance sheet we have to strip the third party 'finance receivables' from the total company assets. From the Balance Sheet.

$328.972m - $142.827mm = $186.145m

Gearing Ratio = Underlying Liabilities/Underlying Assets = $174.850m/$186.145m = 94% > 90%

=> Fail Test

The big spending Turner's acquisition of Oxford Finance (01-04-2014) and the old 'Turners Auctions' (28-10-2014) have greatly increased the gearing ratio of the formerly conservatively geared company!

[Snoopy]

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.


I am applying a 'banking covenant' to a non-bank. While not a legal requirement for TNR, this is to enable a comparison with other listed entities in the finance sector (real banks like Heartland for instance ;-) ), so please bear with me. The data below may be found in the 'Consolidated Statement of Financial Position' (AR2015, p32).

We are looking here for a certain equity holding to balance a possible temporary mismatch of cashflows. The company needs basic equity capital and we are looking for 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)
= $121.002m - $103.595m - $8.532m
= $8.875m

The money to be eventually 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': $17.350m
2/ 'Finance Receivables': $142.827m
3/ 'Receivables and deferred expenses': $5.946m
4/ 'Reverse annuity mortgages': $13.253m

For the FY15 year these come to $179.376m

$8.875m / $179.376m = 4.9% < 20%

=> Fail test

Care needs to be taken in interpreting a result like this. A big increase in Intangible Assets over the year have done the damage to this statistic.

From note 22 in the annual report, $45.6m of intangibles was brought onto the books with the acquisition of TUA. $30.454m was brought onto the books with the acquisition of Oxford Finance. These companies were bought outright to become profitable acquisitions. A good margin over asset backing was paid because these assets were highly profitable, demanding any buyer to pay a premium. The downside is that should either of these assets suddenly become less profitable than expected an urgent capital raising from TNR shareholders could be required!

SNOOPY

[Snow Leopard]

Value at 31-Mar-2014: $0.234
Value at 31-Mar-2015: $0.248


Just done two quick and dirty evaluations of TNR:

The pessimistic one - little growth from FY17 on:
Value at 10-Sep-15: $0.277
Value at 31-Mar-16: $0.288

The not so pessimistic one - some growth for a few years:
Value at 10-Sep-15: $0.307
Value at 31-Mar-16: $0.322

Take your pick.

Best Wishes
Paper Tiger

[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 we are looking for disclosed reserves defined as:

Tier 1 capital > 20% of the loan book.

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

...

$8.875m / $179.376m = 4.9% < 20%

=> Fail test

...

Whilst I disagree with the pass mark being set at greater than 20%
I do agree that less than 5% Tier 1 is a fail in most peoples books.

But what about those Bond's you hold?
Does TNR have the right to convert them to equity (i.e. shares) at some point?

Best Wishes
Paper Tiger

[Snoopy]

Whilst I disagree with the pass mark being set at greater than 20%
I do agree that less than 5% Tier 1 is a fail in most peoples books.

But what about those Bond's you hold?
Does TNR have the right to convert them to equity (i.e. shares) at some point?

Best Wishes
Paper Tiger

The discretion on the bonds is all mine. I have the option to convert my bonds to TNR shares in September 2016. The 5% discount on the market head share price at the time is an incentive for me to do so. But I can equally well ask for my cash back. (TNR cannot force me to convert my bonds to shares). Right now, I do not know which way I will go.

SNOOPY

[Snow Leopard]

So TNR would like to own upto 20% of MTF (https://nzx.com/companies/TNR/announcements/270103), which would require an MTF vote on whether to permit that.

The offer of $1.15 a share is daylight robbery - if MTF was listed I would expect it to trade at a significantly higher price.

<update>
Forget the daylight robbery bit - I missed a zero out (10x off :mad ;:) of a reasonably important number.
</update>

[ It seems that the court case involving MTF is essentially resolved - or am I miss reading that?
<update>
Apparently I am misreading that :(
</update> ]

But buying the 19% they do not own will require about $5M of real money.

It also makes me wonder whether TNR are setting themselves up for a potential fall in that I think that they are stretching themselves a bit and a knock would leave them with a sudden need for equity, especially given that Snoopy (& the other holders) can demand that he gets cash for his bonds next year.

DYOR and show me that I am meowing up the wrong tree.

Best Wishes
Paper Tiger

[janner]

It also makes me wonder whether TNR are setting themselves up for a potential fall in that I think that they are stretching themselves a bit and a knock would leave them with a sudden need for equity, especially given that Snoopy (& the other holders) can demand that he gets cash for his bonds next year.

Best Wishes
Paper Tiger

Agree.. I think they could be biting off more than they can chew with this one ..

Will be at the meeting.

Disc. Holding.

[percy]

Warning I can't back this post up.!!! Posted in good faith.
MTF has filed a notice of application for leave to appeal the Supreme Court. This should be later this year.
Should the appeal fail then MTF could be liable for not only the" Sportzone "over charges ,but all the overcharges on the loans they did at that time.
From memory I think a Chris Lee article stated the liability could be up to $30mil.
I have tried without success to locate this article via Chris Lee's archives.
The article could have been after HNZ's announcement 21st July 2014.Asset-HNZ.Motor Trade Finances.

[janner]

Warning I can't back this post up.!!! Posted in good faith.
MTF has filed a notice of application for leave to appeal the Supreme Court. This should be later this year.
Should the appeal fail then MTF could be liable for not only the" Sportzone "over charges ,but all the overcharges on the loans they did at that time.
From memory I think a Chris Lee article stated the liability could be up to $30mil.
I have tried without success to locate this article via Chris Lee's archives.
The article could have been after HNZ's announcement 21st July 2014.Asset-HNZ.Motor Trade Finances.

Thank you percy.

Having a leg in both camps I am watching with interest..

Disc. Holding

[percy]

mtfhc thread,post # 16 Noodles is interesting.
"MTF is not in a position to finally quantify any ultimate liability in relation to the 39 Sportzone loans,or any other loans originated by MTF
shareholders."
Now the worrying part is the second half of that statement..;OR ANY OTHER loans originated by MTF shareholders.
If the liability was solely the 39 sportzone loans,the liability would be minor.
It is far from over from what I can see.
Those on MTF side are saying/thinking the liability is minor,while the other side "really want to know."

[janner]

mtfhc thread,post # 16 Noodles is interesting.
"MTF is not in a position to finally quantify any ultimate liability in relation to the 39 Sportzone loans,or any other loans originated by MTF
shareholders."
Now the worrying part is the second half of that statement..;OR ANY OTHER loans originated by MTF shareholders.
If the liability was solely the 39 sportzone loans,the liability would be minor.
It is far from over from what I can see.
Those on MTF side are saying/thinking the liability is minor,while the other side "really want to know."

Thank you percy.

Quite germain !!.. Why would a minnow ( lets be honest ) be interested in buying into a fight like this ??

Disc. Holding.

[Snow Leopard]

Thanks for bringing this [back] to our attention percy.

It is all clear as mud to me what the true position of MTF actually is.

What game are TNR's playing? The MTF shareholders or board can prevent them going over 10%. (Have I got that right at least?)

Best Wishes
Paper Tiger

[janner]

[QUOTE=Paper Tiger;591065] What game are TNR's playing? ]

Indeed..

[ The MTF shareholders or board can prevent them going over 10%. . (Have I got that right at least?)

YES..

[Doug]

Warning I can't back this post up.!!! Posted in good faith.
MTF has filed a notice of application for leave to appeal the Supreme Court. This should be later this year.
Should the appeal fail then MTF could be liable for not only the" Sportzone "over charges ,but all the overcharges on the loans they did at that time.
From memory I think a Chris Lee article stated the liability could be up to $30mil.
I have tried without success to locate this article via Chris Lee's archives.
The article could have been after HNZ's announcement 21st July 2014.Asset-HNZ.Motor Trade Finances.

http://www.chrislee.co.nz/newsletter/display.php?list=1&year=2014&month=July

[percy]

http://www.chrislee.co.nz/newsletter/display.php?list=1&year=2014&month=July

Doug,
Thank you for finding and posting the article.
I think we should acknowledge Chris Lee for such a fine article, and trust he does not mind it being posted here.
Certainly gives us a clear picture of what is not an easy issue to understand.
He is the only broker/commentator who has covered the issue.

Janner/Paper Tiger.Yes you are right.

[Snoopy]

It also makes me wonder whether TNR are setting themselves up for a potential fall in that I think that they are stretching themselves a bit and a knock would leave them with a sudden need for equity, especially given that Snoopy (& the other holders) can demand that he gets cash for his bonds next year.


Pulled out my Turners bond prospectus last night. I see that if I want my bonds to convert to TNR shares, I have to let TNR know one month before the maturity date of 30th September 2016. If I do nothing then all my bonds are repaid in cash. As you readers have probably figured out, I am extremely suspicious of investing in finance companies. But, as a bondholder seduced by that 9% gross yield, I stilll have this running one year trial with TNR to see if TNR, at least, can win me over.

Being a bondholder, we got all sorts of useful information on the banks arrangements with TNR, which you plebian shareholders don't need. However in the interest of open debate, I don't mind sharing with you.

From p34 of the bond prospectus, the TNR banking covenants:

1/ Interest Cover Ratio:

EBITDA/ Total Interest > 3.5

2/ Leverage Ratio:

Gross Debt / EBITDA < (Requirement). Requirement varies as below



Period100% Turners (TUA) Takeover < 80% Turners (TUA) Holding


Issue date to 31/12/20143.752.00


01/01/2015 to 31/03/20153.502.00


01/04/2015 to 30/06/20153.002.00


01/07/2015 to 30/09/20152.752.00


01/10/2015 to 30/03/20162.502.00


01/04/2016 to 30/06/20162.252.00


01/07/2016 to Maturity2.002.00



The first column is the prevailing bank requirement. The second column is included as a comparison out of interest. At the time of the bond prospectus it was uncertain what holding percentage the then 'Dorchester Pacific' (now TNR) would secure of TUA, with their Turner's Auctions takeover. Thus alternative scenarios, based on the percentage of TUA shares that might be acquired were created in the prospectus. It is clear from the table that if TUA acceptances had been less than 80%, then the subsequent borrowing capacity of the then DPC would have been much more constrained. The fact that 100% of TUA shares were ultimately secured has opened the way for a debt fuelled expansion binge by TNR.

I would like to remind readers that since the 31st March balance date, TNR have acquired 'Greenwich Life' on 10-04-2015 and 'Southern Finance' (purchase price was $5.0 million for the net assets of
approximately $3.3 million and goodwill of $1.7 million) on 30-06-2015. Those purchases are not reflected in the latest published accounts. On top of that we now have the partial bid for MTF shares.

You can see from the table that the debt filled expansion party has to be brought under control such that by bond maturity date we are back to the same covenant level as before the full TUA acquisition. I would be grateful if any shareholder attending the AGM would ask how they are tracking towards that target!

SNOOPY

[Not too Flash]

Happily banking the 9% on bonds in the current market.

Would love to see the share price up over 30 cents so the conversion decision would be easier

[Snoopy]

From p34 of the bond prospectus, the TNR banking covenants:

1/ Interest Cover Ratio:

EBITDA/ Total Interest > 3.5

2/ Leverage Ratio:

Gross Debt / EBITDA < 3.5 (31st March 2015).



Time to put the position of TNR under scrutiny at balance date.

EBITDA/ Total Interest = [$18.264m+$1.504m+$7.381m] / $7.381m = 3.68 > 3.5 (=> O.K.)

Gross Debt / EBITDA = $156.995m / $27.149m = 5.78 > 3.5 ( => fail test )

Granted all of this is historical. But it does appear that on balance date (31-03-2015), TNR was in breach of its banking covenants (the Gross Debt/ EBITDA figure)! Furthermore the first covenant was only rescued because of a write up in the share value of TUA shares because of the takeover offer! This is desperate stuff. Those directors at the AGM deserve a grilling!

SNOOPY

[Snoopy]

Gross Debt / EBITDA = $156.995m / $27.149m = 5.78 > 3.5 ( => fail test )



I have been thinking about this 'failed test'. The old Turners Auctions was brought fully in house at the end of November 2014. That means there were only four months of operating performance in the TNR results. Yet the debt on the books refers would be the same if TNR had bought TUA right at the start of the year. So I should probably add in an allowance of an estimate of EBITDA over the period that TNR was not the 100% owner.

Likewise I should add in an estimate of EBITDA for the three months of 'Oxford Finance' earnings before that company joined the TNR fold. This is harder because separate finance company earnings are not broken down amongst the different finance subsidiaries in the accounts. However, we do know that the Levin Head Office of 'Oxford Finance' has 27 Employees and the book size at EOFY20165 was $55m up 15% on FY14 (AGM presentation slide 17). This compares with 24 employees in the division named 'Dorchester Finance' (Auckland head office).

SNOOPY

[black knat]

I have been thinking about this 'failed test'. The old Turners Auctions was brought fully in house at the end of November 2014. That means there were only four months of operating performance in the TNR results. Yet the debt on the books refers would be the same if TNR had bought TUA right at the start of the year. So I should probably add in an allowance of an estimate of EBITDA over the period that TNR was not the 100% owner.


Gee... that is a rather large error Snoop.

I must confess i can never understand the point to your detailed comparisons of TNR to a bank. It is not a bank and those that choose to invest do so, i suggest, with that understanding.

[Snow Leopard]

Gee... that is a rather large error Snoop.

I must confess i can never understand the point to your detailed comparisons of TNR to a bank. It is not a bank and those that choose to invest do so, i suggest, with that understanding.

The business of a bank is what?
The business of Turners is what?

When you work out the similarity then you will realise the usefulness of such comparisons.

Best Wishes
Paper Tiger

[Snoopy]

I must confess i can never understand the point to your detailed comparisons of TNR to a bank. It is not a bank and those that choose to invest do so, i suggest, with that understanding.


As PT has suggested, both TNR and banks are in the primary business of lending money.

Granted since November 2004, TNR now own outright the former TUA business. In an ironic twist, TUA themselves had an 'add on' finance division to add value to the primary activity of auctioning/selling cars. Now TNR has an 'add on' business of selling cars to support their primary business of lending money! I may have to extract the car selling part of TNR to get a fair 'finance company' comparison in the future. But for FY2015, TNR only had four months of owning TUA outright. So it was very much 'mainly' a finance company for FY2015 (Ended 31st March 2015).

You are correct in that I am interested in comparing TNR as a finance company to the likes of say Heartland (the bank that contracts out all its conventional banking activity to other banks) because they both operate in the NZ market and focus on consumer and small business lending. However, there is a second exercise going on here that has nothing to do with any inter company comparison.

Turners (TNR) have their own banking syndicate that supports their activities. TNR have their own covenants to keep their own bankers happy. These were listed in the TNR (formerly Dorchester) bond prosoectus at the time of the TUA takeover. They are not listed in the TNR annual report for the scrutiny of shareholders. However, I do believe it is of interest to TNR shareholders to see how well TNR are tracking with their own banking arrangments.

Those reading this thread casually may not have made this distinction. And this may be my fault for taking one perspective, then swinging immediately to another. So I thank you Black Knat for bringing attention to this matter.

SNOOPY

[Snoopy]

Gee... that is a rather large error Snoop.


The problem with both of TNR's own banking covenants is that the EBITDA figure should be higher. So I am going to tabulate my calculation for TNRs EBITDA again in detail, but this time also adding some more bits and pieces (Workings A and B), so that you can see if I have missed anything.



AmountReference


Net Operating Profit (EBT)$18.264mAR2015 p30


add Depn & Amtn Expense$1.504mAR2015 p30


add Interest Expense$7.381mAR2015 p30


add TUA pre takeover adjustment$8.336m(Working A, below)


add Oxford Finance pre takeover adjustment$0.786m(Working B, below)


Total TNR EBITDA$36.271m



Leverage ratio (being the ratio of Gross Debt of $156.995m (p64 AR2015) to EBITDA (calculated above) is:

$156.995m / $36.271m = 4.32 > 3.5 times allowed (p34 Simplified disclosure prospectus for Dorchester Bonds).

Try as I might, I can't get TNR's EBITDA high enough to satisfy Turner's own bankers!

SNOOPY

[Snoopy]

add Oxford Finance pre takeover adjustment$0.786m(Working B, below)




The following is an estimate due to there being no specific breakdown of the profits of the legacy 'Dorchester Finance' and 'Oxford Finance' purcahsed during the year FY2015.

Finance business consists of Dorchester Finance based in Auckland (24 employees) and Oxford Finance based in Levin (27 employees). Assume all employeess are equally productive. Segment result (AR2015 p46) shows total operating profit for the Finance division in FY2015 of: $5.156m

This represents teh total profit from 'Dorchester Finance' and nine out of twelve months of 'Oxford Finance'. So we can work out the monthly contribution 'a' of each employee using the following equation:

( 9/12) 27 x a + 24 x a = $5.156m => a = $0.1165m /month

Total operating profit if Oxford finance had been owned for the entire year would therefore be:

27 x $0.1165m + 24 x $0.1165m = $5.942m

This is an increase of: $5.942m - $5.156m = $0.786m

Over the result declared in TNR's annual report.

SNOOPY

[Snoopy]

add TUA pre takeover adjustment$8.336m(Working A, below)




The TUA year ended on 31st December 2014, where as the TNR year ends of 31st March 2015. The Grant Samuel report on the takeover offer for TUA had projections for the full year earnings of TUA as an independent entity (p9 Grant Samuel Report). From this I have been able to estimate the EBITDA for TUA over the year ended 31st December 2014 as follows:

EBITDA = Net Operating Profit + Interest paid + Depreciation and Amortization
= $8.8m + $2.0m (*) +$1.7m = $12.5m

(*) The $2.0m I have estimated here is slighly higher than the $1.928m paid in the previous year because of the borrowing needed to pay the special dividend to TUA shareholders.

Assuming earnings are constant per month over the year

Monthly EBITDA = $12.5m /12 = $1.042m /month

8 months x $1.042m /month = $8.336m

SNOOPY

[percy]

The business of a bank is what?
The business of Turners is what?

When you work out the similarity then you will realise the usefulness of such comparisons.

Best Wishes
Paper Tiger

The main difference between a bank [HNZ] and a finance company [TNR] is that a bank is more regulated than a finance company.
Banks in NZ must report quarterly to The Reserve Bank of NZ,and be registered.This adds a level of greater security to depositors.Therefore,banks can source their funds cheaper than a finance company.
So this must/should be taken into account when comparing a bank to a finance company.
It is up to each of us to decide for our selves what allowance we make.Risk verses reward.
Both TNR and HNZ appear to me to be very well managed businesses.

[blackcap]

Granted all of this is historical. But it does appear that on balance date (31-03-2015), TNR was in breach of its banking covenants (the Gross Debt/ EBITDA figure)!
SNOOPY

What are the implications for TNR shareholders or TNR itself if it is in breach of its banking covenants? Does the/a lender have to lay a complaint and if upheld what are the penalties to TNR?
Are TNR really in breach because if they were their bankers would surely be making some mutterings?
Interested in your thoughts?
( I do realise that being in breach is more scary for bond/debt holders than shareholders and there is the constant "tension" between debt and equity)

[Snoopy]

What are the implications for TNR shareholders or TNR itself if it is in breach of its banking covenants? Does the/a lender have to lay a complaint and if upheld what are the penalties to TNR?
Are TNR really in breach because if they were their bankers would surely be making some mutterings?
Interested in your thoughts?


As you surmise blackcap, there have been no public mutterings from DPC's bankers. The figures I am talking about are six months old now, so there has been plenty of time for mutterings to emerge. Furthermore the debt funded expansion binge of TNR has continued further, with the acquisitions of Greenwich Insurance and Southern Finance. So we can safely assume I must be wrong about those banking covenants being broken :-).

The question is, where am I wrong? There is wriggle room in some of the assumptions I have made. But I still maintain that my analysis is conceptually correct. My feeling is that if TNR have not broken their banking covenants, they must be sailing close to the wind.



( I do realise that being in breach is more scary for bond/debt holders than shareholders and there is the constant "tension" between debt and equity)


There are two 'solutions' if/when TNR's Gross Debt / EBITDA ratio becomes too high:

1/ Reduce debt
2/ Increase EBITDA

1/ means raise more equity from shareholders. So IMO what we have here is a situation that is potentially rather more risky for shareholders than bondholders.

SNOOPY

[black knat]

The business of a bank is what?
The business of Turners is what?

When you work out the similarity then you will realise the usefulness of such comparisons.

Best Wishes
Paper Tiger

Glib answer as seems to be customary from you PT ... but not helpful. if you have something useful to contribute why not say it? I note Percy has reiterated my point above.

[Snoopy]

My feeling is that if TNR have not broken their banking covenants, they must be sailing close to the wind.

There are two 'solutions' if/when TNR's Gross Debt / EBITDA ratio becomes too high:

1/ Reduce debt
2/ Increase EBITDA

1/ means raise more equity from shareholders. So IMO what we have here is a situation that is potentially rather more risky for shareholders than bondholders.


I want to put a couple of stakes in the ground here so everyone knows where I am coming from.

I am 'mainly' a bondholder, although also a very small shareholder. I wanted to get a few shares so that I was on the mailing list for the annual report and in a position to participate in any shareholder capital raising if any. I also think that Paul Byrnes and his managment team have done an excellent job in reconstituting what was DPC from a difficult post GFC position. I am not agitating for any change to management, nor a change in the company direction.

However, I think the rhetoric from management has become such that some shareholders do not understand the risk inherent in their TNR investment. For example the AGM speeches are on the lines of TNR being 'well capitalised'. But what does this mean? I guess it means that they are trading within their banking covenants. But I also notice that mention was made of possibility of raising more equity shoudl a suitable acquisition appear on the horizon. Then we hear that Paul Byrnes is spending 50% of his time evaluating new acquisitions. What I am suggesting to shareholders is that there are some dots to join up here. IMO

1/ Another substantial acquisition is almost certain at some point.
2/ That acquisition will require either a substantial cash issue from existing shareholders or a significant placement to new investors. Either will significantly dilute any current shareholding.

TNR are IMO, despite what managment are telling shareholders to their faces, short of capital.

SNOOPY

[Snoopy]

Glib answer as seems to be customary from you PT ... but not helpful. if you have something useful to contribute why not say it? I note Percy has reiterated my point above.


A Tiger is a highly secretive creature from the Sumatran Jungle. Don't expect too much in your face stuff from such a beast. This is not how they work. When you hunt Tiger you have to work on evidence of a sign and a sniff. If you can't follow the scent, try a bigger nose.

SNOOPY

[Snoopy]

From p34 of the bond prospectus, the TNR banking covenants:

2/ Leverage Ratio:

Gross Debt / EBITDA < (Requirement). Requirement varies as below



Period100% Turners (TUA) Takeover < 80% Turners (TUA) Holding


Issue date to 31/12/20143.752.00


01/01/2015 to 31/03/20153.502.00


01/04/2015 to 30/06/20153.002.00


01/07/2015 to 30/09/20152.752.00


01/10/2015 to 30/03/20162.502.00


01/04/2016 to 30/06/20162.252.00


01/07/2016 to Maturity2.002.00



The first column is the prevailing bank requirement. The second column is included as a comparison out of interest. At the time of the bond prospectus it was uncertain what holding percentage the then 'Dorchester Pacific' (now TNR) would secure of TUA, with their Turner's Auctions takeover. Thus alternative scenarios, based on the percentage of TUA shares that might be acquired were created in the prospectus. It is clear from the table that if TUA acceptances had been less than 80%, then the subsequent borrowing capacity of the then DPC would have been much more constrained. The fact that 100% of TUA shares were ultimately secured has opened the way for a debt fuelled expansion binge by TNR.

You can see from the table that the debt filled expansion party has to be brought under control such that by bond maturity date we are back to the same covenant level as before the full TUA acquisition.




IMO

1/ Another substantial acquisition is almost certain at some point.
2/ That acquisition will require either a substantial cash issue from existing shareholders or a significant placement to new investors. Either will significantly dilute any current shareholding.

TNR are IMO, despite what managment are telling shareholders to their faces, short of capital.


Drawing some more dots across two of my posts

The tightening bank requirements laid out in the quoted table, shows the growth required by the banks for TNR to retain the banks confidence. One way of interpreting that table is that the return on invested capital must increase by:

3.75/2.00 = 87.5% over just two years!

This is a big ask. If anyone is up to that task it is Paul Byrnes and his team. However if they fall short of this lofty target, they cannot sit back basking in partial success. They will have to raise more capital from shareholders.

It is really good to hear about all these new acquistions being EPS positive. But are they EPS positive enough? EPS increasing is not just desirable for TNR's future, it is critical!

This is quite an unusual position for the banks to adopt from my POV. Rather than being conservative, the banks are driving growth hard. The revised EBITDA to Gross Debt targets mean that growth is now essential for TNR to survive. There is no turning back. There is serious risk for shareholders with such a strategy though. This is why I am happy to be 'mainly' a bondholder at this point in TNR's development. If growth looks like stumbling from the required 40% per annum goal, I'll be cashing out my bonds in a year's time.

SNOOPY

[Snoopy]

The tightening bank requirements laid out in the quoted table, shows the growth required by the banks for TNR to retain the banks confidence. One way of interpreting that table is that the return on invested capital must increase by:

3.75/2.00 = 87.5% over just two years!

This is a big ask. If anyone is up to that task it is Paul Byrnes and his team. However if they fall short of this lofty target, they cannot sit back basking in partial success. They will have to raise more capital from shareholders.

It is really good to hear about all these new acquistions being EPS positive. But are they EPS positive enough? EPS increasing is not just desirable for TNR's future, it is critical!


I seem to have done quite a bit of waffling on this thread over the last few days. So time to nail down some targets for future reference.

Required increase in EBITDA, as dictated by the banking syndicate supporting TNR, is 87.5% over two years. If we express the annual growth rate required as 'g', then:

g^2= 1.87 => g=1.37

So an annual EBITDA growth rate of 37.5% is required. This equates to $49.7m for FY2016 and $68.1m for FY2017. Expect the TNR share price to be punished if these growth expectations are not met!

Principal assumptions are as follows:

1/ Current EBITDA earnings are just holding at a level the banks are happy with, but on the cusp of breaching bank covenants.
2/ The one off increase in TUA shares that TNR booked to profit in FY2015 of $7.058m is part of 'normal' profit for bank covenant purposes (increases in asset values on the balance sheet are real gains,no matter the source). If this one off profit figure is taken out, then the EBITDA increase from FY2015 to FY2016 is 71%
3/ The earnings performance of TUA during the period 01-01-2014 to 31-12-2014 was in line with management forecasts made in August 2014.
4/ Any new acquisitions must earn a profit 37.5% higher than overall group EBITDA margin from the previous year.

Paul Byrnes has a great management team together. But this required 37.5% annual growth rate will test even the best management teams. Are they up to the challenge? If not there should be plenty of opportunity to buy more DPC shares at around 25c from a future capital raising, that would be required to 'fix the books'.

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 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.


All the above information was taken from note 26b-Liquidity Risk in the FY2014 annual report. The equivalent information is not so neatly tabled in the FY2015 annual report. When presentation of results changes from year to year, I immediately become suspicious: What has the company got to hide by changing their result presentation format? The current account information that I seek is still in the FY2015 annual report, but it is scattered. Let's see what happens when I bring it all together again.



Financial Assets0-12 monthsReference


Cash & Cash Equivalents$12.339m AR2015 p32


Financial Receivables Contractural Maturity$74.174m AR2015 p53


Reverse Annuity Mortgages$1.603m AR2015 Note 16


Total Current Resources$88.116m (addition)


Financial Liabilities0-12 monthsReference


Current Liabilities$79.629m+$37.539mAR2015 p44


Total Current Liabilities$117.168m (addition)



What we have here is an on paper 'theoretical' current shortfall of:

$117.168m - $88.116m = $29.052m

Of course there are ways to make up this shortfall.

1/Some of those account receivables could be rolled over into new business, thus making the 'theoretical' shortfall disappear.
2/There is $8.984m of stock on the books at the 'Fleet & Auction' division, that could be sold for cash.
3/ Retaining half (company policy is to pay out half of earnings as dividends) of the profit of $10.050m budgeted for the ensuing year.
4/ If any of the shortfall remained, the difference could be borrowed under the company's banking facilities. However, information on the capacity of spare banking facilities available is not listed in the annual report.

The test I am asking TNR to meet is a follows: Over the twelve months from balance date:-

[(Contracted Cash Inflow) + (Other Cash Available)] > 1.1 x (Contracted Cash Outflow)

=> ($88.116m+$8.984m+0.5x$18.050m) > 1.1 x $119.459m
=> $106.125m > $131.405m (this is false)

The theoretical shortfall of $27.278m represents:

$27.278m/$142.827m = 17.7% of the end of year loan book balance

In summary, not a good result compared to the strong cash positive position of last year. The contractual cash deficit position of TNR is substantial, greater than the (record) full year profit in FY2015 of $18.05m!

SNOOPY

[Snoopy]

Required increase in EBITDA, as dictated by the banking syndicate supporting TNR, is 87.5% over two years. If we express the annual growth rate required as 'g', then:

g^2= 1.87 => g=1.37

So an annual EBITDA growth rate of 37.5% is required. This equates to EBITDA of $49.7m for FY2016 and EBITDA of $68.1m for FY2017. Expect the TNR share price to be punished if these growth expectations are not met!

Principal assumptions are as follows:

1/ Current EBITDA earnings are just holding at a level the banks are happy with, but on the cusp of breaching bank covenants.
2/ The one off increase in TUA shares that TNR booked to profit in FY2015 of $7.058m is part of 'normal' profit for bank covenant purposes (increases in asset values on the balance sheet are real gains,no matter the source). If this one off profit figure is taken out, then the EBITDA increase from FY2015 to FY2016 is 71%
3/ The earnings performance of TUA during the period 01-01-2014 to 31-12-2014 was in line with management forecasts made in August 2014.
4/ Any new acquisitions must earn a profit 37.5% higher than overall group EBITDA margin from the previous year.


Forecast figures from the AGM presentation:

-----

Full Year Profit
–
12 Months to 31 March 2016
•Guidance $20.0 million profit before tax
•Up 43% on $14.0 million trading profit to 31 March 2015

-----

I will have to figure out how EBITDA profit growth compares to NPAT profit growth. But superficially it looks like the 43% forecast profit improvement falls well short of the 71% improvement required. Nothing that can't be fixed by yet another cash issue of course. But this isn't good news for existing shareholders.

SNOOPY

[Snoopy]

What we have here is an on paper 'theoretical' current shortfall of:

Current Financial Assets-Current Financial Liailities
=$117.168m - $93.609m
= $23.559m

Of course there are ways to make up this shortfall. Some of those account receivables could be rolled over into new business, thus making the 'theoretical' shortfall disappear.


I don't think what I said above was correct. The 'financial receivables', from Turner's perspective, is principally the car loans it writes to customers. These loans could be effectively extended, by the customer buying a new car for example. But this is a negative cashflow event for TNR in the current year. Turners would initially have less money to repay the banks that had been supporting them, and the cash shortfall would not improve, but get worse, at least in the current year.



If any of the shortfall remained, the difference could be borrowed under the company's banking facilities.


The above bit is correct though. It may be that when the BNZ sees the juicy cashflow from new customers signed up for the future, they won't have any trouble rolling over the current loans due into future years. IOW, they will be prepared to match TNR's cashflows with the interest payments they in turn ask for from TNR.

SNOOPY

[Not too Flash]

Will be interesting to see what the bonds trade at when they are listed Friday. At 9% for about a year to go assume will be 1.04 or thereabouts.

Will be interesting if the conversion factor at max of 30c will have any effect.

[Snoopy]

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.


Despite the sarcasm from our banned friend, it does now look as though taking the bonds was the shrewd move. The share price has retreated down to 27c, which implies a conversion price of just 25.5c. 25.5c is only 0.5c above what those who elected to take shares from the offer got. In the meantime bondholders are enjoying a much better income on their capital than shareholders, and still have the option of 'pulling out' at face value if everything turns to custard for TNR over the next year.

Then in another amazing about face by TNR management, the bonds are now listed (ticker TNRHA)! Buyers in there at $1.04,with sellers sitting there at $1.07. That is about a 5% premium to face value should any bond holder want out.

SNOOPY

discl: happy TNRHR 9% bondholder

[black knat]

Despite the sarcasm from our banned friend, it does now look as though taking the bonds was the shrewd move. The share price has retreated down to 27c, which implies a conversion price of just 25.5c. 25.5c is only 0.5c above what those who elected to take shares from the offer got. In the meantime bondholders are enjoying a much better income on their capital than shareholders, and still have the option of 'pulling out' at face value if everything turns to custard for TNR over the next year.

Then in another amazing about face by TNR management, the bonds are now listed (ticker TNRHA)! Buyers in there at $1.04,with sellers sitting there at $1.07. That is about a 5% premium to face value should any bond holder want out.

SNOOPY

discl: happy TNRHR 9% bondholder


Look snoop... it is all very well to claim the prize for decision making at this early juncture. TNR is a very illiquid share. Some share holders would have sold out at .35 or better with the opportunity to re-enter at a cheaper price - they would be quite happy with how things are developing . Others might be quite happy just to hold and to see how things pan out. A very well managed company. No significant shareholders have reduced their stake.

[Snoopy]

Look snoop... it is all very well to claim the prize for decision making at this early juncture. TNR is a very illiquid share. Some share holders would have sold out at .35 or better with the opportunity to re-enter at a cheaper price - they would be quite happy with how things are developing . Others might be quite happy just to hold and to see how things pan out. A very well managed company. No significant shareholders have reduced their stake.

Not claiming any prize Black Knat. However, I don't find it easy to reconcile your comment that some shareholders sold out waiting for a re-entry with the admission that the share is illiquid. The illiquidity itself surely casts doubt on the certain execution of such a strategy!

Returning to the investment case for the shares. I think we can both agree that if TNR does really well going forwards, then investing in the head shares at 25c at TUA takeover time was the best option.

OTOH, The case for investing in an option (what the bonds are) is never about performance alone. It is about choice. In a years time, if the share price remains at 27c or more you will claim that the downside risk protection of the bonds has no value. Technically you will be correct, from a hindsight perspective. But the investment case for an option does have value while the options are still in play, which is right now.

The problem with measuring performance 'at the end' is that once the excise/redemption date of the options passes, the investment trajectory becomes an historical series of event with no alternative paths. But such a viewpoint is missing the point. No-one knows for sure what will happen to TNR over the next year. So investing in a option today can still be the rational choice , even if it does ultimately lead to a lower return.

SNOOPY

[bull....]

great effort all looks good - nice rounded bottom at 26c was a good entry

[biker]

great effort all looks good - nice rounded bottom at 26c was a good entry

Yes Bull, all going well. Good management consistently achieving what they say they will. Great buying at 26c but still great buying around 30c IMO with great medium term upside potential. A Company that operates without lots of hubris, quietly building a solid base to launch from into bigger and better things.

[golden city]

i like tge management..got in again today

[percy]

A very good result.
It appears to me Turners are gaining market share in used vehicle sales.
Bit sorry now I sold out.!!! lol.

[RTM]

Pleased I kept mine as I did waiver for while. I would call it indecision....not conviction tho. Will be interesting to see how the duel with Heartland with respect to MTF works out. Maybe a nice gain for TRN there as well.

[percy]

Pleased I kept mine as I did waiver for while. I would call it indecision....not conviction tho. Will be interesting to see how the duel with Heartland with respect to MTF works out. Maybe a nice gain for TRN there as well.

At this stage TNR are in "the box seat"with MTF.
ps.I did put the TNR funds to good use.!! lol.

[Snoopy]

Pleased I kept mine as I did waiver for while. I would call it indecision....not conviction tho. Will be interesting to see how the duel with Heartland with respect to MTF works out. Maybe a nice gain for TNR there as well.


RTM (and others). TNR have never said they want to gain control of MTF. TNR want to raise their shareholding in MTF to match the level of business they have with MTF, right now. This equates to 10-15% of the shares in MTF IIRC. You Heartland enthusiasts had better hope that Heartland does not bid for MTF. Because if they are successful then TNR could pull all of their business from MTF, as TNR have their own 100% owned finance companies that could do the job for them.

Heartland 'win' the bid for MTF, then 15% of the business disappears overnight? It won't be good for Heartland shareholders.

SNOOPY

[Snow Leopard]

RTM (and others). TNR have never said they want to gain control of MTF. TNR want to raise their shareholding in MTF to match the level of business they have with MTF, right now. This equates to 10-15% of the shares in MTF IIRC. You Heartland enthusiasts had better hope that Heartland does not bid for MTF. Because if they are successful then TNR could pull all of their business from MTF, as TNR have their own 100% owned finance companies that could do the job for them.

Heartland 'win' the bid for MTF, then 15% of the business disappears overnight? It won't be good for Heartland shareholders.

SNOOPY

I had gained the impression, based on statements such as:

"Turners currently write around 10% of new loans originated through MTF with that % continuing to increase in recent months."
(taken from this announcement (http://www.turnerslimited.co.nz/site/turnerslimited/files/News/Turners%20looks%20to%20Strengthen%20Relationship%2 0with%20MTF.pdf))

that Turners provided loan monies to MTF.

Are you saying that Turners provide customers who take up 15% of the MTF loans?

Best Wishes
Paper Tiger

[percy]

I think everyone will find Chris Lee's comments of interest.'
www.chrislee.co.nz scroll down and "click here to enter our site" then go to "Taking stock."

[winner69]

I think everyone will find Chris Lee's comments of interest.'
www.chrislee.co.nz scroll down and "click here to enter our site" then go to "Taking stock."

Very insightful comments

Thanks for pointing us to it

[Snoopy]

I had gained the impression, based on statements such as:

"Turners currently write around 10% of new loans originated through MTF with that % continuing to increase in recent months."
(taken from this announcement (http://www.turnerslimited.co.nz/site/turnerslimited/files/News/Turners%20looks%20to%20Strengthen%20Relationship%2 0with%20MTF.pdf))

that Turners provided loan monies to MTF.

Are you saying that Turners provide customers who take up 15% of the MTF loans?


Yes I am saying that PT. That's how I read things anyway. Happy to be convinced another way if I have 'got it wrong', but in support of my case:

The following quotes are from the MTA Annual Report of FY2015.

From note 1

"The principal activity of the Group consists of accepting finance receivables entered into by transacting shareholders."

From note 9 on funding (secured), the policy statement.

"MTF funds a major portion of its business by the sale of finance receivables to securitisation entities established solely for purchasing finance receivables from MTF."

"MTF recognises transactions with securitisation entities as financing arrangements; expenditure related to securitisation programmes is recognised as a cost of funding and the securitised assets and funding from securitisation programmes are recognised respectively as assets and liabilities in the balance sheet."

"Under the MTF securitisation programme, entities are created to purchase eligible finance receivables."

I read that as MTA bundling together loans from for example, "Joe Blow Cars" together with those from "Fred Smith Cars" and all those other little dealers into a critical mass of car finance deals that can be packaged together and on-sold. A fixed interest investor that would balk at funding "Joe Blow Cars", might be happier funding a collection of deals from different dealers packaged together to lower portfolio risk. I am not sure that the MTA ever envisaged one organisation controlling 10-15% of the used car market. Once a 'dealer' (like Turners Fleet - the part of the old Turner's Auctions that goes to Japan buys their own cars and on sells them direct to the New Zealand public) gets to a certain size, then that dealer's own portfolio may grow to a size that it can self manage its own portfolio risk, independently of the MTA. This is where Turner's Auctions own in house finance company comes in. They can take on higher risk loans that the MTA might not be happy with.

The MTA securitized loans are sold off to fixed interest investors.

As for any unsecuritized loans:

More from note 9 (my emboldening):
"MTF has committed bank facilities with BNZ secured by a general security agreement over all unsecuritised assets, including unsecuritised finance receivables."

Those loans not yet rolled up and on sold seem to be 100% financed by BNZ, not the likes of Turners.

SNOOPY

[blackcap]

the proposed changes to their capital structure are interesting. not that doing a 1:10 consolidation will change anything but a $3 stock may be more worthy of a NZX 50 place. Quarterly dividends are interesting. I note Telecom (now spark) did these a while back but not many other companies in NZ follow the US model. Again this will not have a material impact at all and changes nothing but I wonder at the motive for both and how can this "advice" be beneficial for the company.
Good to see TNR again well ahead of forecast and glad I topped up a few weeks ago.

[percy]

I brought back into TNR this morning.Thought I would get them "at the open" at 31 cents,but ended up paying 32 cents.!

[kizame]

I brought back into TNR this morning.Thought I would get them "at the open" at 31 cents,but ended up paying 32 cents.!

Still good value,I am surprised you sold out in the first place,has great medium to longer term growth potential.

[percy]

Yesterday I misread the TNR result.I got mixed up with taking the abnormals as normal.
The result offcourse did not include a full year of the "Turners auctions".
I also failed to factor in the fact TNRs are not paying full tax.
The 2016 projection was downgraded from $23mil to $20mil.
The result was not what I expected, therefore I have sold my holding.
To achieve the $23mil TNR will have to make an acquisition.Depending on what the acquisition is,the terms of the acquisition,and whether I think it is good or not,will guide me as to whether I will buy in again.

The above was posted 28-05-2015.
I have brought back in this morning at about the same price I sold for.
Yesterday's announcement was very good and the outlook looks positive.
I also brought a parcel for the wife's account this afternoon.

[janner]

The above was posted 28-05-2015.
I have brought back in this morning at about the same price I sold for.
Yesterday's announcement was very good and the outlook looks positive.
I also brought a parcel for the wife's account this afternoon.

Told Ya !!..

How ever... You probably made a few bucks in the interim with those funds :-))))

[Snoopy]

I am applying a 'banking covenant' to a non-bank. While not a legal requirement for TNR, this is to enable a comparison with other listed entities in the finance sector (real banks like Heartland for instance ;-) ), so please bear with me. The data below may be found in the 'Consolidated Statement of Financial Position' (AR2015, p32).

We are looking here for a certain equity holding to balance a possible temporary mismatch of cashflows. The company needs basic equity capital and we are looking for 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)
= $121.002m - $103.595m - $8.532m
= $8.875m

The money to be eventually 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': $17.350m
2/ 'Finance Receivables': $142.827m
3/ 'Receivables and deferred expenses': $5.946m
4/ 'Reverse annuity mortgages': $13.253m

For the FY15 year these come to $179.376m

$8.875m / $179.376m = 4.9% < 20%

=> Fail test

Care needs to be taken in interpreting a result like this. A big increase in Intangible Assets over the year have done the damage to this statistic.

From note 22 in the annual report, $45.6m of intangibles was brought onto the books with the acquisition of TUA. $30.454m was brought onto the books with the acquisition of Oxford Finance. These companies were bought outright to become profitable acquisitions. A good margin over asset backing was paid because these assets were highly profitable, demanding any buyer to pay a premium. The downside is that should either of these assets suddenly become less profitable than expected an urgent capital raising from TNR shareholders could be required!


I am applying a 'banking covenant' to a non-bank. While not a legal requirement for TNR, this is to enable a comparison with other listed entities in the finance sector (real banks like Heartland for instance ;-) ), so please bear with me. The data below may be found in the 'Consolidated Statement of Financial Position' (HYAR2016, p14).

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

Tier 1 capital > 20% of the loan book.

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

Tier 1 Capital = (Shareholder Equity) - (Intangibles) - (Deferred tax)
= $125.810m - $105.145m - $5.310m
= $15.355m

The money to be eventually 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': $15.910m
2/ 'Finance Receivables': $164.436m
3/ 'Receivables and deferred expenses': $4.553m
4/ 'Reverse annuity mortgages': $11.878m

For the HY2016 year balance date these come to $196.771m

$15.355m / $196.771m = 7.8% < 20%

=> Fail test

Care needs to be taken in interpreting a result like this. The increase in Intangible Assets over the last six months (representing a business acquired over the period) needs to be considered. Southern Finance Limited was brought onto the books on 31st July 2015, just two months before the reporting period ended on 30th September 2015. .

From note 6 in the half year report, $1.677m of intangibles was brought onto the books with the acquisition of Southern Finance. The $1.677m is a measure of what Turners were prepared to pay over and above asset backing, because of the prospective profitability of the acquisition. Nevertheless $1.677m represents a minimal overall asset distortion to a company with over $100m of intangible assets on the books already. So I am judging the acquisition of Southern Finance, with a loan book of $9.5m, (under 6% of the total finance receivables loan book for TNR) , as not distortionary and hence not material for Tier 1 lending covenant purposes.

Put bluntly, while an improvement from the FY2015 position, I consider the capital behind this company is (still) insufficient for the size of the loan book.

SNOOPY

discl: shareholder and bondholder

[Snoopy]

The gearing ratio in based on the underlying debt of the company, calculated by stripping out the already contracted future liabilities (from AR2015 Balance Sheet p32) eventually payable to insurance policy holders on the balance sheet. I have additionally removed the deferred revenue ($7.476m) from these underlying liabilities

$207.970m -($9.260m + $16.378m + $7.476m) = $174.850m

Likewise on the asset side of the balance sheet we have to strip the third party 'finance receivables' from the total company assets. From the Balance Sheet.

$328.972m - $142.827mm = $186.145m

Gearing Ratio = Underlying Liabilities/Underlying Assets = $174.850m/$186.145m = 94% > 90%

=> Fail Test

The big spending Turner's acquisition of Oxford Finance (01-04-2014) and the old 'Turners Auctions' (28-10-2014) have greatly increased the gearing ratio of the formerly conservatively geared company!


The gearing ratio in based on the underlying debt of the company, calculated by stripping out the already contracted future liabilities (from HYAR2016 Balance Sheet p14) eventually payable to insurance policy holders on the balance sheet. I have additionally removed the deferred revenue ($7.476m) from these underlying liabilities

$224.099m (declared total liabilities ofthe company)
less $10.517m (life insurance contract liabilities)
less $15.498m (life investment contract liabilities)
less $7.587m (deferred revenue)

= $190.497m (effective snapshot of net debt)

Likewise on the asset side of the balance sheet we have to strip the third party 'finance receivables' from the total company assets. From the Balance Sheet.

$348.909m (total assets)
less $142.827mm (finance receivables)

= $184.473m (effective snapshot of unerlying company assets)

Gearing Ratio = Underlying Liabilities/Underlying Assets = $190.497m/$184.473m = 103% > 90%

=> Fail Test

Things look to be going in the wrong direction.

Six months on from the period in which Oxford Finance (01-04-2014) and the old 'Turners Auctions' (28-10-2014) were acquired, the greatly increased the gearing ratio of the formerly conservatively geared company has increased even further.

Borrowing money to significantly increase the size of the loan book while the asset base remains steady is a risk factor that should not be underestimated by shareholders!

SNOOPY

[Snoopy]

Updating for the FY2015 financial year (ended 31-03-2015)

The underlying interest expense is shown under note 7 (AR2015) to be $7.381m.

The underlying EBIT is a bit more complicated. There is a $7.058m gain recorded because of the write up in the value of the then Dorchester's existing stake in TUA to 'market bid value' level. But the market bid was made my Dorchester. So Dorchester have in effect bid up the value of their pre-owned TUA shares to a market level that they themselves have chosen. $7.058m is a one off self controlled capital gain that is not repeatable. IMO this should not be included in any underlying EBIT to Interest Expense ratio.

(EBT +Interest Expense)/(Interest Expense) = [($18.264m-$7.058m)+$7.381m]/$7.381m = 2.52 > 1.2

=> Pass Test



Updating for the HY2016 financial year (ended 30-09-2015)

The underlying interest expense is shown in the 'Condensed Consolidated Statement of Comprehensive Income' (p12 HYAR2016 to be $5.722m.

The underlying EBIT may be found in the same statement by taking the 'Profit Before Taxation' (EBT) and adding back the interest expense (I).

(EBT +Interest Expense)/(Interest Expense) = [$10.260m+$5.772m]/$5.772m = 2.78 > 1.2

=> Pass Test

'Post Calculation Thought'
It strikes me that by passing this test so easily, the profit margins at TNR must be generally higher than the finance industry norm. Given this, perhaps the 'failures' in the two previous tests are not as much of a concern as I previously considered. Others Thoughts?

SNOOPY

[Snoopy]

The current account information that I seek is still in the FY2015 annual report, but it is scattered. Let's see what happens when I bring it all together again.



Financial Assets0-12 monthsReference


Cash & Cash Equivalents$12.339m AR2015 p32


Financial assets at value thru P&L$0.877m AR2015 p43


Financial Receivables Contractural Maturity$74.174m AR2015 p53


Reverse Annuity Mortgages$1.603m AR2015 Note 16


Other Receivables$4.616m AR2015 Note 17


Total Current Resources$93.609m (addition)


Financial Liabilities0-12 monthsReference


Current Liabilities$79.629m+$37.539mAR2015 p44


Total Current Liabilities$117.168m (addition)



What we have here is an on paper 'theoretical' current shortfall of:

$117.168m - $93.609m = $23.559m

Of course there are ways to make up this shortfall. Some of those account receivables could be rolled over into new business, thus making the 'theoretical' shortfall disappear.

If any of the shortfall remained, the difference could be borrowed under the company's banking facilities. However, information on the capacity of spare banking facilities available is not listed in the annual report. In summary, not a good result compared to the strong cash positive position of last year. The contractual cash deficit position of TNR is substantial, greater than the (record) full year profit in FY2015 of $18.5m!




Financial Assets0-12 monthsReference


Cash & Cash Equivalents$13.019m HYAR2016 p14


Financial assets at value thru P&L$0.365m HYAR2016 p23


Financial Receivables Contractural Maturity$?m n/a


Reverse Annuity Mortgages$?m n/a


Other Receivables$?m n/a


Total Current Resources$?m (insufficient information)


Financial Liabilities0-12 monthsReference


Current Liabilities$?m n/a


Total Current Liabilities$?m (insufficient information)



I am putting up the above table to show shareholders how much information is missing to allow any conclusions to be reached. IMO this is very poor disclosure, only a few years on from when the finance sector in NZ collapsed. Granted this company is not funded by public deposits. But in my mind, not providing enough information in the accounts to allow even a 'quick ratio' (current assets to current liabilities) to be calculated is disgraceful in 2016. I guess shareholders need to 'believe the story'?

SNOOPY

PS nothing published on the structure of company bank loans either!

[percy]

Banks lend money long term.
Finance companies lend money for short term periods.
Auction houses such as Turners often require no capital for stock.They sell your art work,car,equipment for commission.
Car sales companies,such as TNR buy cars from Japan and sell them.
So to fully understand TNR you need to realise that this is a very different business to ANZ Bank or Heartland Bank.
What drives their profit is margins and add ons,and how quickly they can turn stock over,and their impairment costs.
They therefore can be "safe" with lower equity.
A business turning over their stock say 8 times a year requires considerable less capital than a business turning stock over 3 times a year.
TNR auction business is a very clever business,which drives all the add ons.
You can see the real difference if you compared Smith's City with TNR.Smiths City sales on finance drive Smiths Finance,and the profits at SCY are in the finance company.However they can't do the add ons TNR do.The other point is SCY store can't do the stock turns and don't have the margins.

[Snoopy]

Banks lend money long term.
Finance companies lend money for short term periods.
Auction houses such as Turners often require no capital for stock.They sell your art work,car,equipment for commission.
Car sales companies,such as TNR buy cars from Japan and sell them.
So to fully understand TNR you need to realise that this is a very different business to ANZ Bank or Heartland Bank.
What drives their profit is margins and add ons,and how quickly they can turn stock over,and their impairment costs.
They therefore can be "safe" with lower equity.


Very good point Percy. I made my own reference to those 'higher profit margins' in post 1153. I probably need to extract the old 'Turners Auction Group' at least from the results to get anywhere near an apples with apples comparison with finance companies. Looks like I have some homework :-(!

SNOOPY

[Snoopy]

I am applying a 'banking covenant' to a non-bank. While not a legal requirement for TNR, this is to enable a comparison with other listed entities in the finance sector (real banks like Heartland for instance ;-) ), so please bear with me. The data below may be found in the 'Consolidated Statement of Financial Position' (HYAR2016, p14).

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

Tier 1 capital > 20% of the loan book.

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

Tier 1 Capital = (Shareholder Equity) - (Intangibles) - (Deferred tax)
= $125.810m - $105.145m - $5.310m
= $15.355m

The money to be eventually 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': $15.910m
2/ 'Finance Receivables': $164.436m
3/ 'Receivables and deferred expenses': $4.553m
4/ 'Reverse annuity mortgages': $11.878m

For the HY2016 year balance date these come to $196.771m

$15.355m / $196.771m = 7.8% < 20%

=> Fail test

Care needs to be taken in interpreting a result like this. The increase in Intangible Assets over the last six months (representing a business acquired over the period) needs to be considered. Southern Finance Limited was brought onto the books on 31st July 2015, just two months before the reporting period ended on 30th September 2015. .

From note 6 in the half year report, $1.677m of intangibles was brought onto the books with the acquisition of Southern Finance. The $1.677m is a measure of what Turners were prepared to pay over and above asset backing, because of the prospective profitability of the acquisition. Nevertheless $1.677m represents a minimal overall asset distortion to a company with over $100m of intangible assets on the books already. So I am judging the acquisition of Southern Finance, with a loan book of $9.5m, (under 6% of the total finance receivables loan book for TNR) , as not distortionary and hence not material for Tier 1 lending covenant purposes.

Put bluntly, while an improvement from the FY2015 position, I consider the capital behind this company is (still) insufficient for the size of the loan book.


My earlier attempt at this failed to consider that in financial services terms, 'Turners Limited' is now a 'hybrid' company. Turners (TNR) now comprises what was the old Turners Auctions business (TUA), plus the debt collection service division, plus the finance and insurance services division. I need to extract the non-finance bits before I stack up 'Turners Finance' againast my finance company yardsticks.

Once again I am applying a 'banking covenant' to a non-bank. While not a legal requirement for TNR, this is to enable a comparison with other listed entities in the finance sector (real banks like Heartland for instance ;-) ), so please bear with me. The data below may be found or derived from in the 'Consolidated Statement of Financial Position' (HYAR2016, p14) and information on intangibles relating to TUA in AR2015.



Total Tier 1 Equivalent Equity$125.78m


lessIntangibles (excl. TUA)$36.89m


lessDeferred Tax$5.31m


lessAuctions Equity$5.99m


lessFleet Equity$1.53m


lessCollection Services NZ Equity$5.54m


lessCollection Services Aus Equity$0.16m


Underlying Financial Group Equity$70.56m



This equity is supporting the following loan assets on the books.



Investment Bonds/Funds at fair value$15.91m


plusFinance Company Receivables$164.44m


plusReceivables and Deferred Expenses$4.55m


plusReverse Annuity Mortgage Loans$11.87m


Total Loan Assets on Books$196.77m



So: Underlying Financial Group Equity / Total Loan Assets on Books

= $70.56m/ $196.77m = 36% > 20% => pass test

The principal difference between this calculation and the first iteration is that all the intangible assets related to the TUA acquisition, which arose because TUA was so profitable (a good thing), have been ring fenced out of the calculation.

SNOOPY

[Snoopy]

The gearing ratio in based on the underlying debt of the company, calculated by stripping out the already contracted future liabilities (from HYAR2016 Balance Sheet p14) eventually payable to insurance policy holders on the balance sheet. I have additionally removed the deferred revenue ($7.476m) from these underlying liabilities

$224.099m (declared total liabilities ofthe company)
less $10.517m (life insurance contract liabilities)
less $15.498m (life investment contract liabilities)
less $7.587m (deferred revenue)

= $190.497m (effective snapshot of net debt)

Likewise on the asset side of the balance sheet we have to strip the third party 'finance receivables' from the total company assets. From the Balance Sheet.

$348.909m (total assets)
less $142.827mm (finance receivables)

= $184.473m (effective snapshot of unerlying company assets)

Gearing Ratio = Underlying Liabilities/Underlying Assets = $190.497m/$184.473m = 103% > 90%

=> Fail Test

Things look to be going in the wrong direction.

Six months on from the period in which Oxford Finance (01-04-2014) and the old 'Turners Auctions' (28-10-2014) were acquired, the greatly increased the gearing ratio of the formerly conservatively geared company has increased even further.

Borrowing money to significantly increase the size of the loan book while the asset base remains steady is a risk factor that should not be underestimated by shareholders!


Once again we want to back the equity and liabilities of businesses not related to finance out of the TNR finance division calculations.



Total Debt$224.09mTotal Assets$349.87m


lessFinance Receivables$164.44m


lessAuctions Liabilities$16.77mless Auctions Assets$22.75m


lessFleet Liabilities$4.42mlessFleet Assets$5.96m


lessCollection Service NZ Liabilities$8.24mless Collection Service NZ Assets$13.79m


lessCollection Service Aus Liabilities$0.69mless Collection Service Aus Assets$0.85m


lessLife Insurance Contract Liabilities$10.52m


lessLife Investment Contract Liabilities$15.50m


lessDeferred Revenue$7.57m


Underlying Financial Group Liabilities$160.38mUnderlying Financial Group Assets$142.09m



Underlying Financial Group Liabilities/Underlying Financial Group Assets

= $160.38m/ $142.09m

= 113% > 90% => fail test

In this instance, ring fencing off the old TUA and Receivables Managment business assets and liabilities has made the result worse!

SNOOPY

[Snoopy]

Updating for the HY2016 financial year (ended 30-09-2015)

The underlying interest expense is shown in the 'Condensed Consolidated Statement of Comprehensive Income' (p12 HYAR2016 to be $5.722m.

The underlying EBIT may be found in the same statement by taking the 'Profit Before Taxation' (EBT) and adding back the interest expense (I).

(EBT +Interest Expense)/(Interest Expense) = [$10.260m+$5.772m]/$5.772m = 2.78 > 1.2

=> Pass Test

'Post Calculation Thought'
It strikes me that by passing this test so easily, the profit margins at TNR must be generally higher than the finance industry norm. Given this, perhaps the 'failures' in the two previous tests are not as much of a concern as I previously considered. Others Thoughts?


I have found it necessary to do a lengthy deconstruction and reconsolidation of divisional earnings so that I can fully separate EBIT from the 'Finance Section' of TNR from all other earnings divisions of TNR. Head office costs have been farmed out amoongst the various company segments on the basis of segment revenue to totaldivisional revenue..

(EBT +Interest Expense)/(Interest Expense) = [$6.42m+$4.78m]/$4.78m = 2.34 > 1.2

=> Pass Test

Note this pass figure has been reduced from the previous iteration principally becasue because the highly profitable 'Auctions' and 'Fleet' businesses (formerly TUA) have been removed from the calculation.

SNOOPY

[Snoopy]

The finance division of TNR should be watched carefully. If it becomes badly run, the viability of the whole company could be at stake. Of concern to shareholders should be the weak gearing ratio. Nevertheless this weakness is offset by the very high underlying profitability of the loans apparent in the EBIT to Interest expense test. Put simply IMO, because underlying profitability is so good , the balance sheet is being stretched a little more than an average finance company might allow as prudent. This trade off is working - for now.

Of concern is the very poor disclosure on loan maturity vs bank loan maturity in the half year results. There is more than adequate disclosure in the previous period full year results. Disclosure on other matters in the half year report is generally good. So it is puzzling to me why this very useful information has been omitted in the half year report. Maybe TNR management could hire a well known rugby player or newsreader, and have him appear on a TV ad campaign saying the company is 'solid as'. That would probably fix any doubts that we minion shareholders have ;-P!

SNOOPY

[Snoopy]

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.


Updating for the FY2015 financial year.

The profit figure includes a 'write up' in value of $7.058m. This represents the existing pre-takeover TUA stake that was subject to TNR's own takeover. This is a one off self generated event that is not part of normal business 'margin.' So I have removed it from the calculation.

Tax paid over the year was $0.956m. This is less than the statutory rate, because TNR is still using up tax losses.

Margin = NPAT / Revenue

= [($19.006m-$7.058m) - $0.956m] / $89.498m

= 12.3%

That is quite a bit down on FY2014. But due to the transitional nature of what is a transforming business it is not a fair apples with apples comparison.

SNOOPY

[Snoopy]

Updating for the FY2015 financial year.

The profit figure includes a 'write up' in value of $7.058m. This represents the existing pre-takeover TUA stake that was subject to TNR's own takeover. This is a one off self generated event that is not part of normal business 'margin.' So I have removed it from the calculation.

Tax paid over the year was $0.956m. This is less than the statutory rate, because TNR is still using up tax losses.

Margin = NPAT / Revenue

= [($19.006m-$7.058m) - $0.956m] / $89.498m

= 12.3%

That is quite a bit down on FY2014. But due to the transitional nature of what is a transforming business it is not a fair apples with apples comparison.


A drop in margin for the half year result.

Margin = NPAT / Revenue

= $7.440m / $89.498m

= 8.85%

SNOOPY

[Snoopy]

Banks lend money long term.
Finance companies lend money for short term periods.
Auction houses such as Turners often require no capital for stock.They sell your art work,car,equipment for commission.
Car sales companies,such as TNR buy cars from Japan and sell them.
So to fully understand TNR you need to realise that this is a very different business to ANZ Bank or Heartland Bank.
What drives their profit is margins and add ons,and how quickly they can turn stock over,and their impairment costs.
They therefore can be "safe" with lower equity.
A business turning over their stock say 8 times a year requires considerable less capital than a business turning stock over 3 times a year.
TNR auction business is a very clever business,which drives all the add ons.
<snip>



A drop in margin for the half year result.

Margin = NPAT / Revenue

= $7.440m / $89.498m

= 8.85%


When someone on the forum comes up with a general view, such as Percy above, I always like to see if the numbers back them up. The continuing decline in overall business Margin is a worry and suggests that far from being clever, TNR could be moving in the wrong direction. But sometimes a simple numerical analysis, such as I did above, does not tell the whole story.

I have been through those half year results and derived 'separate divisional results', as below:



EBIT (reallocated)Interest (reallocated)Tax (calculated)NPATRevenueMargin


Auction & Fleet$2.65m$0.70m$0.55m$1.41m$59.10m2.38%


Debt Collection Services$2.18m$0.29m$0.53m$1.36m$10.50m12.91%


Finance & Insurance$11.20m$4.78m$1.80m$4.62m$20.57m22.47%



This shows that far from the finance margin decreasing, the company's finance division is operating at a far higher margin than even the 20.9% achieved in 2014. The more detailed numbers don't lie. It looks like Percy is dead right. But unlike in the TUA days (for former TUA shareholders), it is now the Auction & Fleet wehicle business which is the add on!

SNOOPY

[Snoopy]

I have been through those half year results and derived 'separate divisional results', as below:



EBIT (reallocated)Interest (reallocated)Tax (calculated)NPATRevenueMargin


Auction & Fleet$2.65m$0.70m$0.55m$1.41m$59.10m2.38%


Debt Collection Services$2.18m$0.29m$0.53m$1.36m$10.50m12.91%


Finance & Insurance$11.20m$4.78m$1.80m$4.62m$20.57m22.47%





One more comparison of interest to write up. Below is the TUA result for the period January 2014 to July 2014, the last clear six months before takeover activity.



EBIT (declared)Interest (no term debt)Tax (calculated)NPATRevenueMargin


Auction & Fleet$2.02m$0.00m$0.57m$1.45m$45.83m3.17%


Finance (TUA only)$0.91m$0.00m$0.25m$0.65m$3.81m17.16%



You can see that since Dorchester/TNR has assumed control revenue has gone up significantly, as has EBIT, but NPAT has barely changed. This is almost entirely due to the interest bill that the old TUA now faces. TUA as a (relatively) small stand alone operation was run largely bank debt free. TNR has now loaded that outfit up with debt and redeployed some of the capital released into the loans business.

As a new larger business, not so heavily tied to one market, this change is probably sound financial sense. But it does show that TNR is not much like the old TUA. It is a far more agressively run company, with all the increase in potential rewards and risks that this statement implies.

SNOOPY

[percy]

As a new larger business, not so heavily tied to one market, this change is probably sound financial sense. But it does sho wthat TNR is not much like the old TUA. It is a far more agressively run company, with all the increase in potential rewards and risks that this statement implies.

SNOOPY

I think this is a very true comment.
So a great company in the right sector at the right time, means a rewarding investment for TNR shareholders..

[Snoopy]

I think this is a very true comment.
So a great company in the right sector at the right time, means a rewarding investment for TNR shareholders..

Quite right Percy. But you missed out the increased downside risk in TNR. To measure this, I like to use the 'Minimum (Underlying) Debt Repayment Period' or MDRP for short.

Total borrowings on the half year balance sheet were $168.948m
Cash on hand is $13.019m

The half annual profit was $7.440m. Multiply that my two to annualize earnings.

So the theoretical 'Minimum Debt Repayment Time', which assumes all profit is put towards the paying off of net debt is:

MDRT = ($168.948m - $13.019m) / (2 x $7.440m) = 10.5 years

Anything over ten years I regard as high. So this figure is at the 'low' end of 'high'. Not really a surprise for a company that is workings its balance sheet hard. Not a real concern for a company at this stage of its positive growth path either. Nevertheless this is a figure to keep an eye on.

SNOOPY

[Snoopy]

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.

discl: hold neither, still evaluating both

An update from 3rd June 2014. I am now a Dorchester, um I mean Turners shareholder! This came about through being a shareholder in the 'other' Turners (TUA) that was taken over by Dorchester, with the combined group being renamed TNR. However, most of my association with TNR is through owning their bonds which mature later this year. So a big decision is coming up.

1/ Do I redeem the bonds for cash, and sell out my token TNR holding at the same time?
2/ Do I transfer my holding to a 'better'(?) finance investment like Heartland?
3/ Do i convert my TNR bonds to TNR shares and continue holding?

To answer this question I need to do a 'head to head' analysis with Heartland to see how the two stack up 'side by side'.

SNOOPY

[percy]

Owing each 'side by side' works for me.!!! lol.

[Snoopy]

I need to do a 'head to head' analysis with Heartland to see how the two stack up 'side by side'.


This comparison is complicated by the fact that TNR is a fast evolving company. There has been relative stability over the last six month reporting period, with Southern Finance being acquired for $4.856m on 31st July 2015. But go back six months prior to that and there are so many changes that I have decided all previous figures must be regarded as historical interest only. The last six monthly reporting figures for TNR have been annualised to allow a better comparison with Heartland Bank.

I have done my own analysis breaking down the NPAT performance of TNR into divisions. This has become necessary because TNR is really a hybrid company now, with the very substantial Turners Auctions business a full subsidiary. That means a straight HBL vs TNR comparison would be in some instances misleading.

A further complication is that the time periods are not strictly comparable, because of the different end of year balance dates of each company. The most recent to report was Turners for the half year ended 30th September 2015. The loan book balances I have used in my later calculation table are shown below.



HeartlandTurners (Finance Division)


Loan Book 30-06-2014$2,607.393mN/A


Loan Book 31-03-2015N/A$142.827m


Loan Book 31-06-2015$2,862.070mN/A


Loan Book 31-09-2015N/A$164.386m



And here are the results of the calculations....



Heartland FY2015Turners Limited 2x1HY2016Turners Limited (Finance Divisions Only) 2x1HY2016


Share Price$1.12$0.28N/A


Total Shares on Issue473.674m630.765mN/M


Earnings Per Share (annual impairment charge removed)12.0c2.3cN/M


Net Dividend (historical)3.0c+4.5c0.6c+0.6cN/M


Gross Dividend (historical)10.4c1.2c (no imputation credits available)N/M


Gross Yield (historical)9.3%4.3%N/M


PE Ratio (historical)9.3312.0N/A


ROE (averaged equity)12.2%12.0%11.8%


EBIT /(Loan Book {averaged})7.0%N/M12.8%


Minimum Debt Repayment Time (MDRT)12.2 years10.6 years


Impaired Loans / Total Loans0.57%3.9%


Impaired Loans / Shareholder Equity3.4%5.2%8.3%



SNOOPY

[Snoopy]

HeartlandTurners LimitedTurners Limited (Finance Divisions Only)


Minimum Debt Repayment Time (MDRT)12.2 years10.6 years




I would class the indebtedness of both companies as medium to high. This statiistic I have derived from taking the underlying borrowings (that means leave out customer deposits), and divide them by a normalised earnings figure.

For Heartland the calculation is like this (borrowings broken down under note 13 of Heartland annual report)

[($3.378m + $465.773m +$258.630m)-$37.012] / ($48.169m +0.72($12.105m) ) = 12.2 years

You will notice that Heartland's earnings have been boosted by $12.105m of impairment charges that I have added back in. If I had not done this, then the MDRT woudl have blown out to 14.3 years!

For Turners the annualized calculation is like this:

($168.948m - $13.019m) / 2( $7.432m - $0.042) = 10.6 years

In this case there was a small impairment recovery of $42,000. I have removed this from the profit.

Put bluntly, I am not happy with either of these results. But Heartland, despite what Mr Wheeler has agreed to is looking distinctly overleveraged. Also remember the Heartland balance date of 30th June 2015 was before the worst effects of the dairy price collapse were apparent. If I was a Heartland shareholder, I'd be worried right now.

Conclusion: Turners win round one of our head to head contest.

SNOOPY

[Jinx]

And as a Turners shareholder you are still worried but slightly less so? That's reassuring at least

[Snoopy]

And as a Turners shareholder you are still worried but slightly less so? That's reassuring at least


Thinking about this overnight, I think 'worried' was probably not quite the right word to use in relation to Heartland and Turners indebtedness. 'Concerned' is what I should have written. 'Worry' has a connotation of some imminent unfolding disaster. 'Concerned' carries a connotation of noticing that something is not ideal, and keeping an eye on things with a view to avoiding further future deterioration. The latter is what I meant.

Lenders like these operate across a range of customer market sectors. So it is less likely, for instance, that rental car buyers, farmers and marketing travellers will all stop buying new vehicles at the same time. This means that a higher level of finance company debt might be acceptable than if all customers were tied to the fortunes of a single industry.

Also the ability to service debt is based on cashflow. An impairment provision is a non cashflow item. So I was probably misleading in suggesting that Heartland's MDRT could blow out to 14.3 years. 12.2 years (still concerning) is I think the better figure on which to make a debt servicing judgement.

On my mind were two contrasting separate trajectories being laid out for the future from the two companies.

1/ Heartland (the more indebted) was proposing a $75m return of capital to shareholders as recently as December 2015. $75 represents

$75m / $2,862.070m = 2.6% of the loan book @ 30-06-2015

2/ Turners (the lesser indebted) is lookig at a potential cash injection of up to $23m (should all bondholders convert to Turners shares) at the end of this year.

$23m/ $164.386m = 14% of the loan book @ 30-09-2015

To me that represented, and still does, a rather large divergence on what each team of management regards as suitable working capital for each respective business. That's the point that was festering away in the back of my mind when I made my poorly worded post yesterday.

SNOOPY

[blackcap]

Is this good for TNR? Apologies if someone has already posted this.

Turners auction group is benefiting from strong New Zealand and overseas demand for trucks and machinery.
The country's second largest vehicle retailer has spent $7 million on new dedicated truck and machinery sales sites in Auckland and Christchurch.
They operate as a standalone unit selling excavators, diggers, rollers, graders, scrapers, dump trucks, tippers, trailers and utes.
Turners Group chief executive Todd Hunter said following opening of the new auction sites over the past year, their revenue had risen 50 per cent.
Sales had been strong for the past four years and Canterbury's earthquake rebuild was partly responsible for growth in demand for used trucks and machinery, he said. "In Canterbury the market's been kind to us."
New Zealand Transport agency figures show 142, 647 trucks heavier than 1500kg were traded last year, compared to sales of 10,000 new vehicles.
Businesses in Australia, the Pacific Islands and Asia were also interested in buying quality civil contracting equipment.
Hunter said the truck and machinery business had grown sufficiently to justify standalone management, so Turners had appointed a new manager, Jason Prendergast, to run the new truck and machinery offshoot.
In other changes, Hunter was recently appointed chief operating officer of Turners Limited, the parent company of Turners Group, in addition to being chief executive.
Turners Group financial officer, Aaron Saunders, will take on additional duties as chief operating officer in the cars division. General managers have also been appointed within that division to cover supply, sales and operations.
Ad Feedback
- Stuff

[Snoopy]

Is this good for TNR? Apologies if someone has already posted this.

Turners auction group is benefiting from strong New Zealand and overseas demand for trucks and machinery.
The country's second largest vehicle retailer has spent $7 million on new dedicated truck and machinery sales sites in Auckland and Christchurch. They operate as a standalone unit selling excavators, diggers, rollers, graders, scrapers, dump trucks, tippers, trailers and utes.

Turners Group chief executive Todd Hunter said following opening of the new auction sites over the past year, their revenue had risen 50 per cent. Sales had been strong for the past four years and Canterbury's earthquake rebuild was partly responsible for growth in demand for used trucks and machinery, he said. "In Canterbury the market's been kind to us." New Zealand Transport agency figures show 142, 647 trucks heavier than 1500kg were traded last year, compared to sales of 10,000 new vehicles. Businesses in Australia, the Pacific Islands and Asia were also interested in buying quality civil contracting equipment. Hunter said the truck and machinery business had grown sufficiently to justify standalone management, so Turners had appointed a new manager, Jason Prendergast, to run the new truck and machinery offshoot.


Sounds very positive to me. Some of that heavy equipment would have a limited number of potential buyers/users. So if Turners can on sell that equipment to overseas operators, that has to be good for the NZ owners and Turners. I suppose a counter potential downside is Australian operators realising things are still going quite well in New Zealand, looking to dump theoir excess machinery on the second hand market in New Zealand and depressing values. But I guess as an auction player/financer as long as machinery is moving in any direction, and you are clipping the ticket, it is good news for you?



In other changes, Hunter was recently appointed chief operating officer of Turners Limited, the parent company of Turners Group, in addition to being chief executive. Turners Group financial officer, Aaron Saunders, will take on additional duties as chief operating officer in the cars division. General managers have also been appointed within that division to cover supply, sales and operations.


As the company gets bigger, so does the managment overhead. Whether that is good or not, depends on how the newly grown organization performs I suppose?

SNOOPY

[Snoopy]

HeartlandTurners LimitedTurners Limited (Finance Divisions Only)


EBIT /(Loan Book {averaged})7.0%N/M12.8%





The calculations supporting the above entry in my comparative table are as follows:

Heartland:

($260.488m-$69.403m) / (1/2 x($2,862.070m + $$2,627.393m) = 7.0%

Turners:

2($5.901m + $4.008m-$0.046m) / (1/2 x ($164.436m + $142.827m)) = 12.8%

The above comparison is interesting because, historically Turners pays no tax (IIRC tax losses are finally used up this year). So taking tax (and interest) out of the equation shows that Turners finance is in underlying terms a lot more profitable than Heartland. Almost twice as profitable in fact, a huge difference.

Of course coming back to reality, interest and tax bills still have to be paid (tax only after tax losses are used up in the case of Turners).

SNOOPY

[Snoopy]

HeartlandTurners LimitedTurners Limited (Finance Divisions Only)


ROE (averaged equity)12.2%12.0%11.8%




Calculations backing up the above table entry are as follows:

Heartland:

$48.163m +0.72($12.105m) /( 1/2( $480.125m + $452.622m)) = 12.2%

Turners:

2x ($7.432m- $0.046m) /( 1/2 x( $125.810 + $121.002)) = 12.0%

Turners (Finance division only):

For this piece of analysis I have deconstructed the HY2016 result (Ended 30th Sept 2015) as follows



Profit BeforeTax (EBT)Interest Expense (I)


Auctions$1.726m$0.550m


Fleet$0.229m$0.145m


Collection Services (NZ)$1.930m$0.271m


Collection Services (Aus)-$0.047m$0.023m


Finance$5.903m$4.008m


Insurance$0.518m$0.775m


Total$10.260m$5.772m



The way I have split these results up is to add back a fraction of 'eliminations' and then a fraction 'corporate costs' back onto the divisional results in the segmented report. The fractions I have used used are in proportion to divisional revenues. This is almost certainly not completely realistic and open to criticisim. But I believe it is more realistic than the raw divisional figures given and useful enough for my purposes.

Using the above information to make a 'divisional' ROE calculation for 'Finance'.

2x ($5.903m - $0.046) / ( 1/2 x ($79.54m + $65.33m)) = 11.8%

SNOOPY

[blackcap]

Sounds very positive to me. But I guess as an auction player/financer as long as machinery is moving in any direction, and you are clipping the ticket, it is good news for you?



As the company gets bigger, so does the managment overhead. Whether that is good or not, depends on how the newly grown organization performs I suppose?

SNOOPY

Cheers Snoopy... I know, I just wanted to assuage your worry or should that be concern :)

[percy]

Results will move him from concern to sheer joy for both TNR and HBL.lol.

[Snoopy]

Calculations backing up the above table entry are as follows:

Heartland:

$48.163m +0.72($12.105m) /( 1/2( $480.125m + $452.622m)) = 12.2%

Turners:

2x ($7.432m- $0.046m) /( 1/2 x( $125.810 + $121.002)) = 12.0%



From the above, Heartland NPAT for FY2015 with annual impairment charge removed was:

$48.163m +0.72($12.105m)= $56.879m

The annual interest charge, already taken out of the above figure is $43.515m (from Note 2, AR2015).

This represents: $43.515m/ $56.879m = 77% of NPAT

From the above, Turners NPAT (half year,no tax payable at operational level) for HY2016 with half yearly annual impairment charge (revaluation in this case) removed was:

($7.432m- $0.046m) = $7.386m

The annual interest charge, already taken out of the above figure, was $5.772m. This represents

$5.772m/ $7.386m = 78% of NPAT

Very interestingly, in percentage terms,there is almost no difference between the two.

However, Heartland faced an operational tax bill of $16.170m, for which there was no Turners Finance Equivalent.

$16.170m/$56.879m = 28% of NPAT

So despite ROE being close for Heartland and Turners over our comparison, we might expect Turners relative performance in ROE to decline, once they start paying full tax.

Conclusion: Heartland win round two of our head to head contest.


SNOOPY

[Jinx]

Director buying another reasonable 71k parcel while the prices are this low?
https://www.nzx.com/files/attachments/229784.pdf

[Under Surveillance]

Director buying another reasonable 20k parcel while the prices are this low?
https://www.nzx.com/files/attachments/229784.pdf

The parcel bought was 71,500.

[Jinx]

The parcel bought was 71,500.

Edited, thanks :)

[Snoopy]

HeartlandTurners (Finance Division)


Loan Book 30-06-2014$2,607.393mN/A


Loan Book 31-03-2015N/A$142.827m


Loan Book 31-06-2015$2,862.070mN/A


Loan Book 31-09-2015N/A$164.386m



And here are the results of the calculations....



HeartlandTurners LimitedTurners Limited (Finance Divisions Only)


EBIT /(Loan Book {averaged})7.0%N/M12.8%


Impaired Loans / Total Loans0.57%3.9%


Impaired Loans / Shareholder Equity3.4%5.2%8.3%




The:
(i) EBIT to total loan book calculation,
(ii) impaired loans to total loans and
(iii) impaired loans to shareholder equity referred to above are calculated like this:

Heartland:

(i{H}): ($260.488m-$68.403m)/ [(1/2)*($2,862.070m+$2,607.393m)] = 7.0%

(ii{H}) ($10.201m+$6.242m)/ ($2,862.070m+$10.201m+$6.242m) = 0.57%

(iii{H}) ($10.201m+$6.242m)/ ($480.125m) = 3.4%

Turners (Finance Only) (i{T} annualised):

(i{T}): 2x ($5.901m+$4.008m-$0.046m) / [(1/2)*($164.436m+$142.827m)] = 12.8%

(ii{T}) $6.637m / ($6.637m + $164.436m) = 5.2%

(iii{T}) $6.637m / $79.54m = 8.3%

So what do I conclude from this? The underlying loan book at Turners looks a lot more profitable than Heartland, (based on the respective end of year loan balances). But it probably needs to be because the proportion of impaired loans to total loans is higher.

Meanwhile the impaired loans to shareholder equity is there to show how these impairments could affect the shareholders capital of the company. In the case of Turners I have apportioned the company equity so that $79.54m is behind the finance operation and the rest (adding to a grand total of $125.81m) is there to support the old TUA, insurance and debt recovery businesses.

Turners has a lot less 'effective equity' to support their loan book than Heartland does. Turners also have a possible cash injection coming up. The maturity of the TNRHA bonds will see some of those convert to shares. Of the $23m in bonds that are due to mature, lets say $12m convert to shares.

The proportion of that new capital that will go behind the finance side of the business would approximately be:

$12m x ($79.54m/$125.810m) =$7.6m

(iii{T}) (projected, revised) $6.637m / ($79.54m + $7.6m) = 7.6%

That is still well below the level of 'impaired loan to equity cover' that Heartland enjoys. On this 'Loan Shock Debt Cover' head to head, I am declaring Heartland the winner.

SNOOPY

[Snoopy]

HeartlandTurners LimitedTurners Limited (Finance Divisions Only)


ROE (averaged equity)12.2%12.0%11.8%


EBIT /(Loan Book {averaged})7.0%N/M12.9%




There is something rather strange about the above two tabulated results. Both are what I would loosely term 'Earnings Metrics'. But one shows that Heartland (just) has the upper hand, while the other is a 'clear win' to Turners. How can this be?

One thing that could explain this result is that the first statistic is based on 'Net Profit After Tax', while the second is based on 'Earnings Before Interest and Tax'. So maybe if I remove the interest and tax from the second statistic, and assume that Turners finance pays their full whack of tax, the two results should align? Let's see:

EBIT /(Loan Book {averaged}) to

NPAT /(Loan Book {averaged})

Heartland:

($260.488m-$68.403m)-($126.041m+$16.172m)/ [(1/2)*($2,862.070m+$2,607.393m)] = 1.8%

Turners (Finance Only) (annualised):

2x [($5.901m-$0.046m)-$4.008m] x0.72 / [(1/2)*($164.436m+$142.827m)] = 5.5%

Oh dear that didn't go well! The discrepancy is even greater now! I will have to rethink things - again!

SNOOPY

[percy]

Just keep rethinking.?????????????
HBL's result on Tuesday may help clear your thoughts.
What I will be really looking forward to is an update on their proposed capital return/share buy back.

[Jinx]

What I will be really looking forward to is an update on their proposed capital return/share buy back.

Question percy: Who's update will provide better results HBL or TNR in your opinion?

[percy]

Question percy: Who's update will provide better results HBL or TNR in your opinion?

Well I don't expect any surprises from HBL.Boring banks don't do surprises.!
That leaves TNR to possibly surprise,as they are more leveraged.
Both should be performing very well.
Both are focused,both have directors and management with a lot of skin on the line,with their large shareholdings,both companies are in sectors that are strong and are growing.

[Snoopy]

Well I don't expect any surprises from HBL.Boring banks don't do surprises.!
That leaves TNR to possibly surprise,as they are more leveraged.


From my post 'Gearing Ratio HY2016' (1152) on this thread:

Turners Gearing Ratio = Underlying Liabilities/Underlying Assets = $190.497m/$184.473m = 103%

Now from my post 'Gearing Ratio FY2015 ' (6946) on the Heartland thread:

Heartland Gearing Ratio = Underlying Liabilities/Underlying Assets = $53.889m/$92.229m = 58.4%

So Percy is quite correct when he says Turners are more leveraged. But things are not always as simple as they seem. Refer to my post 1170 (TNR v HBL Head to Head Round 1 (Overall Debt Cover) ) on this thread:

Heartland MDRT: [($3.378m + $465.773m +$258.630m)-$37.012] / ($48.169m +0.72($12.105m) ) = 12.2 years

Turners MDRT ($168.948m - $13.019m) / 2( $7.432m - $0.042) = 10.6 years

So despite being more leveraged, the profits on the Turners loans are so high that the risk of the extra leverage is more than wiped out. It is actually Heartland who has a more difficult job servicing their underlying loans than Turners!

SNOOPY

[Snoopy]

There is something rather strange about the above two tabulated results. Both are what I would loosely term 'Earnings Metrics'. But one shows that Heartland (just) has the upper hand, while the other is a 'clear win' to Turners. How can this be?

One thing that could explain this result is that the first statistic is based on 'Net Profit After Tax', while the second is based on 'Earnings Before Interest and Tax'. So maybe if I remove the interest and tax from the second statistic, and assume that Turners finance pays their full whack of tax, the two results should align? Let's see:

EBIT /(Loan Book {averaged}) to

NPAT /(Loan Book {averaged})

Heartland:

($260.488m-$68.403m)-($126.041m+$16.172m)/ [(1/2)*($2,862.070m+$2,607.393m)] = 1.8%

Turners (Finance Only) (annualised):

2x [($5.901m-$0.046m)-$4.008m] x0.72 / [(1/2)*($164.436m+$142.827m)] = 5.5%

Oh dear that didn't go well! The discrepancy is even greater now! I will have to rethink things - again!


Ok I have had my little rethink. Studying the respective numerators (top bits, for those whose maths was some time ago) ) of the fractions I was comparing was not enlightening. So time to move on to the respective denominators (bottom bits).

-----

Average shareholder equity for Heartland over our study period: $466.374m
Average shareholder equity for Turners over our study period: $72.44m

Ratio of shareholder equity value: Heartland/Turners = 6.4

-------

Average loan book value for Heartland over our study period: $2716.732m
Average loan book value for Turners over our study period: $153.632m

Ratio of loan book value: Heartland/Turners = 17.7

-------

Comparing the denominators reveals something rather significant. Heartland is loaning a lot more money, relative to their shareholder equity on the balance sheet, than Turners is doing. Of course one of the reasons that Heartland can do this is that is relative terms, they have less underlying debt. But in terms of 'capital efficiency' (debt is generally cheaper than shareholder funds) Turners is by far the better performer of the two.

SNOOPY

[h2so4]

Good news from ABC news today. So far this reporting season Aussie banks haven't been increasing their bad debt provisions. Those bankers are not stupid probably realise they overdid it a tad.

[h2so4]

......whoops I might be on the wrong thread. I think it should be on a bank v bank thread.

[janner]

ASB have TNR @ $2.87 :-)))))))

Wishful thinking ... Or a premonition ???

[couta1]

ASB have TNR @ $2.87 :-)))))))

Wishful thinking ... Or a premonition ??? 10 to1 share consolidation just completed so no premonition.

[janner]

10 to1 share consolidation just completed so no premonition.

Bugger... As a holder I was unaware..

Must up my game..

Time to buy ????

[percy]

Bugger... As a holder I was unaware..

Must up my game..

Time to buy ????

I totally agree with you..
You certainly must up your game.!!!!!!!!!!!!!!!..lol.

[janner]

Of the penny dreadful page into the more serious land .. Maybe ???.

I think so..

[percy]

Of the penny dreadful page into the more serious land .. Maybe ???.

I think so..

Agreeing with you twice in a matter of a few minutes must be some sort of record.
You certainly upped your game very quickly.!..lol.

[janner]

I totally agree with you..
You certainly must up your game.!!!!!!!!!!!!!!!..lol.

Do not disagree with your statement perc..

We are both holders .. Albeit you were the reluctant one..

Will admit to reducing my holding.. Last year to cover the expenses of a magnificent months holiday in the Northern Thai/Burma border

Seeking out Wild Elephants..

Hoping now to make up for such folly..

Personally perc..

I am definitely " A buy "...

[couta1]

I see value in this share along with HBL both of which haven't run ahead of themselves like a lot of the market currently. Think I just talked myself into doubling down as my first purchase was at 34c ( Now $3.40 )

[janner]

I see value in this share along with HBL both of which haven't run ahead of themselves like a lot of the market currently. Think I just talked myself into doubling down as my first purchase was at 34c ( Now $3.40 )

Cardinal sin.. ????

[percy]

I see value in this share along with HBL both of which haven't run ahead of themselves like a lot of the market currently. Think I just talked myself into doubling down as my first purchase was at 34c ( Now $3.40 )

I have not been on the drink,yet I find myself agreeing with both Janner and Couta1.!!!
Right you two asked for it;I think we are "well positioned,"!! lol.

[janner]

You must know the statement by now perc....

Old age and cunning will out whit ?????

[janner]

You must know the statement by now perc....

Old age and cunning will out whit ?????

TIL ..

Eat your heart out :-)))

Oh !!.. Could that be called ramping ????

[janner]

Time to be sensible " Chaps "

Wait for the real figures ... OK ??

[Under Surveillance]

Time to be sensible " Chaps "

Wait for the real figures ... OK ??
Steer clear of NZX if you want real or sensible figures. The NZX website shows NTA per TNR share of $23.527 (for shares last traded at $2.87).

[Jinx]

Steer clear of NZX if you want real or sensible figures. The NZX website shows NTA per TNR share of $23.527 (for shares last traded at $2.87).

Confident you'll still hold that opinion after May and a new Report from TNR?

[janner]

My thought in a nut shell..

Your shot :-)))

[janner]

I have not been on the drink,yet I find myself agreeing with both Janner and Couta1.!!!
Right you two asked for it;I think we are "well positioned,"!! lol.

Movement..

As a percentage .. The same..

As for market psychology ???

[Jinx]

Movement..

As a percentage .. The same..

As for market psychology ???

Very happy holder waiting for May and a new report :)

[percy]

I just love today's announcement;"Profit ahead of forecast and guidance."
Look forward, with confidence to the 30th May's full year's result.

[blackcap]

I just love today's announcement;"Profit ahead of forecast and guidance."
Look forward, with confidence to the 30th May's full year's result.

Great that kind of news. Should see the $3 mark busted today and on wards from there...

[Snoopy]

Great that kind of news. Should see the $3 mark busted today and on wards from there...


As a very small shareholder, but potentially a much larger shareholder if I convert my bonds, I am cautious. There is a big incentive here for management to massage the results to induce bondholders to convert. Not saying TNR has done this. Just saying that you should drill down ionto those results, looking at the provisioning, rather than take this announcement at face value before committing.

SNOOPY

[Jinx]

As a very small shareholder, but potentially a much larger shareholder if I convert my bonds, I am cautious. There is a big incentive here for management to massage the results to induce bondholders to convert. Not saying TNR has done this. Just saying that you should drill down ionto those results, looking at the provisioning, rather than take this announcement at face value before committing.

SNOOPY

Compared to this time last year TNR is undervalued (not arguing it is, just comparatively) With this time last year the price being $3.15
In the year since net profit has grown 12% (19m - 21.4m) Id suggest there's also been a decent debt reduction with operational revenue expected to be much higher in FY16

Holding.

[biker]

It will be interesting to see the profit guidance for this financial year.
The share price doesn't reflect it but this is a company that performs with ongoing consistency,
providing cautious guidance and exceeding it, under promising and over delivering.
I like where it's headed.

[Under Surveillance]

Compared to this time last year TNR is undervalued (not arguing it is, just comparatively) With this time last year the price being $3.15
In the year since net profit has grown 12% (19m - 21.4m) Id suggest there's also been a decent debt reduction with operational revenue expected to be much higher in FY16

Holding.

Subject to whether any one-offs need to be stripped from the $21.4M for a fair comparison, the growth comparison should be $14.1M ($19M stripped of one-offs) to $21.4M. However, as Snoopy cautions, never mind the width, feel the quality.

On the face of it NPBT of $21.4M translates to fully-taxed NPAT of $15.4M. $15.4M divided by 63.5M shares gives a trailing EPS of 26.3 cps.

At the upper end of the board's payout ratio of 50-55%, full year dividends for FY2016 would be 13.3 cps. The 2016 final would terefore be 7.3 cps, imputed at about half of the full imputation rate according to earlier advice. Full imputation is to apply for FY 2017 and beyond, when quarterly dividends are to be paid.

[Snoopy]

Compared to this time last year TNR is undervalued (not arguing it is, just comparatively) With this time last year the price being $3.15


I think it is too early to say that. Last year Southern Finance was acquired for on 31st July 2015. So that subsidiary did not contribute a full years worth of profit to TNR in FY2015 (YE 31st March). The underlying TNR business was not comparable on a year on year basis

SNOOPY

[percy]

The acquisition of TUA by DPC was a game changer for DPC,now TNR.
Not only did they take over a fantastic business, which has gone from strength to strength,but they gained channels for their financial products,,ie vehicle/equipment lending and insurance.

[blackcap]

The acquisition of TUA by DPC was a game changer for DPC,now TNR.
Not only did they take over a fantastic business, which has gone from strength to strength,but they gained channels for their financial products,,ie vehicle/equipment lending and insurance.

That is how I read it too Percy. At first I was skeptical when they announced that they were looking at taking over Turners, because I thought they would be too big and cumbersome and stop DPC's agility. But what you say makes sense and I think Paul Byrnes saw that too (after all he did have a position on the Turners board) and now DPC or TNR can reap the benefits, many of them synergy but also like you say complementary. I will be continuing to purchase under $3.
Note, in 2012-2013 DPC went to 37 cents (or $3.70 post consolidation), but they are now in a far superior shape than then.....

[janner]

I just love today's announcement;"Profit ahead of forecast and guidance."
Look forward, with confidence to the 30th May's full year's result.


Not what you said to me that many months ago, Oh wise one :-))

[kizame]

I think Percy sold out,but bought back in later, a change of heart I think. But why not its a good company with tight management.

[percy]

Yesterday I misread the TNR result.I got mixed up with taking the abnormals as normal.
The result offcourse did not include a full year of the "Turners auctions".
I also failed to factor in the fact TNRs are not paying full tax.
The 2016 projection was downgraded from $23mil to $20mil.
The result was not what I expected, therefore I have sold my holding.
To achieve the $23mil TNR will have to make an acquisition.Depending on what the acquisition is,the terms of the acquisition,and whether I think it is good or not,will guide me as to whether I will buy in again.

The above was posted 28/5/2015.
I brought back in on 20/11/2015,and glad I did..

[Jinx]

https://www.nzx.com/files/attachments/235119.pdf

More acquisitions, more business building, more steps in the right direction.

[Jinx]

People starting to buy up to 305 again expecting some decent results out on Monday, can't see the sp dipping under $3 after mondays results.

[Jinx]

https://www.nzx.com/files/attachments/236507.pdf

Seems like a solid report, revenue up 76% looking towards more acquisitions this year.

[percy]

A lot to like about the results.
The business is in great shape.
The succession of Todd Hunter taking over from Paul Brynes is positive,as is the fact Brynes will be on retainer for a couple of years,looking for further acquisitions.
Adding more products to the insurance suite will gain momentum with TNR's sales channels.
The online "Cartopia" and digital loan approval system "AutoApp" means TNR are customer focussed.
The increase divie and the fact we can start to look forward to "fully imputed" divies is welcome.

[Jinx]

8090

Says it all really. Still waiting for the market to catch up to a growing business.

[blackcap]

8090

Says it all really. Still waiting for the market to catch up to a growing business.

shhh Jinx... please, I am still accumulating..... :)

[Jinx]

shhh Jinx... please, I am still accumulating..... :)

Looking at those numbers makes me want to keep accumulating at these prices too!
Sorry the image is so terrible all, for those that can't see.

2012/13 had a net loss of 100k with a shareprice of $2.80
2014/15 had a net profit of 19 million with a shareprice of $3.20
2015/16 had a net profit of 21.6 million with a shareprice of (currently) $2.97

So either the sp was hugely overvalued then..... Or it's hugely undervalued now.
I'd suggest a mixture of both but under $3 tnr seems like a steal!

[winner69]

Looking at those numbers makes me want to keep accumulating at these prices too!
Sorry the image is so terrible all, for those that can't see.

2012/13 had a net loss of 100k with a shareprice of $2.80
2014/15 had a net profit of 19 million with a shareprice of $3.20
2015/16 had a net profit of 21.6 million with a shareprice of (currently) $2.97

So either the sp was hugely overvalued then..... Or it's hugely undervalued now.
I'd suggest a mixture of both but under $3 tnr seems like a steal!

When do you think it will break out of this 300 plus/minus a bit range?

[Jinx]

When do you think it will break out of this 300 plus/minus a bit range?

I have absolutely 0 idea, this doesn't mean however we can't judge these numbers based on what they tell us.

$2.8 sp at a 100k loss compared to a $3 sp with a 21 million dollar profit is incredible

[percy]

An excellent presentation.
Again a must read for any shareholder, or anyone looking to invest in TNR.
Would some kind person please post the link to it.

[winner69]

An excellent presentation.
Again a must read for any shareholder, or anyone looking to invest in TNR.
Would some kind person please post the link to it.

https://www.nzx.com/files/attachments/236809.pdf

[black knat]

I have absolutely 0 idea, this doesn't mean however we can't judge these numbers based on what they tell us.

$2.8 sp at a 100k loss compared to a $3 sp with a 21 million dollar profit is incredible

Of course a few new shares and convertible notes have been issued in that time. But agree very much under valued.

[Snoopy]

So to fully understand TNR you need to realise that this is a very different business to ANZ Bank or Heartland Bank.
What drives their profit is margins and add ons,and how quickly they can turn stock over,and their impairment costs.


Time to continue this cross threaded theme on impairment costs. Although Turners have released their FY2016, they have not yet released enough detail to allow me to perform impairment calculations. So the following information is compiled from note 15 in AR2015 (and note 13 AR2014), and refers to the previous two years.



Turners Group


Date'Stressed' Loans on the books (X)
Net Financial Receivables (Impairments deducted) (Averaged Year to Year)(Y)
(X)/(Y) Amounts Written Off (W)Gross Financial Receivables (Averaged Year to Year)(W)/(Z)


EOFY2014$2.960m$33.242m7.85%$0.175m$39.241m0.45%


EOFY2015$3.232m$90.277m2.26%$0.244m
$96.782m0.25%



At Turners it seems that the loan quality is only revealed by how far past due a bill is. However, Turners do not use such a crude system as 'past due date' to judge whether a loan is impaired or not. While all loans 'past due for 90+ days' are classed as impaired, the converse is not true. In FY2015, for example there were $4.102m in loans 'past due for 90+ days' that were not classed as impaired. I have therefore defined 'Stressed Loans' in the context of Turners as follows:

Impaired Loans Past due for 90+ days
plus Not Impaired Loans Past due for 90+ days
plus Not Impaired Loans Past due for 60 to 90 days
less Specific Impairment Provision
less Collective Impairment Provision

The comparative Heartland figures are below.



Heartland


Date'Stressed' Loans on the books (X)
Net Financial Receivables (Impairments deducted) (Y)
(X)/(Y) Write Offs (W)Gross Financial Receivables (Z)
(W)/(Z)

EOFY2014$41.354m$2,607.393m1.59%$35.258+$3.260m
$2.631.754m1.46%


EOFY2015$32.824m$2,862.070m1.15%$1.555m+$1.910m
$2.893.704m0.12%



Once again I must emphasise that Heartland and Turners both lend on cars and machinery, but Heartland do rather more than that. So the comparison should not be seen entirely to be 'like with like'. Nevertheless it is interesting to see the proportion of 'stressed loans' at Heartland is only about half that at Turners.

SNOOPY

[Snoopy]

Time to continue this cross threaded theme on impairment costs. Although Turners have released their FY2016, they have not yet released enough detail to allow me to perform impairment calculations.


The report is out and the extra detail has been released. So it is time to look again at the comparison with Heartland. Turners do not disclose sufficient detail for half yearly comparisons. So it is only meaningful to compare annual periods. And even then, because there are only three data points, none of this will stand up to any really rigorous statistical analysis. But let's do it anyway!



Turners


Date'Stressed' Loans on the books (X)
Net Financial Receivables (Impairments deducted) (Y)
(X)/(Y) Impaired Asset Expense (V)Write Off (W)
Gross Financial Receivables (Z)
(V)/(Z)
(W)/(Z)


EOFY2014$2.875m$37.692m7.63%-$0.532m-$1.452m$43.212m1.23%3.36%


EOFY2015$2.598m$143.365m1.81%-$1.607m-$1.375m$150.351m1.07%0.94%


EOFY2016$1.580m$168.889m0.94%-$1.041m-$1.041m$175.675m0.59%0.59%


Total-$3.180m-$3.868m


Average0.96%1.62%





Heartland


Date'Stressed' Loans on the books (X)
Net Financial Receivables (Impairments deducted) (Y)
(X)/(Y) Impaired Asset Expense (V)Write Off (W)
Gross Financial Receivables (Z)
(V)/(Z)
(W)/(Z)


EOFY2013$48.975m$1,961.402m2.50%-$22.567m-$13.660m$2,060.867m1.10%0.66%


EOFY2014$41.354m$2,566.039m1.61%-$5.895m-$38.518m$2,631.754m0.22%1.46%


EOFY2015$39.066m$2,829.246m1.38%-$12.105m-$4.891m$2,893.724m0.42%0.17%


Total-$40.567m-$57.069m


Average0.58%0.76%





UDC


Date'Stressed' Loans on the books (X)
Net Financial Receivables (Impairments deducted) (Y)
(X)/(Y) Impaired Asset Expense (V)Write Off (W)
Gross Financial Receivables (Z)
(V)/(Z)
(W)/(Z)


EOFY2013$1,265.715m$2,161.193m58.6%-$7.123m-$12.339m+$3.745m$2,198.653m0.32%0.39%


EOFY2014$938.949m$2,344.131m40.1%-$11.733m-$18.633m-$3.300$2,375.936m0.49%0.92%


EOFY2015$1,018.134m$2,429.695m41.9%-$10.427m-$12.162m+$0.659m$2,421.224m0.42%0.47%


Total-$29.283m-$42.030m


Average0.41%0.59%



Comments to come.

SNOOPY

[Snoopy]

Comments to come.


'Impaired Asset Expense' and 'Write Offs' should, over time, add up to roughly the same amount. Three years is really too short a time frame to look for this balance. Nevertheless, both Turners (+21%) and Heartland (+41%) have written off more than their impairment provisioning would suggest. This comparison is comparing just the last three years.

In the case of Turners, it has been so transformed that further historiclal comparisons are somewhat meaningless. In the case of Heartland we have 4.5 years of 'meaningful data' (better but more data will be welcome). This shows writes offs being 72% higher than impairments over that 4.5 year time period.

The big imbalance at Turners was in FY2014. FY2014 I would class as a 'transformative year' (A +240% increase in the receivables balance). Transformative years sometimes require larger than normal adjustments. Taking this out, I would say that Turners is on track to achieving a kind of balance between 'impairment expense' and 'write off's' that Heartland does not achieve. There is no real evidence that Turners are inflating profits by underprovisioning on their bad debts. This means it is not necessary to 'adjust' Turners profits to a long term sustainable level. IMO, The declared profits do this just fine.

SNOOPY

[Snoopy]

Comments to come.


One correlation worth looking at is 'Average Write Offs' (normalised) verses 'Stressed Loans on the Books' (normalised). I have defined 'Stressed Loans' and 'Write Offs' to be mutually exclusive sets.

In percentage terms the 'Average Write Off' is about half that of the 'Average Stressed Loan Balance' in percentage terms for Heartland. By contrast, the 'Average Write Off' is roughly equal to the 'Average Stressed Loan Balance' in percentage terms for Turners.

Structurally there are a lot more motor vehicle loans at Turners rather than Heartland. So maybe motor vehicle loans are more likely to go bad? Or is this just another measure of how Heartland is likely underprevisioned in the bad debt department?

There is no particular evidence that 'Stressed loans' and 'Impaired loans' are correlated at all. But we had better assume they are. Because if they are not, this means that most impaired loans arise suddenly and unpredictibly. And who wants to invest in a company with a loan book that behaves like that?

SNOOPY

[black knat]

Goodness... what a fantastic acquisition!


https://www.nzx.com/companies/TNR/announcements/285582

[blackcap]

Goodness... what a fantastic acquisition!


https://www.nzx.com/companies/TNR/announcements/285582

Market seems to like it. Up to 308 and looking strong. Seems they really like the car business. Also complementary to the lending side of things so should be some synergies. Did I read $4m per annum earnings accreditive? Not bad for the price paid...

[percy]

Goodness... what a fantastic acquisition!


https://www.nzx.com/companies/TNR/announcements/285582

Totally agree.Fantastic acquistion.

[Snoopy]

Market seems to like it. Up to 308 and looking strong. Seems they really like the car business. Also complementary to the lending side of things so should be some synergies. Did I read $4m per annum earnings accreditive? Not bad for the price paid...


I am making a few assumptions below. But nevertheless I expect the figures to be 'ball park'.

Buy Right Cars advertise 2,000 cars in stock. So 2,000 x $10,000m = $20m to be paid for stock.

$15.3m x 0.78 = $11.9m in the cash settlement for the business.

So total cash to be paid for the business is $31.9m

The remainder payment for the business excluding stock is: $15.3m - $11.9m = $3.4m to be paid in TNR shares. Assuming these are issued at $2.80 (roughly the moving average price for CY2016) , this means:

$3.4m/$2.80 = 1.2m new TNR shares will be issued.

EBIT increase forecasted at $4.1m under the first year of ownership.

$4.1m/1.2m = $3.40 EBIT per share for all of those new shares issued.

Operating profit (EBT) last year was $21.551m. Add back in the interest expense of $11.436m and I get an EBIT of $32.987m. No. shares on issue at last balance date was 63.431m (adjusted for post 10:1 consolidation).

Current EBIT per share was therefore:

$32.987m / 63.431m = 52cps

On a per share EBIT for FY2016 basis then, this acquisition looks rather spectacular!

SNOOPY

[winner69]

I am making a few assumptions below. But nevertheless I expect the figures to be 'ball park'.

Buy Right Cars advertise 2,000 cars in stock. So 2,000 x $10,000m = $20m to be paid for stock.

$15.3m x 0.78 = $11.9m in the cash settlement for the business.

So total cash to be paid for the business is $31.9m

The remainder payment for the business excluding stock is: $15.3m - $11.9m = $3.4m to be paid in TNR shares. Assuming these are issued at $2.80 (roughly the moving average price for CY2016) , this means:

$3.4m/$2.80 = 1.2m new TNR shares will be issued.

EBIT increase forecasted at $4.1m under the first year of ownership.

$4.1m/1.2m = $3.40 EBIT per share for all of those new shares issued.

Operating profit (EBT) last year was $21.551m. Add back in the interest expense of $11.436m and I get an EBIT of $32.987m. No. shares on issue at last balance date was 63.431m (adjusted for post 10:1 consolidation).

Current EBIT per share was therefore:

$32.987m / 63.431m = 52cps

On a per share EBIT for FY2016 basis then, this acquisition looks rather spectacular!

SNOOPY

So on a weighted basis EBIT/share is up 10% - yes passes the eps accretive test

Does the bit about the bank funding being agreeable to Turners mean they taking on debt?

[percy]

Added to my holding at $3.10.

[black knat]

Added to my holding at $3.10.

Good on you Percy - very good buying at a PEG of significantly less than 1.

[Snoopy]

So on a weighted basis EBIT/share is up 10% - yes passes the eps accretive test


Before Acquisition (Historical): EBIT/ No. Shares = $32.987m/63.431m = 52.0cps

After Acquisition (projected): EBIT/ No. Shares = ($32.987m+ $4.1m)/(63.431m +1.2m) = 57.3cps

So yes, I agree with your assessment of a 10% normalised EBIT improvement Winner.




Does the bit about the bank funding being agreeable to Turners mean they taking on debt?


Turners seem very free about taking on debt. Yet, if they can keep increasing their eps, who is to say they are wrong in doing so?

Last year debt was funded on average at 4.97%.

I previously wrote:

-----

Buy Right Cars advertise 2,000 cars in stock. So 2,000 x $10,000m = $20m to be paid for stock.
$15.3m x 0.78 = $11.9m in the cash settlement for the business.
So total cash to be paid for the business is $31.9m

----

Therefore, the debt funding cost for the above should be:

$31.9m x 0.0497 = $1.6m

Take $1.6m from the forecast incremental EBIT and I get EBT of $2.5m. With tax at 28% that gives an incremental NPAT of $1.8m.

NPAT (Actual) FY2016 was $15.517m
NPAT (Forecast) FY2017 is $15.517m + $1.8m = $17.317m

So forecast eps is: $17.317m/ 64.631m = 26.8cps

At $3.20, this gives a PE of: 320/26.8 = 12.0

And this is assuming a static year for all the rest of the business! $3.20 looks not overpriced I think, given the trajectory of the company.

SNOOPY

discl: shareholder, bondholder

[black knat]

How are we going on the bonds Snoopy? Are you still happy you took them in exchange for you old Turners shares?

[Snoopy]

How are we going on the bonds Snoopy? Are you still happy you took them in exchange for you old Turners shares?


If you do the calculations black knat, I have been both 'in the money' and 'out of the money' at various times. I don't bother doing the calculation any more. Because the whole point of owning the bonds, as opposed to the head shares, is to virtually eliminate the downside risk while enjoying a higher yield than the shareholders. And the price for that is - probably - I miss out on some of the upside risk.

So yes, I am very happy to have taken the bonds for most of my TUA shares. But I am equally happy to have my 'token' DPC/TNR shareholding at the same time!

SNOOPY

[Snoopy]

My earlier attempt at this failed to consider that in financial services terms, 'Turners Limited' is now a 'hybrid' company. Turners (TNR) now comprises what was the old Turners Auctions business (TUA), plus the debt collection service division, plus the finance and insurance services division. I need to extract the non-finance bits before I stack up 'Turners Finance' againast my finance company yardsticks.


I am not sure TNR shareholders fully appreciate how brilliant the acquisition of the old Turners Auctions business has been for them (us). The last pre-takeover published full year result for "Auctions & Fleet" were published in the FY2013 financial year (ended 31st December 2013).



Turner's Auctions Underlying 'Fleet & Auction' Result (ye 31/12/2013)


EBT Auctions$2.853m


EBT Fleet$2.064m


EBT Total$4.917m


Remove Interest Earned Contribution-$0.553m


EBT Total Underlying$4.364m


less tax at 28%$1.221m


NPAT$3.142m



It is very interesting to compare the above 'Fleet & Auction' result with the equivalent figure in the FY2016 TNR report. Note that
1/ 'Fleet & Auction' assets and liabilities for FY2013 have been reduced to 93.32% of the published figures of the whole TUA group, because 'Fleet & Auctions' represent 93.32% of the business by revenue.
2/ 'Fleet & Auction' assets and liabilities for FY2016 have been adjusted to remove eliminations and reallocate corporate and other assets and liabiliities in proportion to divisional revenue.



AssetsLiabiliitiesShareholder EquityInterest ExpenseNPATROE


Auctions & Fleet (FY2013)$53.2m$35.8m$17.4m$0m$3.142m18.0%


Auctions & Fleet (FY2016)$99.8m$65.6m$34.2m$3.23m$4.44m13.0%



On paper the ROE performance has deteriorated. However, 'Auctions & Fleet' have taken on a substantial interest bill since FY2013. Take that out and ROE has actually improved. Another way of thinking about this is to see that the new TNR management, by introducing debt to Finance & Auctions, has been able to pull capital out of that business and redeply it elsewhere within the Turners group. On an overall group basis, that 'Auctions & Fleet' capital is working much harder. Smart man, that Paul Byrnes!

SNOOPY

[Jinx]

The numbers you run Snoopy are fantastic to read through and reinforce my thoughts on TNR, thank you!

I'm so confused at how the SP is still sitting around $3 after constant good news like this.

[Snoopy]

I'm so confused at how the SP is still sitting around $3 after constant good news like this.


Ther is currently an arbitrage play going on with TNR and TNRHA. Those TNRHA bondholders will soon have an opportunity to acquire shares at an absolute maximum price of $3, and probably a bit less (we get a 5% discounted to the weighted average closing share price over July and August). So why would those shareholders want to pay over $3 now, when in a couple of months we coulld get those same shares cheaper? I imagine this has something to do with current TNR head share price behaviour!

SNOOPY

[Snoopy]

AssetsLiabiliitiesShareholder EquityInterest ExpenseNPATROE


Auctions & Fleet (FY2013)$53.2m$35.8m$17.4m$0m$3.142m18.0%


Auctions & Fleet (FY2016)$99.8m$65.6m$34.2m$3.23m$4.44m13.0%



On paper the ROE performance has deteriorated. However, 'Auctions & Fleet' have taken on a substantial interest bill since FY2013. Take that out and ROE has actually improved. Another way of thinking about this is to see that the new TNR management, by introducing debt to Finance & Auctions, has been able to pull capital out of that business and redeply it elsewhere within the Turners group. On an overall group basis, that 'Auctions & Fleet' capital is working much harder. Smart man, that Paul Byrnes!


TNR, I think is best considered as a 'hybrid' company. The successful 'Auction & Fleet' business will distort comparisons with other more pure finance companies. So 'Auction & Fleet' needs to be taken out for financial company yardstick comparisons. Do that and the 'deconstructed' TNR business is represented in the table below



TNR for FY2016


AssetsLiabiliitiesShareholder EquityInterest ExpenseNPATROE


Auctions & Fleet (FY2016)$99.815m$65.582m$34.233m$3.23m$4.44m13.0%


Finance, Insurance & Collection Services (FY2016)$262.488m$166.909m$95.579m$8.21m$11.08m11. 6%


Divisional Total (FY2016)$362.303m$232.491m$129.812m$11.44m$15.52m1 2.0%



SNOOPY