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

[percy]

Turners settles on Buy Right Cars.
As Todd Hunter said "the acquisition further grows Turners control of customer origination transactions enabling additional volume into the finance and insurance business.
What he did not say,yet we know it,sourcing cars from Japan and retailing them is very profitable also.
A perfect bolt on acquisition,with Turners clipping the ticket all the way from Japan, to the final owner driving down the Southern motorway..

[RTM]

Turners, the financial services firm, has bought a one-hectare industrial site in Wiri for $4.8 million to extend its footprint in South Auckland
http://www.sharechat.co.nz/article/d208f9b0/turners-buys-industrial-land-in-wiri-south-auckland-for-4-8-mln.html

Interesting that they buy their own land rather doing business with someone like PFI. Didn't think that was fashionable in todays world, although I am pleased to see the reasoning...

"Acquisitions of strategic property sites are becoming an increasingly important part of the growth strategy for Turners to allow for further footprint expansion as the business grows, and to achieve stronger control over property overheads," Turners said. "As part of this strategy, Turners have previously purchased properties in South Auckland and Christchurch."

[percy]

Turners, the financial services firm, has bought a one-hectare industrial site in Wiri for $4.8 million to extend its footprint in South Auckland
http://www.sharechat.co.nz/article/d208f9b0/turners-buys-industrial-land-in-wiri-south-auckland-for-4-8-mln.html

Interesting that they buy their own land rather doing business with someone like PFI. Didn't think that was fashionable in todays world, although I am pleased to see the reasoning...

"Acquisitions of strategic property sites are becoming an increasingly important part of the growth strategy for Turners to allow for further footprint expansion as the business grows, and to achieve stronger control over property overheads," Turners said. "As part of this strategy, Turners have previously purchased properties in South Auckland and Christchurch."

Makes sense to me.
Rather than letting PFI or others clip the ticket,Turners just add this to the great number of tickets they are clipping, right through their business.
Great ticket clippers!!

[Snoopy]

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)$99.81m$65.58m$34.23m$3.23m$4.44m13.0%


Finance, Insurance & Collection Services (FY2016)$262.49m$166.91m$95.58m$8.21m$11.08m11.6%


Divisional Total (FY2016)$362.30m$232.49m$129.81m$11.44m$15.52m12.0 %




The folowing information is more than most shareholders want to know. But it is background information that feeds into the published table above, and which I intend to use again. The first column is taken from the Segmented Information as presented in the annual report.



Divisional Asset Allocation FY2016


AssetsElimination Assets ReallocatedCorporate Assets Reallocated


Auctions & Fleet$83.09m15.96%$57.81m27.55%$99.81m


Finance$218.51m41.96%$152.04m72.45%$262.49m


Corporate & Other$219.11m42.08%$152.45m


Sub Total$520.71m


Eliminations[/TD]-$158.42m


Total$362.30m100.00%$362.30m100.00%$362.30m



SNOOPY

[Snoopy]

Divisional Liability Allocation FY2016


LiabilitiesElimination Liabilities ReallocatedCorporate Liabilities Reallocated


Auctions & Fleet$62.63m22.97%$53.40m28.21%$65.58m


Finance$159.39m58.45%$135.89m71.79%$166.91m


Corporate & Other$50.67m18.58%$43.20m


Sub Total$272.68m


Eliminations[/TD]-$40.19m


Total$232.49m100.00%$232.49m100.00%$232.49m



SNOOPY

[Snoopy]

Divisional EBIT Allocation FY2016


EBTRevenueEBT Corporate Reallocated (A)Interest ExpenseLiabilitiesCorporate Interest Expense Reallocated (B)EBIT: (A)+(B)


Auctions & Fleet$10.009m67.68%$6.166m$2.626m28.21%$3.226m$9.3 92m


Finance$17.220m32.32%$15.385m$6.685m71.79%$8.210m$ 23.595m


Corporate & Other-$5.678m$2.125m


Sub Total$21.551m


Eliminations[/TD]$0m


Total$21.551m100.00%$21.551m$11.436m100.00%$11.436 m$32.987m



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' (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.

<snip>

$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!


One year on and my fears were not realised. As far as the old Turners Auction business is concerned, profitability has improved so much that the extra earnings stream has allowed more money to be borrowed against those increased earnings. This in turn means more money can be lent from the finance division, because the whole group asset base is working harder. And that benefits the whole Turners group!

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' (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 changing my analysis this year so that the financial statistics that I am evaluating are applied only to the financial division of the company.

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' (AR2016, p26).

Tier 1 capital > 20% of the loan book.

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

Tier 1 Capital = (Shareholder Equity) - (Intangibles: less Turners Auctions Intangibles) - (Deferred tax: Assume finance division using up deferred losses)
= (0.7245x$129.812m) - ($105.338m -$45.600 -$22.859) - $0m
= $57.170m

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': $18.455m
2/ 'Finance Receivables': $167.598m
3/ 'Receivables and deferred expenses': 0.7179 x $8.505m
4/ 'Reverse annuity mortgages': $9.374m

For the FY16 year these come to $201.532m

$57.170m > 0.2 x $201.532m = $40.307m (true)

=> Pass Test

SNOOPY

[voltage]

Hi Snoopy, you do great work, thanks but for the non accountants do you see this company as a hold or buy. I am finding it very hard to find any value in the NZ market.

[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



In recognition of TNR being a hybrid company, I am no performing the EBIT to Interest expense test on the finance section of TNR only (my post 1257).

Updating for the FY2016 financial year (ended 31-03-2016)

The underlying interest expense is shown under note 7 (AR2016) to be $11.436m. Of this ( $11.436m x 0.7179= ) $8.210m can be applied to the finance division.

The underlying EBT for the finance division may be found in the same post.

(EBT +Interest Expense)/(Interest Expense) = [$15.385m+$8.210m]/$8.210m = 2.87 > 1.2

=> Pass Test

SNOOPY

[Snoopy]

Hi Snoopy, you do great work, thanks but for the non accountants do you see this company as a hold or buy. I am finding it very hard to find any value in the NZ market.


The ducks do seem to be lining up for TNR Voltage. Year on year statistics are improving and the old TUA business has been absorbed and is being put to good use. As to whether it is a buy or not, well that is the ultimate purpose of all this work. At the moment my financial symphony is unfinished, but I am liking the tunes that I have got so far :-). Of course I may have a slight advantage over you, because I can buy my TNR shares for a capped maximum price of $3 (being a bondholder).

You also should bear in mind that the aggressive acquisition program of TNR is largely being funded by a booming car and equipment market. If this were to suddenly reverse: a whole lot of vehicle loans were to go bad and TNR were forced to sell inventory at below cost to shore up the balance sheet, then the outlook for the company might not be so rosy. Not saying this will happen. Just saying this so that you know where the risks in investing in TNR might lie.

SNOOPY

[blackcap]

Thanks for all the hard work you provide Snoopy. My interest in TNR is probably not big enough to warrant such robust analysis. I do like their business model and think that their acquisitions to date have been very astute. I am often wary of first acquiring for the sake of diversification but to date TNR acquisitions have been EPS accreditive and on very modest PE's.
Ever thought about working as an analyst for one of the broking houses?

[voltage]

Having visited turners recently I notice quite a shift. It is really like a big second hand car yard now where most cars can be purchased immediately. The stock looks like a lot of cheap stuff imported and sold at retail price. Perhaps this is where the market is.

[Snoopy]

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 Contractual 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!


To ensure liquidity over the next twelve months, management has the ability to move resources between divisions. So despite this measure being of primary interest in sizing up financial companies, I believe it is more correct to study the TNR group as a whole. The current account information that I seek is in the FY2016 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$13.810m AR2016 p26


Financial Receivables Contractual Maturity$75.735m AR2016 p46


Reverse Annuity Mortgages$1.366m AR2016 p48 Note 16


Total Current Resources$90.911m (addition)


Financial Liabilities0-12 monthsReference


Current Liabilities$115.679m+$10.984mAR2016 p37


Total Current Liabilities$126.663m (addition)



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

$126.663m - $90.911m = $35.752m

I say 'theoretical' because I have based this forecasted cashflow deficit on contracted maturity of financial receivables and historically negotiated repayment of bank borrowings. In fact many of these 'contracted receivables' can be rolled over, if a new car is bought on finance to replace the old one (for example). It is also true that the planned repayment of bank borrowings can be renegotiated and retimed. This means that the actual cash deficit will very likely much less than the $35.752m that I have predicted, if it exists at all.

However, if any of the shortfall remained, the difference could be:

1/ Much reduced if most/all of the TNRHA bonds, maturing on 30th September 2016, are rolled over into shares. This would be the equivalent of injecting up to $23.189m (AR2016 Note 24) of new cash into the company, while simultaneously reducing debt by the same amount.
2/ Selling $14.156m in stock from the Turners Fleet/Auction side of the business.
3/ Retaining half the expected earnings over the twelve month period 1st April 2016 to 31st March 2017. This is stated company policy, which based on the last six monthly period would see cash reserves boosted by: 0.5 x $8.162m x 2 = $8.162m.
4/ Increase borrowings from the banks, under variations to the current banking syndicate deal (amount undeclared and unknown, so I will leave this out of my analysis).

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)

=> ($90.911m+$23.189m+$14.156m+$8.162m) > 1.1 x $126.663m
=> $136.418m > $139.329m (this is false)

The theoretical shortfall of $2.911m represents:

$2.911m/$167.598m = 1.74% of the end of year loan book balance

In summary, not a good result, but rather better than last year. The equation would have worked if it wasn't for the 10% margin required. So a 'fail' against a tough standard, but a close 'fail'.

SNOOPY

[Snoopy]

Having visited turners recently I notice quite a shift. It is really like a big second hand car yard now where most cars can be purchased immediately. The stock looks like a lot of cheap stuff imported and sold at retail price. Perhaps this is where the market is.

All part of the 'retail transformation strategy' Voltage. The old wholesaler, to which the Mum and Dad dealer went to get their stock, is a very secondary part of the business these days.


Thanks for all the hard work you provide Snoopy. My interest in TNR is probably not big enough to warrant such robust analysis. I do like their business model and think that their acquisitions to date have been very astute. I am often wary of first acquiring for the sake of diversification but to date TNR acquisitions have been EPS accreditive and on very modest PE's.
Ever thought about working as an analyst for one of the broking houses?

I don't think they would want me Blackcap. Turners is one of those shares that I don't believe any of the broking houses deems worthy of coverage. 'You and I' are the analysts I'm afraid :-(.

SNOOPY

[percy]

Some work to be done by our own Sharetrader resident Turners analysts....
TNR recently brought a "highly visible" corner site in Wiri for $4.8mil for their fast growing Truck and Machinery business.
Questions;
1/In a couple of years time what will be the "market value" of the site,taking into account Turners will develop the site.
2/Do you think TNR will just book an unrealised profit in their accounts,taking the difference between cost and market valuation.[the market valuation will take into account the tenant is a "national" business],or do you think TNR will sell it and lease it back,and book the development margin ?.
3/If they sell it what will be their profit margin?.[I do not expect they will own the property unencumbered].
4/Do you think when they see how much profit they can make property developing with them as a " national" tenant, we will see them upgrading further sites?

[Snoopy]

Some work to be done by our own Sharetrader resident Turners analysts....


I don't count myself as a property expert, but I'll give this a crack.



TNR recently brought a "highly visible" corner site in Wiri for $4.8mil for their fast growing Truck and Machinery business.
Questions;
1/In a couple of years time what will be the "market value" of the site, taking into account Turners will develop the site.


This site

https://www.google.co.nz/maps/@-37.0026704,174.8533621,3a,75y,246.8h,103.48t/data=!3m6!1e1!3m4!1sGa2MgIdvZcsu6KT8M0udbg!2e0!7i1 3312!8i6656

looks to be the Keith Andrews Misubishi Fuso Site, coveniently next door to the existing Turners Auckland 'Trucks & Machinery' site. It consists of a large expance of tarmacadam and an urban barn, in which to execute the paperwork side of the business - and service vehicles. The value of the site, I would guess be determined by whatever alternative use the site and buildings might be put to. If Turners develop the site, then that development my not suit other alternative uses. So as a general 'rule of thumb', I would guess that development by Turners will not 'add value'. Nevertheless, I do expect the value of the land will track the movement of Auckland industrial land in general.



2/Do you think TNR will just book an unrealised profit in their accounts,taking the difference between cost and market valuation.[the market valuation will take into account the tenant is a "national" business],or do you think TNR will sell it and lease it back,and book the development margin ?.


Turners (old Auctions) do not make their money dealing in property. IIRC they sold off almost all of their properties to reduce debt several years ago. If they retain this property, then yes any increase in value should flow through to the balance sheet at revaluation time. I'm not sure if this would happen every year though. Probably more like every three years?

The other option as you say Percy would be to develop the property, work out how much they are prepared to pay in rent, then draw up a multi year lease agreement and sell the property. Accordingly the property would be valued on the expected cashflows from the lease deal. You could think of that process as 'booking a development margin', if you chose to think of it that way.



3/If they sell it what will be their profit margin?.[I do not expect they will own the property unencumbered].


No Idea, as not an expert in the Auckland industrial property market!

Years ago I remember Restaurant Brands selling off all their properties. At the time they claimed that the increased lease costs would be roughly matched by a reduction in depreciation charges that would have been a cost had they continued to own the properties. Since that time the depreciation tax rules for property has changed, interest rates have reduced, and I expect the price of Auckland industrial land has risen substantially. So I am no longer sure that 'sell and lease back' is a cash neutral decision. Hopefully some of the property gurus who frequent this forum can enlighten us?



4/Do you think when they see how much profit they can make property developing with them as a " national" tenant, we will see them upgrading further sites?


No, because I don't think Turners (old Auctions) still own their sites as a rule.

SNOOPY

[percy]

Smiths City and The Warehouse made a great deal of money developing their own sites.A great deal.
Then setting the rental and on selling the properties.
The value in any property I believe is "the tenant".
In SCY and WHS they were "national" tenants, and so the properties sold at a premium.
Turners will have this option.
Very good use of not a lot of capital.
Just another case of TNRs clipping the ticket.

[Snoopy]

Smiths City and The Warehouse made a great deal of money developing their own sites.A great deal.
Then setting the rental and on selling the properties.
The value in any property I believe is "the tenant".
In SCY and WHS they were "national" tenants, and so the properties sold at a premium.
Turners will have this option.
Very good use of not a lot of capital.
Just another case of TNRs clipping the ticket.

Turners have to operate from somewhere. So buy and develop a new site develop it then sell it on with a cast iron ten year lease contract signed? Yes I agree that Turners could attract a premium if such a package was put out to tender. Time will tell. Nevertheless I think its a oncer, because the rest of those Turners outlets are largely sold already. Ngai Tahu are already doing nicely out of Turner's white shed in Detroit place in Christchurch!

SNOOPY

[percy]

Turners have to operate from somewhere. So buy and develop a new site develop it then sell it on with a cast iron ten year lease contract signed? Yes I agree that Turners could attract a premium if such a package was put out to tender. Time will tell. Nevertheless I think its a oncer, because the rest of those Turners outlets are largely sold already. Ngai Tahu are already doing nicely out of Turner's white shed in Detroit place in Christchurch!

SNOOPY

Whatever they decide to do we must remember they are adding value to the business.
Another ticket to clip,especially when they are looking to upgrade sites/locations .

[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!

Turners is free to negotiate with its parent bankers on what is a suitable level of funding for the company. It seems inconceivable that they would negotiate their own loan package in a way that would put their own 'funding core' at risk. So we can use the information we have combined with a 'rule of thumb' to calculate an appropriate sized funding core.

The table below has taken items from the balance sheet (marked (1)). I have written the table with all the pieces adding up to a whole. However, the table has largely been constructed in a reverse way. That means starting with 'the whole' then figuring out a way to allocate 'the whole' to the separate constituent pieces.



[AssetsLiabilitiesShareholder Equity


[Finance (Not Underlying)$94.892m (3)-$85.403m (4)=$9.489m (6)


[Underlying Finance$167.592m (1)-$81.506m (5)=$86.090m (6)


[Finance Sub Total$262.488m (*)-$166.909m (*)=$95.579m (2)


[Auctions & Fleet$99.815m (*)-$65.582m (*)=$34.223m (2)


[Balance Sheet Total (All)$362.303m (1)-$232.491m (1)=$129.812m (1)



Calculation (3) allows us to work out the core assets not related the underlying finance contracts of the business (everything else apart from the receivables book) by simple subtraction. The finance company 'rule of thumb' for their core is to ensure that:

(Non-Risk Liabilities)/(Non-Risk Assets) < 0.9

From this, we can work out that the Non-Risk Liabilities must be no more than:

(Non-Risk Assets) x 0.9 = $94.892m x 0.9 = $85.403m (which is answer 4 above).

Simple subtraction and addition is then used to work out the rest of the numbers in the table.

So what's the point of this so far?

By working out the minimum size of the business core (as measured by assets and liabilities), that means we can measure how well the rest of the business is set up to do the customer lending, the bit that actually generates the profits for the Turners Finace division. This is done by looking at the assets and liabilities left outside the core.

Implied Available Financing Gearing ratio
= (At Risk Liabilities)/(At Risk Assets)
= $81.506m/$167.596m
= 48.6%

Generally you would want to match your 'At Risk Liabilities' with your 'At Risk Assets'. This particular match looks acceptably conservative. But how does it compare with other listed finance entities? Rather better than the 65.6% that I have calculated for 'Geneva Finance' as it turns out. In practical terms this means that Turners has the capacity to expand their finance business loan book at a greater rate than Geneva, without issuing new capital. Not saying I wouldn't buy Geneva. But on this measure TNR looks better, which is probably why it trades on a higher PE than Geneva.

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.


For a direct comparison with last year, I will look at the 'margin' of the whole business

Margin = NPAT / Revenue

= [($21.551m-$5.949m) - ($0.200+$0.070m)] / $171.195m

= 8.9%

This much lower figure than last year can be largely explained by the normalisation of the tax bill.

Separate to the "Margin' is the special statistic for finance businesses, the 'interest margin'. Turners is very definitely a 'hybrid business'. So to compile the table below I have taken 'Turners Auctions & Fleet' out of the equation.

Interest Margin (Finance business only)



EOFY2016EOFY2015Average


Cash/Cash Equivalents (Part1)$7.600m$3.700m$5.650m


Cash/Cash Equivalents (Part2)0.5951 x $6.210m0.5889 x $8.639$4.392m


Finance Receivables$165.598mm$142.827m$155.213m


Reverse Annuity Mortgage$9.374mm$13.253m$11.494m


Total$176.749m



Interest Margin = [(Interest Received) - (Interest Expenses)] / [Average Cash Earning assets for Year]
= [$29.631m -0.7179x$11.436m] / $176.749m
= 12.1%

That interest margin is extremely high, more than double that of Heartland and even higher than Geneva Finance. Perhaps one reason it needs to be higher is what happens if a loan goes bad. Selling a second hand car may not get Turners their money back, whereas selling a Reverse Mortgage property , or a herd of cows, means a much better chance of the finance company behind those loans getting their capital back.

SNOOPY

[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....



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%





Over the last couple of years I have specialised in creating a lot of 'financial information' surrounding 'Turners'. However, although 'interesting' I have decided it is not that useful. The trouble is, a jumble of numbers on its own is just that, a jumble of numbers. What is needed is a cohesive thread to draw it all together, a 'story' if you like. Tell a story and suddenly the numbers have context and an overall meaning.

So here is the 'story' I intend to tell around TNR.

There are three characters in this story,

1/Geneva Finance (GFL),
2/Turners Limited (TNR) and
3/ Heartland Limited (HBL),

listed in terms of decreasing perceived risk. The characters are not equal. But they all operate in the New Zealand finance market. All at one stage took deposits from the public, but only HBL does this now. TNR is 'the one in the middle'.

The first statistic in this story is PE ratio. Investors need to know this, because they need to know how much Mr Market is currently prepared to pay for these companies' earnings. A company with more 'future potential' should command a higher PE ratio. Now, what might 'cause' a higher PE ratio?

ROE (return on shareholder equity) is a measure of how efficiently a company can deliver earnings from a given resource of equity. The higher the ROE, the more efficiently the company is using its capital. Net Interest Margin is another measure of efficiency. But this applies only to financial entities, and that doesn't include the adjunct Turners Limited Auction and Fleet business. A third measure of efficiency is the underlying gearing of the loan book. Put simply every finance company has an underlying shell, upon which is superimposed funds borrowed from a 'parent bank' (and/or depositor and [customers) and 'funds loaned' to customers as 'financial receivables'. With the underlying shell stripped out, investors can get a feel for how far the 'funds loaned' base is leveraged on the 'funds borrowed' base.

There are a couple of ways to present profits in an overexaggerated way. The first is to underestimate the impaired asset position. I look at the declared impaired asset position in relation to the total loan portfolio, including impared assets, to get a feel for this. The second way is to borrow to the hilt on your capital base. My preferred indicator for this is MDRT of 'minimum debt repayment time'. This is a number that answers the question: If all profits were poured back in to repaying debt, how many years would it take to pay off that debt?

To summarize:

1/ P/E ratio measures value.

2/ 'ROE', 'Net Interest Margin', and 'Underlying Gear of Loan Book' are three ways to measure why a higher than average P/E could be justified.

3/ 'Impaired Asset Position' and 'MDRT' are two measures to look at whether the accounts as presented are believable and long term sustainable.

With characters introduced, and the story outline told, it is time for the comparative battle to commence.

SNOOPY

Note: The continuation of this post now has its own thread:

http://www.sharetrader.co.nz/showthread.php?10678-An-Investment-Story-Geneva-Turners-Heartland

[Snoopy]

To summarize:

1/ P/E ratio measures value.



Note that:

1/ The financial year (FY) ends on 31st March for Turners and Geneva, and 30th June for Heartland.
2/ Geneva results have been adjusted for the recent 7:1 share consolidation.
3/ Turners results have been adjusted for the recent 10:1 share consolidation.
4/ Turners results for FY2015 taxed at 28% (the future rate) for better YOY comparison.



Normalised ProfitShares on IssueepsShare PricePE Ratio


Heartland FY2015$47.55m469.890m10.1cps$1.1010.9


Heartland FY2016


Turners FY2015[$19.006m-($0.010+$7.058)m] x 0.7263.077m13.6cps$2.7019.9


Turners FY2016$15.517m-($0.200+$0.070)m63.431m24.0cps$3.1012.9


Geneva FY2015$2.194m70.435m3.1cps25c8.0


Geneva FY2016$3.529m70.435m5.0cps48c9.6



The table makes it clear that Turners generally trades on a PE ratio higher than Heartland Bank or Geneva Finance. Can such a premium be justified?

SNOOPY

PS: the continuation of this post now has its own thread

http://www.sharetrader.co.nz/showthread.php?10678-An-Investment-Story-Geneva-Turners-Heartland

[winner69]

Hey Snoops

This a good idea

http://www.sharetrader.co.nz/showthread.php?10677-An-Investment-Story-Geneva-Turners-Heartland&p=632211#post632211

[Snoopy]

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


Please do share views on "The Existing Bonds (NZX:THRHA) To Convert On 30 September 2016".

Etnom, I have transferred my answer to your enquiry onto the 'new' TNR thread, from the old TUA thread (TUA had no bonds). In fact the bonds were created to partly fund the takeover of TUA.

There has been a 10:1 TNR share consolidation since my above referenced post. In the old money, this means the current share price of $3.10 is equivalent to 31c with reference to the above quoted post of mine.

I can't find much fault with the performace of TNR management since the TUA takeover date. In PE terms today I consider TNR at $3.10 neither cheap nor expensive. Of some concern going forwards is the interest rate margin of the finance arm of the business, I calculate as 14% for the year just gone. My concern is that it may be too high to be sustainable! Compare that with the lower 11% margin at smaller and less credit worthy Geneva and you wonder when borrowers from Turners will wake up. However, from a shareholder and bondholder perspective, long may this continue......

I have decided to convert 2/3 of my bonds to shares, to add to my very modest existing shareholding, and cash out the rest. I may seek to purchase more TNR shares on market should the price fall back.

I am also considering the new 6.5% bond offer for the rest of my payout. Two years ago I wouldn't have touched such an offer from a second tier lender like TNR at such a low interest rate. But the way interest rates have gone, maybe 6.5% for two years is attractive? The problem is a second tier lender may not fare so well if market conditions change. So I would want to limit what I put into such a bond as an amount I could afford to lose. Liquidity in the old TNRHA bonds on market was poor. So I think holders of the new bond have to be prepared to be there for the full two years.

SNOOPY

[etnom]

Thanks Snoopy. Your detailed analysis and comments these past few years have been very helpful and taught me how to look at and do the basic maths. Much obliged for your time and patience in sharing.

[RTM]

Hi Snoopy,
Re the new Turner Bonds.
Thanks for your analysis and comments re Turners. Appreciated.
I was wanting some more shares to add to my modest holding, but the price had increased beyond what I wanted to pay for them
So I am considering buying some of the bonds - 6.5% return for two years is not unattractive - and hopefully I either get my money back or better still, they convert to shares in two years time.
Regards
RTM

[blackcap]

Dividend junkies are going to love this.....

TNR
15/09/2016 09:05
DIVIDEND
NOT PRICE SENSITIVE
REL: 0905 HRS Turners Limited

DIVIDEND: TNR: TNR - Dividend Announcement

15 September 2016
Company Announcement

DIVIDEND

The Board of Turners Limited has declared the first quarterly dividend of 3.0
cents per share, fully imputed. The record date will be 23 September 2016,
with a payment date of 30 September 2016.

This is the first fully imputed dividend that Turners Limited has paid as it
is now in a full tax paying position.

CEO Todd Hunter said "We are very pleased to be able to deliver imputed
dividends to our shareholders, and our first quarterly dividend. We have had
a positive start to the FY17 financial year, with the company trading above
budget and well ahead of prior year."

The company announced at the Annual Meeting yesterday that they expect the 6
months profit before tax to be $11.6m, which is 14% ahead of last year's
interim result.

ENDS

[percy]

Yes quarterly fully imputed dividends are most welcome in our household.!
I did find the section "addressing the value gap" in the agm presentation interesting.
I had forgotten that TNR shareprice had underperformed the market for the past year or two.It was brought home to me last night, when I was trying Google Finance charts,rather than Yahoo Finance charts I somehow put in TNR comparing them with HBL and was very surprised.So TNR have a lot of catching up.I am sure now they have put their mind to it they will.
Also the net proceeds from the latest bond issue, will provide them with a healthy [over $24mil] for acquisitions.

[blackcap]

Yes quarterly fully imputed dividends are most welcome in our household.!
I did find the section "addressing the value gap" in the agm presentation interesting.
I had forgotten that TNR shareprice had underperformed the market for the past year or two.It was brought home to me last night, when I was trying Google Finance charts,rather than Yahoo Finance charts I somehow put in TNR comparing them with HBL and was very surprised.So TNR have a lot of catching up.I am sure now they have put their mind to it they will.
Also the net proceeds from the latest bond issue, will provide them with a healthy [over $24mil] for acquisitions.

I find the tale of underperformance interesting too. They have done everything right and yet the SP has gone no where. Nice for us to pick up a few more at these prices and as you rightly point out the $24m may come in handy too.

[percy]

I was holding myself at the ready yesterday morning,waiting to see if there was any buy catalyst in the agm presentation.Low and behold all the shares on the offer were sold before the agm started.!!
I saw no real reason to buy,so did not do so.We already have a reasonable holding.
I will remain at the ready, incase the share price weakens off slightly,when bond holders convert their bonds to shares at a discount, and sell the shares to realise their profit.
Totally agree with you that TNR have done everything right.

[Hoop]

Hmmm they say boring is good..and produces an ability to fly under the investors radar.. but not everyones radar....TNR shareprice is nearly flatlined (<10% trading movement), has a small step up trend (series of mid to low $2.80's lows replaced by a series of mid to low $3.00's (Support Lines) The last 5 weeks there has been bullish accumulation activity pressures which increases the chance of the share price breaking the $3.15 resistance. The volume is low (exception 13th / 14th July and yesterday were above average) which makes this an illiquid stock, therefore adding some extra trading risk compared to others .eg HBL

There are no indicators on my chart for a reason (apart from the OBV) .. flatline prices creates unreliable indicator signals..If one must use indicators the oscillator type are the preferred option.

Bank stocks in general....ATM my mind is focused on the 2 main trading banks (ANZ WBC) which have downtrended -25% for 18 months now and looking like a "bottom" could be near ...HBL also trended down over the same period of time but in July it turned and rallied to a new high..TNR downtrend started at a similar time too but it has not move up either..

Looking at the basic fundamentals it seems the Major banks downtrend has created a negative sentiment to the level that comparing risk with AA and B banks it seems the market sector is currently fundamentally upside down..
The AA banks have a lower PE ratio, higher yield rate than the B banks ..so investors at the moment are taking TNR and HBL as a less risky investment...This either assumes the B rated banks TNR and HBL with PE Ratios of 13 and 14 respectively are expensive or ANZ and WBC both around 12 are cheap....In my personal view financial sector historically run at low PE Ratios ANZ WBC run at average of 12 (https://ycharts.com/companies/WBK/pe_ratio) so HBL TNR look expensive and growth must be assured to sustain their 13 /14 PE's.

http://i458.photobucket.com/albums/qq306/Hoop_1/TNR%2014092016.png (http://s458.photobucket.com/user/Hoop_1/media/TNR%2014092016.png.html)

[percy]

Thanks Hoop.
The important differences that I can see between HBL/TNR and ANZ?WBC are;
1] Both HBL/TNR will achieve eps growth of over 10% while ANZ?WBC will see little if any growth.
2]Both HBL/TNR have strong balance sheets and have no need for further capital,while ANZ/WBC have needed to strengthen their balance sheets by either selling off parts of their business,as well as/or raising capital.
3] Both HBL/TNR have very have very small bad debt writeoffs,while ANZ/WBC have worries with Aussie mining,retail,manufacturing,housing and NZ dairy exposure.
4]Both HBL/TNR are lot smaller companies,whose business models are better suited to online/digital growth,while ANZ/WBC are hampered by large expensive branch networks.HBL are seeing huge growth with their online products,in particular "open for business".I expect TNR will see the same sort of growth with Cartopia.
The market is waking up to HBL/TNR ,and charts comparing them to ANZ/WBC should be worth watching over the next year or two,as both HBL and TNR gain more market acceptance to their growth business models.

[Hoop]

Thanks Hoop.
The important differences that I can see between HBL/TNR and ANZ?WBC are;
1] Both HBL/TNR will achieve eps growth of over 10% while ANZ?WBC will see little if any growth.
2]Both HBL/TNR have strong balance sheets and have no need for further capital,while ANZ/WBC have needed to strengthen their balance sheets by either selling off parts of their business,as well as/or raising capital.
3] Both HBL/TNR have very have very small bad debt writeoffs,while ANZ/WBC have worries with Aussie mining,retail,manufacturing,housing and NZ dairy exposure.
4]Both HBL/TNR are lot smaller companies,whose business models are better suited to online/digital growth,while ANZ/WBC are hampered by large expensive branch networks.HBL are seeing huge growth with their online products,in particular "open for business".I expect TNR will see the same sort of growth with Cartopia.
The market is waking up to HBL/TNR ,and charts comparing them to ANZ/WBC should be worth watching over the next year or two,as both HBL and TNR gain more market acceptance to their growth business models.

Yeah it seems the market is factoring in the changes...
HBL has rallied back...Percy do you think, smaller companies react quicker therefore become sector leading indicators..Is HBL a sector leader and is TNR due to rally?.. Could the sector majors ANZ WBC be laggers and follow later on?

[percy]

Yeah it seems the market is factoring in the changes...
HBL has rallied back...Percy do you think, smaller companies react quicker therefore become sector leading indicators..Is HBL a sector leader and is TNR due to rally?.. Could the sector majors ANZ WBC be laggers and follow later on?

Yes smaller companies are quicker to react than bigger companies,and enjoy higher growth rates should their business model be what the customers want.
ANZ/WBC, with their big branch network are like a super tanker trying to change direction,compared to HBL/TNR being speedboats,so I think they will be laggers.They will have to try and follow at some stage.
The market places both HBL/TNR operate in are changing very quickly.Both seem to have the business model to take advantage of thes changes,and profit the most, by having the products the market wants,by being ahead of the field..
HBL.I really don't know whether the dividend is driving HBL's sp, or whether the market is realising their online/digital products are ahead of the other lenders.Yet their online/digital offers the quickest growth model for lenders.
TNR are really taking buying a car to a new level with their Cartopia model.Sell the car,finance and insure it,and give a 7 day money back if the buyer is not satisfied.I would buy a car from them using Cartopia.
A plumber driving along the road after having his quote accepted needs finance to pay for equipment needed for the job.Spends a few minutes arranging finance on his phone,rather than trying to make an appointment to see his bank,when it suits his bank.
You need to buy Mrs Hoop the nice car she deserves.Rather than spending hours looking at car yards or doubtful sellers online, you find a suitable car via Cartopia. Brought,financed,insured all in a matter of minutes.What car dealer can compete?.

[Leftfield]

.What car dealer can compete?.

Six months ago I purchased an import from Turners as the first NZ owner. The car came with a full AA service and AA check, plus it was a grade 4 plus import ex Japan with a full Japanese service record. I reckon I paid $8k to $12k less than through what other dealers were asking for the particular model, and am very impressed. The car has been faultless. The TNR service and experience was first class. Not only does TNR have the financial clout you mention, it also must be a huge importer, which gives TNR huge buying power to secure the best deals.

[percy]

Six months ago I purchased an import from Turners as the first NZ owner. The car came with a full AA service and AA check, plus it was a grade 4 plus import ex Japan with a full Japanese service record. I reckon I paid $8k to $12k less than through what other dealers were asking for the particular model, and am very impressed. The car has been faultless. The TNR service and experience was first class. Not only does TNR have the financial clout you mention, it also must be a huge importer, which gives TNR huge buying power to secure the best deals.

Thank you for your post.
I think your first hand experience is confirmation Turners are ahead of the field.
The Buyright acquistion will further add to their buying power.
It will also add opportunities to add finance and insurance bolt ons in due course.
Perhaps Turners may expand the BuyRight brand to other centres.?

[ziggy415]

Thank you for your post.
I think your first hand experience is confirmation Turners are ahead of the field.
The Buyright acquistion will further add to their buying power.
It will also add opportunities to add finance and insurance bolt ons in due course.
Perhaps Turners may expand the BuyRight brand to other centres.?
im confused ....is Turners finance (dorchester).and turners cars one and the same

[percy]

im confused ....is Turners finance (dorchester).and turners cars one and the same

Ziggy415,
You have made my day.lol.
Yes.
Dorchester took over Turners Auctions and retained the Turners name.

[ziggy415]

Ziggy415,
You have made my day.lol.
Yes.
Dorchester took over Turners Auctions and retained the Turners name.
So heartlands stand for 20% was for ex dorchester...now i see

[Snow Leopard]

So heartlands stand for 20% was for ex dorchester...now i see

I thought that was for Turners & Growers !

BW
PT

[Snoopy]

Yes quarterly fully imputed dividends are most welcome in our household.!
I did find the section "addressing the value gap" in the agm presentation interesting.


If we accept Hoop's calculation that both TNR and HBL are now on a similar PE of 13-14, well above the big 'A' grade banks, I have to say

"What value gap exists for TNR?"

The earlier higher rating for TNR (on an earnings basis) was in anticipation of a return to a more normal level of profitability and the anticipation of imputation credits. Both of these events have now happened. So PE ratios have reduced to more 'normal' levels (still high in historical finance industry terms).

The TNR share price will only grow if earnings per share grows. Many of the TNR acquisitions have come with the issue of new shares. If the percentage incremental increase in profit from an acquisition is not greater than the concommitant increase in shares as a result of the acquisition, then the share price of TNR will not grow! This is how 'financial maths' works. Over the past four years it looks like the shareholder capital has increased by around 400% (slide 8 AGM presentation). The vast majority of this increase is new capital fed into the business by conversion of bonds to equity, or just issuing new shares as part of making acquisitions.



I had forgotten that TNR shareprice had underperformed the market for the past year or two.


It is not uncommon for a share with very high expectations to underperform the market when the real financial value of these expectations finally sees the light of day.

I would be much happier if TNR stopped worrying about any perceived 'value gap' and just got on with running the business. Granted they may have to explain the 'hybid nature' of this 'finance' company to new analysts. But if they just got on with runninng the business well, meeting and slightly exceeding their own budgeted projections, then Mr Market will take care of any 'value gap' in time. Admittedly TNR managment do seem to know how to run their core business well.

SNOOPY

P.S. Vote Labour! Not really sure why except the more people in the wider population that feel they are doing well the more vehicles TNR should sell. This comment seems to fit with the random nature of discussion developing.

[percy]

From today's announcement;
New Bond Issue.......................................$25.56 mil
Capital Raise............................................$ 12mil
Conversion of 2014 Bonds..........................$17.4mil
................................................TO TAL......$54.96mil
What does this mean?..................................FUN.!

[percy]

From today's announcement;
New Bond Issue.......................................$25.56 mil
Capital Raise............................................$ 12mil
Conversion of 2014 Bonds..........................$17.4mil
................................................TO TAL......$54.96mil
What does this mean?..................................FUN.!
I may be jumping the gun,but it looks to me as though those bond holders who sold their shares, and made a margin converting their bonds to shares, are now out of the market.
This means the new upward sp trajectory is now underway.!!!

[blackcap]

I may be jumping the gun,but it looks to me as though those bond holders who sold their shares, and made a margin converting their bonds to shares, are now out of the market.
This means the new upward sp trajectory is now underway.!!!

Do you think that was what was holding the price down Percy? I am guessing a lot of these "bond" holders were not long term DPC shareholders even though DPC also was largely Turners. So there is some validity to that statement. I guess Snoopy's angst over the last 2 years whether to invest or not in "DPC" may be representative of old Turners shareholders. So that could well be the case. Being lazy here, but when did the bond holders get shares on their statements? So how long have they had to sell?

[percy]

Do you think that was what was holding the price down Percy? I am guessing a lot of these "bond" holders were not long term DPC shareholders even though DPC also was largely Turners. So there is some validity to that statement. I guess Snoopy's angst over the last 2 years whether to invest or not in "DPC" may be representative of old Turners shareholders. So that could well be the case. Being lazy here, but when did the bond holders get shares on their statements? So how long have they had to sell?
Please excuse me for not being exact,but I think the "old" bonds converted 30th September,and I take it the "new" two year bonds have just been issued.I say that, as a Trust I help out on applied for bonds.I rang the broker yesterday and The Trust got what was applied for,but I had not seen a contract note.
Yes ,there was a margin there, which I think was taken advantage of,which kept the sp down.
We now have two brokers researching TNR,FNZC,and today Craigs published research. This coverage should bring TNR's story to a wider number of investors.As we know the story is compelling, we remain "well positioned."

[DarkHorse]

A recent buy for me, few great value NZ stocks left but this is one.
A nice quote from Craigs report:

We prefer TNR relative to other small NZ industrial stocks, given its defined growth strategy
which, if executed, could see the stock transform into a mid-cap. Additionally, TNR’s growth
options are mostly internal driven and focused on making share gains in its core sectors - which
are large and fragmented. This is quite different to other NZ industrial small caps whose
investment cases are highly exposed to both economic and commodity price cycles.

[blackcap]

Please excuse me for not being exact,but I think the "old" bonds converted 30th September,and I take it the "new" two year bonds have just been issued.I say that, as a Trust I help out on applied for bonds.I rang the broker yesterday and The Trust got what was applied for,but I had not seen a contract note.
Yes ,there was a margin there, which I think was taken advantage of,which kept the sp down.
We now have two brokers researching TNR,FNZC,and today Craigs published research. This coverage should bring TNR's story to a wider number of investors.As we know the story is compelling, we remain "well positioned."

Looks like you were right about the selling drying up there Percy, or maybe its the impact of the Craigs research. Either way its good to see the SP move up to 3.25.

[percy]

Looks like you were right about the selling drying up there Percy, or maybe its the impact of the Craigs research. Either way its good to see the SP move up to 3.25.

More shares traded today than I thought.88,235..TNR with VWAP price of $3.2437 being total value $286,207.
The bonds also traded today.50,000... TNRHB with VWAP price of $1.00 being total value $50,000.

[blackcap]

Just keeps ticking all the right boxes:

TNR
15/11/2016 09:11
GENERAL
PRICE SENSITIVE
REL: 0911 HRS Turners Limited

GENERAL: TNR: Turners and MTF Sign Exclusive Partnership

15 November 2016

TURNERS AND MTF SIGN EXCLUSIVE PARTNERSHIP AND LAUNCH NEW LOAN PRODUCT

Integrated automotive financial services group, Turners Limited (NZX: TNR)
has signed an exclusive partnership with Motor Trade Finance (MTF) to provide
a non-recourse lending product to MTF's network of franchisees and dealers.

The new product has been developed in response to demand within the MTF
network and will see Turners take on the risk associated with the loans
originated by its franchisees and dealers. Approximately 90% of the loans are
expected to be for consumer purchase of motor vehicles, with the balance as
commercial lending, mainly on trucks and machinery.

The partnership introduces Turners to MTF's network of approximately 250
franchisees and dealers, significantly increasing the company's reach into
the motor vehicle finance sector, providing access to a number of new lending
opportunities for all parties. CEO of Turners Limited, Todd Hunter, said: "We
have had a long standing and successful relationship with MTF and this is
reflected in the substantial investment from both parties to get this product
developed and launched. Turners has an 8% shareholding in MTF and this joint
initiative further strengthens the partnership between our two organisations.
This offer will provide a great outcome for Turners, MTF and the MTF
network."

Glen Todd CEO of MTF commented: "For the first time, the MTF network will
have access to a non-recourse product through MTF's lending platform. The
addition of a non-recourse product gives our franchisees and dealers greater
choice to meet their individual appetite for risk and return, without
exposing MTF shareholders to any additional risk. The non-recourse product
complements our existing model and will leverage off our superior credit
systems and processes. The platform is simple to use and the
recourse/non-recourse option allows MTF franchisees and dealers to easily
select the loan product that best meets their needs. We believe this offer
provides a unique opportunity for MTF and its network."

The partnership is for an initial two year term, with the right to extend,
and funding will be provided by Turners with the support of its banking
partner, BNZ. All loans will be fully secured and be eligible for Turners'
securitisation program which is currently in development and expected to be
launched early in 2017.

A pilot of the new loan product will commence in December 2016 with a
progressive rollout across the MTF network from early 2017.

ENDS

[percy]

blackcap.
Yes they just keep ticking all the boxes.
This is a significant announcement.

[blackcap]

I seem to keep repeating myself... ticking the right boxes....

Market seems to like it...

TNR
22/11/2016 09:29
ASSET
NOT PRICE SENSITIVE
REL: 0929 HRS Turners Limited

ASSET: TNR: TURNERS ACQUIRES AUTOSURE INSURANCE BUSINESS

21 November 2016

Company Announcement

TURNERS ACQUIRES AUTOSURE INSURANCE BUSINESS
Enters into a corporate partnership with Suncorp New Zealand

Turners Limited (NZX : TNR) today announced it has reached agreement to
purchase the Autosure business including the Autosure brand, mechanical
breakdown and payment protection insurance portfolios. Auckland based
Autosure has been market leader in all areas of motor insurance under Suncorp
New Zealand's ownership over the last 12 years. Autosure distributes through
approximately 750 dealer agencies throughout New Zealand.

Turners will pay a total purchase price consideration of $34 million in cash.
Settlement will occur on 1 December 2016. While the sale and purchase is
unconditional, the transfer of in-force portfolios by 31 March 2017 is
subject to regulatory approval from the Reserve Bank of New Zealand.

Turners Limited CEO, Todd Hunter said the acquisition of Autosure will be
transformational for Turner's existing insurance business.

"Autosure will be run as a stand-alone business and all current management
and staff will be retained. We expect Autosure will contribute earnings
before interest, tax, depreciation and amortisation of around $5.5 million in
the first full year following transfer of the in-force portfolios.

"Additional synergies are expected to arise for the Turners group from
utilisation of Autosure's repairer network by our existing insurance business
and from cross selling of insurance and finance to an extended dealer network
and customer base. We believe we can deliver significant additional
opportunities to the current dealer network through the acquisition of the
Autosure business."

Turners has also entered into a new corporate partnership with Suncorp New
Zealand. Under the partnership Turners will sell private motor vehicle
insurance under the Autosure, Mainstream and other Turners controlled brands,
all underwritten by Suncorp New Zealand's intermediated general insurance
provider, Vero.

Suncorp New Zealand CEO, Paul Smeaton, said he was excited about the
opportunity to partner with Turners in a move that delivers on Suncorp New
Zealand's growth strategy. "Turners is New Zealand's largest seller of
cars, trucks and machinery, so it makes perfect sense for Suncorp, a leading
general and insurance provider, to go into partnership with them. Customers
will benefit from Vero's market leading capabilities including expert claims
support.

Turners Limited Chairman, Grant Baker, said the purchase of Autosure
completely aligns with our strategy of building on organic growth with
acquisitions of reputable businesses and brands that build capability and
scale in the integrated automotive financial services market.

"With sustainable earnings expected from both Autosure and the recently
acquired Buy Right Cars, we anticipate group earnings will lift significantly
for the financial year to 31 March 2018. Approximately 70% of the Autosure
acquisition will be funded from our recent Bond conversion and share
placement capital raising. Turners remains in a strong financial position to
continue to invest in organic growth initiatives and evaluate further M & A
opportunities".

ENDS

[percy]

From today's announcement;
New Bond Issue.......................................$25.56 mil
Capital Raise............................................$ 12mil
Conversion of 2014 Bonds..........................$17.4mil
................................................TO TAL......$54.96mil
What does this mean?..................................FUN.!

And FUN is what we are getting.
Today's acquisition of Autosre Insurance is a cracker.
Really strengthens TNR's finance/insurance offering.

[blackcap]

Very well bid today with buyers at $3.45. Just realised that the H/Y must be out pretty soon, was on the 19th Nov last year. Does anyone have a date when it is expected?

[percy]

Very well bid today with buyers at $3.45. Just realised that the H/Y must be out pretty soon, was on the 19th Nov last year. Does anyone have a date when it is expected?

This Friday, 25th November.

[blackcap]

Thanks Percy, adding to my comment before at $3.45 TNR has a market cap of $260m. Give it a nudge upwards and we are starting to get into Top 50 territory....

or do the largish stakes by Baker boys, H green investments etc rule that out?

[Joshuatree]

Took me a month to get some @$3.02 and i was whinging about the liquidity issue.Now thats working in our favour. less than 16,000 on the sell atm which is high!!!

[Beagle]

And FUN is what we are getting.
Today's acquisition of Autosre Insurance is a cracker.
Really strengthens TNR's finance/insurance offering.

Agree. Autosure undoubtedly N.Z. premier aftermarket insurance provider and really rounds out the product offer Turners can provide. Looks good fundamentally and technically the chart looks very strong.

[Beagle]

Strong result with 15% profit growth...all the signs are there that this company will continue growing at about that rate or perhaps better. Pretty reasonable PE considering the growth and the chart looks good.

Thoughts folks ?

[BlackPeter]

Strong result with 15% profit growth...all the signs are there that this company will continue growing at about that rate or perhaps better. Pretty reasonable PE considering the growth and the chart looks good.

Thoughts folks ?

Two digit growth numbers in all segments certainly look healthy ... and I like their strategy of becoming the biggest fish in the quite large pond of otherwise fragmented used car sales companies plus (and this is a big PLUS) leveraging cross selling synergies by owning as well the finance and insurance businesses.

Big thank you to Percy for pointing this opportunity out (at a time the share price was still lower) - but I think this baby has lots of growth potential left (as long as they keep making the right moves) ... just at the start of the curve.

Discl: holding and feeling "well positioned";

[percy]

Yes another great result.
"The Buy Right Cars acquisition is settling in well and Turners WILL CONTINUE TO LOOK AT ACQUISITIONS in the very large retail sector.This sector not only delivers a transactional margin on each sale,it also provides opportunities to cross sell Turners' automotive finance and insurance products to these customers".
OK Turners are doing everything right,but the REAL earnings will not show through fully until 2018.Once the market wakes up to 2018 eps of approx 35 cents, we will have to see whether a PE of 15 is reasonable?I would be happy with a PE of between 12 and 18.But then I am easily pleased.!!..lol.
So the excitment is gathering pace.!!
Must say I think we are "well positioned",and the quarter dividends are most welcome.

[percy]

Two digit growth numbers in all segments certainly look healthy ... and I like their strategy of becoming the biggest fish in the quite large pond of otherwise fragmented used car sales companies plus (and this is a big PLUS) leveraging cross selling synergies by owning as well the finance and insurance businesses.

Big thank you to Percy for pointing this opportunity out (at a time the share price was still lower) - but I think this baby has lots of growth potential left (as long as they keep making the right moves) ... just at the start of the curve.

Discl: holding and feeling "well positioned";

You are welcome BP.

[DarkHorse]

I've just added to my holding. Best combination of value and growth I can see on NZX right now, plus one of very few stocks in an uptrend.

[blackcap]

I've just added to my holding. Best combination of value and growth I can see on NZX right now, plus one of very few stocks in an uptrend.

Certainly well done to have found this gem. Looks like you were right about the uptrend. $3.79 as I type and I believe it may still have some legs. Market cap now at $285m so getting up there too when the "instos" might want to/have to take a look.

[percy]

Certainly well done to have found this gem. Looks like you were right about the uptrend. $3.79 as I type and I believe it may still have some legs. Market cap now at $285m so getting up there too when the "instos" might want to/have to take a look.

With both Craigs and FNZC now researching Turners ,I think it will be appearing in more of their clients' portfolios.
Great that they will be able to join us.!!>>lol.

[Beagle]

With both Craigs and FNZC now researching Turners ,I think it will be appearing in more of their clients' portfolios.
Great that they will be able to join us.!!>>lol.

Yes indeed Percy :) I wonder if they'll run the ruler over the Turner Bonds TNRHB ? https://www.nzx.com/files/attachments/242679.pdf

Interesting to note the conversion / redemption terms are the lesser of a 5% discount to 90 day VWAP leading up to 30 Sept 2018 or $3.75.
The original valuation of the option to convert these to shares at $3.75 was originally valued at 3-5 cents per share when the SP was $3.12 mid 2016. With over 18 months to go and the bonds now capturing all the upside but none of the downside yesterday the hound went hunting for his trusty Black and Schoals Option pricing model http://www.tradingtoday.com/black-scholes to value the option element of these bonds and discovered a very interesting result.

Depending on variables and after checking on two other option pricing models today I see fair value of the option content of these bonds as 29 - 50 cents per bond. Fair value including the capital 1.00 value of the bond is thus $1.29-$1.50, last trade $1.065 Given the company itself is performing well and growing strongly the bonds appear to pay an attractive return of 6.5% and capture all of the upside but none of the potential downside.

Disc: Hold both the shares and bonds, (more bonds than shares).

[percy]

Yes indeed Percy :) I wonder if they'll run the ruler over the Turner Bonds TNRHB ? https://www.nzx.com/files/attachments/242679.pdf

Interesting to note the conversion / redemption terms are the lesser of a 5% discount to 90 day VWAP leading up to 30 Sept 2018 or $3.75.
The original valuation of the option to convert these to shares at $3.75 was originally valued at 3-5 cents per share when the SP was $3.12 mid 2016. With over 18 months to go and the bonds now capturing all the upside but none of the downside yesterday the hound went hunting for his trusty Black and Schoals Option pricing model to value the option element of these bonds and discovered a very interesting result.

Depending on variables and after checking on two other option pricing models today I see fair value of the option content of these bonds as 29 - 42 cents per bond. Fair value $1.29-$1.42, last6 trade $1.065 Given the company itself is performing well and growing strongly the bonds appear to pay an attractive return of 6.5% and capture all of the upside but none of the potential downside.

Disc: Hold both the shares and bonds.

I hold just TNR shares,however I put a trust I am a trustee of into TNRHB's at issue, $1.00.

[Beagle]

I hold just TNR shares,however I put a trust I am a trustee of into TNRHB's at issue, $1.00.

Hopefully your kids are one of the beneficiaries :)

[blackcap]

Yes indeed Percy :) I wonder if they'll run the ruler over the Turner Bonds TNRHB ? https://www.nzx.com/files/attachments/242679.pdf

Interesting to note the conversion / redemption terms are the lesser of a 5% discount to 90 day VWAP leading up to 30 Sept 2018 or $3.75.
The original valuation of the option to convert these to shares at $3.75 was originally valued at 3-5 cents per share when the SP was $3.12 mid 2016. With over 18 months to go and the bonds now capturing all the upside but none of the downside yesterday the hound went hunting for his trusty Black and Schoals Option pricing model http://www.tradingtoday.com/black-scholes to value the option element of these bonds and discovered a very interesting result.

Depending on variables and after checking on two other option pricing models today I see fair value of the option content of these bonds as 29 - 50 cents per bond. Fair value including the capital 1.00 value of the bond is thus $1.29-$1.50, last trade $1.065 Given the company itself is performing well and growing strongly the bonds appear to pay an attractive return of 6.5% and capture all of the upside but none of the potential downside.

Disc: Hold both the shares and bonds, (more bonds than shares).

Thanks for alerting me to this possibility. TNR could be $5 by that time so effectively converting at 3.75 give great upside potential. 6.5% in this day and age is not too bad either... might have to do some more research......

[Snoopy]

Thanks for alerting me to this possibility. TNR could be $5 by that time so effectively converting at 3.75 give great upside potential. 6.5% in this day and age is not too bad either... might have to do some more research......

The 6.5% bond yield mentioned only applies if you can buy the TNRHB bonds for $1, the par issue value. Good luck doing that now!

SNOOPY

[Beagle]

Thanks for alerting me to this possibility. TNR could be $5 by that time so effectively converting at 3.75 give great upside potential. 6.5% in this day and age is not too bad either... might have to do some more research......

You're welcome mate. That's pretty much how I see it too. Potential for the bonds to have a fair value at redemption of $2.25 ($1 capital value plus $1.25 per share discount on new TNR shares issued upon redemption) but no obvious downside as minimum redemption premium is 5%, the discount to new shares issued based on 90 day VWAP. I have seldom seen an investment free hit in terms of bonds, as good as this one. Leverage is the other thing as obviously $2.25 / $1.065 = 111% return whereas $5.00 / $3.75 = 33.3% gain. All the benefits with no downside...kind of like a hound finding a buried bone and then discovering its made of solid gold :)

Disc: Obviously I wouldn't post information this good if I didn't already have a XXXL holding :-)

[Beagle]

The 6.5% bond yield mentioned only applies if you can buy the TNRHB bonds for $1, the par issue value. Good luck doing that now!

SNOOPY

This thing isn't about the 6.5% coupon yield anymore Snoopy....that's almost immaterial now, (although I am happy to receive the quarterly interest payments), compared to the intrinsic option value.
Even if one completely ignores the option value, (which is clearly a silly idea), the current 6.5 cent premium is almost fully recovered by the minimum 5% redemption kicker so the implicit interest rate is very close to 6.5% taking into account accrued interest since the last quarterly payment on 31 December, provided bondholders elect to redeem for shares instead of cash.

As Blackcap has quite rightly said, nothing wrong with 6.5% these days.

[blackcap]

The 6.5% bond yield mentioned only applies if you can buy the TNRHB bonds for $1, the par issue value. Good luck doing that now!

SNOOPY

ok then make that 6% (if buying bond at 1.06) still not a bad return with potential Yuge upside.

[percy]

Hopefully your kids are one of the beneficiaries :)

No.They have already received too much.
The trust is my dead friend's family trust.
In fact he was an AIR pilot.
His wife thought I had selected most of his shares for him, so I should keep an eye on them.!!!
Have learnt to be very careful, to trust myself and not the brokers' recomendations. They worry too much about models/weightings of portfolios, rather than share selection,where the big money is made.

[peat]

nice work on quantifying the value of the convertibility Roger which I highlighted on the NZDX thread when we were offering the bonds at par.

http://www.sharetrader.co.nz/showthread.php?10716-Turners-(TNR)-bonds&p=637556&viewfull=1#post637556

[percy]

Please excuse me for not being exact,but I think the "old" bonds converted 30th September,and I take it the "new" two year bonds have just been issued.I say that, as a Trust I help out on applied for bonds.I rang the broker yesterday and The Trust got what was applied for,but I had not seen a contract note.
Yes ,there was a margin there, which I think was taken advantage of,which kept the sp down.
We now have two brokers researching TNR,FNZC,and today Craigs published research. This coverage should bring TNR's story to a wider number of investors.As we know the story is compelling, we remain "well positioned."

Above posted on 7-10-2016.
Bonds brought at $1 are now trading at $1.065.
And remain "well positioned."
And I thought that was a very kind offer from Peat.The trust brought via Macquaries.I did not buy any for myself as my Craigs broker did not have any.
Hello hello hello,I think Roger is trying to be a very naughty boy,buying 20,000 TNRHB at $1.065 this morning and trying to sell them at $1.40 this afternoon.!!..lol.

[winner69]

Hello hello hello,I think Roger is trying to be a very naughty boy,buying 20,000 TNRHB at $1.065 this morning and trying to sell them at $1.40 this afternoon.!!..lol.

Never know - somebody might front up

I was going to mention the greater fool theory but better not

[Beagle]

Above posted on 7-10-2016.
Bonds brought at $1 are now trading at $1.065.
And remain "well positioned."
And I thought that was a very kind offer from Peat.The trust brought via Macquaries.I did not buy any for myself as my Craigs broker did not have any.
Hello hello hello,I think Roger is trying to be a very naughty boy,buying 20,000 TNRHB at $1.065 this morning and trying to sell them at $1.40 this afternoon.!!..lol.

The hound would never admit to such a thing but he has been known to be a fairly cunning on the odd occasion. Rumor has it the cunning dog is keen for PLENTY more at $1.065 or less :D

Using the following inputs into my favored Black and Shoals option pricing model, (for which I posted a link earlier today) Strike Price $3.95, (must be at or above $3.95 to get greater than the stipulated 5% discount on share conversion $3.95 x .95 = $3.75) Stock price $3.74, (I am using the spot stock price here, others might use a VWAP over 30 days or longer), time to expiry is 620 days, volatility, I am using the same 25-30% rating used in the original independent valuation for which I also posted a link earlier today) and using a risk free rate of 3%, (some would argue using a lower risk free rate for shorter N.Z. Govt bonds) I get a fair value for the pure call option of 47.81 - 57.39 cents per bond depending upon whether one uses the 25 or 30% volatility.

Option pricing isn't well understood by many investors and I don't intend to dig deeper into the subject after this post other than to suggest if people are interested they have a look at the original independent report and then make their own enquiries of their broker or use their own option pricing model. There is a small dilution effect which is referred to in the original report, (new shares are issued) so this needs to be accounted for. Assuming everyone redeems their bonds for shares at the SP is above $3.95 approx. 6.8m new shares will be issued at $3.75 = $25.5m. There are currently 74.5m shares on issue so the dilution factor appears to be just on 9.1% (6.8 / 74.5). In my opinion as new shares are issued the pure call option value noted in the paragraph above needs to be discounted by 9.1% so using that Black and Schoals Option model after accounting for the dilution effect of new shares issued I see fair value of the bond at $1.435 - $1.52 using current spot price for Turners shares.

Inputting the same date using the lowest volatility at 25% and using a current share price of $3.50, (has been at or above this for 60 days) still gives $1.31 per bond adjusted for the dilution.

My conclusion...the market does not understand the value of the option carried within this convertible bond and appears to be pricing it as a pure bond only...well at least until the hound started bidding it up.

[percy]

The hound would never admit to such a thing but he has been known to be a fairly cunning on the odd occasion. Rumor has it the cunning dog is keen for PLENTY more at $1.065 or less :D

No surprises there.
Helps to make a market being on the bid and also on the offer.
Sort of community service...lol.

[Beagle]

Plenty on offer at $1.065 for anyone who agrees with my point of view. I welcome anyone else's attempt to value these convertible bonds, (please supply a link to the valuation methodology / tool you are using).

[peat]

Plenty on offer at $1.065 for anyone who agrees with my point of view.
Not any more, someone took them all out! ;+)


Edit (Not me!)
And no funnily enough we dont have any more at par

[Beagle]

Not any more, someone took them all out! ;+)


Edit (Not me!)
And no funnily enough we dont have any more at par

Looks like someone else with deep pockets has seen the light. Gosh I went away for lunch to chew over how many more I could squeeze into my portfolio and boom, they're all gone !
Suppose I should be pleased I have close to my targeted ideal allocation...glass 80% full and all that sort of philosophical stuff...

[Snow Leopard]

Nice to see this on a run but I would caution that I believe (you can believe different if you want :p) that it is way above any reasonable valuation (ie mine :) [$3.22 now, $3.55 in a year]).

Best Wishes
Paper Tiger

Disc: do not take the post title too seriously.

[percy]

Nice to see this on a run but I would caution that I believe (you can believe different if you want :p) that it is way above any reasonable valuation (ie mine :) [$3.22 now, $3.55 in a year]).

Best Wishes
Paper Tiger



Disc: do not take the post title too seriously.
John McEndoe's famous words come to mind.
"You cannot be serious."!!!!!!!!!!!!..lol.

[winner69]

Disc: Hold both the shares and bonds, (more bonds than shares).

I thought you didn't invest in companies with high intangibles - esp where intangibles are about the same as equity

[percy]

I thought you didn't invest in companies with high intangibles - esp where intangibles are about the same as equity

He has been known to change his mind.!!..lol.

[Beagle]

I thought you didn't invest in companies with high intangibles - esp where intangibles are about the same as equity

There's always an exception to every rule especially when presented with such an outstanding opportunity in the bonds, (disc bond to share ratio held 12:1)

[percy]

I like TNR.
They say they are going to do something,and they do it.!Simple.
Only a couple of months they talked about Secuitisation,[think it was when they announced the MTF non-recourse loans,on 15/11/2016.]
So yesterday's announcement came as no surprise;"Turners announce establishment of securitisation programme."
Strengthening the management team with existing staff, I also take as a positive.

[Beagle]

I like TNR.
They say they are going to do something,and they do it.!Simple.
Only a couple of months they talked about Secuitisation,[think it was when they announced the MTF non-recourse loans,on 15/11/2016.]
So yesterday's announcement came as no surprise;"Turners announce establishment of securitisation programme."
Strengthening the management team with existing staff, I also take as a positive.

Agree. Strong population growth through immigration and demand for vehicles is a tailwind for TNR.

[JeremyALD]

This is starting to fall back a bit. Not a lot of buyers. Considering whether it's time to sell my small share?

[percy]

This is starting to fall back a bit. Not a lot of buyers. Considering whether it's time to sell my small share?

Maybe.?,,But I would be slowly adding.!!
This year is not expected to produce the big increase in eps growth we were wanting.
The big 25% eps growth will come next year.
I am more than happy to wait, as I think TNR is a fantastic company with a great future.

[Joshuatree]

Went for a drive in a Prius at Turners today. They extract fees from the seller ,they extract layered fees from the buyer; they offer finance, insurance. The friendly new salesman fresh from aus did his best to get me onboard without being a pain. Happy shareholder here.

[Beagle]

People who don't want any potential downside risk might like to read back on this thread regarding my analysis of the convertible bonds which give all the upside with none of the downside.
I agree 100% with Joshuatree and Percy's posts above.

[Fox]

They have an incredible product offering that is becoming more integrated with each year. Insurance float feeds the loan receivables; loans and insurance are sold alongside car sales - it's just a virtuous cycle of growth. Synergies from the newly acquired Autosure business will also present themselves in FY18 as the products integrate with the current business model. Whats more to love?

[Beagle]

Yes indeed Percy :) I wonder if they'll run the ruler over the Turner Bonds TNRHB ? https://www.nzx.com/files/attachments/242679.pdf

Interesting to note the conversion / redemption terms are the lesser of a 5% discount to 90 day VWAP leading up to 30 Sept 2018 or $3.75.
The original valuation of the option to convert these to shares at $3.75 was originally valued at 3-5 cents per share when the SP was $3.12 mid 2016. With over 18 months to go and the bonds now capturing all the upside but none of the downside yesterday the hound went hunting for his trusty Black and Schoals Option pricing model http://www.tradingtoday.com/black-scholes to value the option element of these bonds and discovered a very interesting result.

Depending on variables and after checking on two other option pricing models today I see fair value of the option content of these bonds as 29 - 50 cents per bond. Fair value including the capital 1.00 value of the bond is thus $1.29-$1.50, last trade $1.065 Given the company itself is performing well and growing strongly the bonds appear to pay an attractive return of 6.5% and capture all of the upside but none of the potential downside.

Disc: Hold both the shares and bonds, (more bonds than shares).

Here's the main part of it here.
I now only hold the convertible bonds.

[Fox]

Here's the main part of it here.
I now only hold the convertible bonds.

Here is some analysis I did last week on Turners bonds. Figures I used were 10,000 bonds @ $1.0825. As you can see there isn't much value in the bonds, but you're effectively buying a call option.

http://puu.sh/uL9eQ/7ef7daf504.png

[percy]

Here's the main part of it here.
I now only hold the convertible bonds.

Although I do not hold any, I think the convertible bonds are a very good investment,as Roger rightly points out,more upside than downside potential.
However my back of the envelope valuation is a lot lower than Roger's.
Maybe I would not pay any more than $1.08 to $1.10.
So before buying BYOR,on the conversion rate.

[JeremyALD]

Thanks all I shall hold on for now and perhaps I'll top up if it falls below $3.50 :)

[JeremyALD]

Good annoucement about progress and Q3 results, including duel listing on ASX.

This makes me more happy given the recent drop in SP. Definitely considering topping up at the current price.

[percy]

Ground work laid for exponential growth.

[blackcap]

Good annoucement about progress and Q3 results, including duel listing on ASX.

This makes me more happy given the recent drop in SP. Definitely considering topping up at the current price.

Think you might have to pay in excess of $3.75 tomorrow morning. Will be interesting to see what the early bidding looks like.

[BlackPeter]

Think you might have to pay in excess of $3.75 tomorrow morning. Will be interesting to see what the early bidding looks like.

Agree - earnings and divvie up - should put a bit of fire under the SP!

[Beagle]

Think you might have to pay in excess of $3.75 tomorrow morning. Will be interesting to see what the early bidding looks like.

Its hard to say really. I agree that they are putting in place the groundwork for growth, (exponential growth seems a tad bullish for my liking), sorry Percy.

Buy Right cars is only performing in line with expectations, I would have liked to have read exceeding expectations.

It seems there was some hold-up in accounting for Autosure, was supposed to have settled in December but only starting to contribute to EPS for FY18. Reserve Bank approval for transfer of obligations was required, what happened to the profits from Autosure for this current quarter ?

At the mid point of the forecast $24.25m this would represent a profit increase before tax of 12.26% for the year from last year's $21.6m but they issued 14.5% more shares half way through the year in October 2016 due to previous convertible bond issue conversion and small capital raise so weighted average shares on issue are up about 7.25% so EPS up about 5% this year.

Building blocks for future growth but I remain more comfortable with the bonds which give almost complete downside protection but capture most of the upside that should be forthcoming over the next 18 months.

Great that they are listing on the ASX in FY18, should boost liquidity in the shares which alleviates one concern I had on bond conversion, (lack of liquidity in the shares).

[percy]

Roger.
Be prepared to be surprised.!
Next year will be an absolute cracker.!
The "outlook" statement, when this year's result is announced, will move you from the food bowl to the buy more button.!
I am offcourse already "well positioned."

[Beagle]

Roger.
Be prepared to be surprised.!
Next year will be an absolute cracker.!
The "outlook" statement, when this year's result is announced, will move you from the food bowl to the buy more button.!
I am offcourse already "well positioned."

I hope you're right Percy as I am also well positioned, in the bonds :)

[percy]

The bonds will be a great winner for you.

ps.Take a fresh piece of paper and rework the bonds conversion.
ie 10,000TNRHB will convert to 2,666 or 2,667 shares.

[blackcap]

Agree - earnings and divvie up - should put a bit of fire under the SP!

Yes exactly. Can anyone though enlighten me why they are going to list on the ASX? Apart from liquidity, SP performance, what positive apart from more costs does an ASX listing actually give the company? (not the shareprice)

[percy]

Yes exactly. Can anyone though enlighten me why they are going to list on the ASX? Apart from liquidity, SP performance, what positive apart from more costs does an ASX listing actually give the company? (not the shareprice)

Maybe they see their business model working in Aussie?
Their EC Credit business is already very strong in Aussie,and they did state in their last annual report;"EC Credit is a reputable,full service credit management provider in the SME market and we are looking to build on this as well as target the corporate debt collection market,particularly in Australia."
Being listed on the ASX would give them credibility with customers and lenders, as well as giving them access to Australian capital.

[Beagle]

Although I do not hold any, I think the convertible bonds are a very good investment,as Roger rightly points out,more upside than downside potential.
However my back of the envelope valuation is a lot lower than Roger's.
Maybe I would not pay any more than $1.08 to $1.10.
So before buying BYOR,on the conversion rate.


The bonds will be a great winner for you.

ps.Take a fresh piece of paper and rework the bonds conversion.
ie 10,000TNRHB will convert to 2,666 or 2,667 shares.

Threw out the Black and Schoals option model and did some fresh clean sheet thinking as you suggested above the other day and reluctantly have to agree with your first post above now that the SP has come down 30 cents in recent weeks. Realistically best case is those 2667 shares are worth say $5 = $13,335 which gives a 33.5% gain over 18 months....who knows I suppose it could theoretically be worth a bit more in Sept 18 more but let's not go there until they get some more runs on the board.

Worst case is they're issued at a 5% discount to vwap so provided you can sell them for what they're issued to you at the bonds give a 5% capital gain as a minimum.
The running yield at 6.5% is okay notwithstanding you have to pay a small premium to the issue price of $1.00. Anything you pay over $1.05 at present, (say hitting the offer at $1.065) is a cost of the effective option element, in that case 1.5 cents get's you a look at the possibility of making a capital gain, maybe 33.5% less the initial premium paid now 6.5% = 27% net gain if they're $5 or maybe 20% - 6.5%, net gain 13.5% if they're $4.50. To look at it that way you have to accept that you are okay with getting slightly less than 6.5% on the bond value of your investment for the next 18 months. Some people aren't okay with that and demand a circa 10% return for any type of investment that has a capital risk of any kind to it, (these bonds rank behind bank debt and the new collaterised debt obligations the company is issuing) and I can see their point of view but I am happy with 6.5 / 1.06 5 = 6.1% running yield.

Throwing all the option pricing theories in the rubbish bin for a minute, (some would say they belong there but I couldn't possibly comment) and using pure gut instinct I think with the shares where they are currently ~ $3.60 your assessment of no more than $1.08 - $1.10 which represents paying a real effective option price right now of 3-5 cents, (remember you are more or less guaranteed a 5% premium so paying $1.05 now is the low water mark in my opinion) for the possibility of a net capital gain of 13.5% - 27% in eighteen months seems about right. My calculations were originally based on a share price of $3.90 so with the shares having come down ~ 30 cents, (glad I sold my shares) in recent times one has to be more realistic about the option value. All that said at current prices in my opinion, convertible bonds on offer for $1.065, a real option cost of only 1.5 cents per bond, they're the better and more one sided investment, (have very limited downside).

On the other hand non risk averse shareholders might argue that getting the full gain from here $5 / $3.60 = 38.9% without paying any premium up front for their investment gives them a better potential return than the bond investor who stands to make a potential 27%. (Note SP needs to be at a 5% premium to the floor exercise price of $3.75 = $3.95 before bondholders start to participate in the SP uplift).

The recent 30 cent SP drop has dramatically affected the bonds value because effectively the entire move down was from just before the threshold at which point the bonds start enjoying SP capital gain.
In effect the bonds were a high conviction BUY when I was buying at up to $1.0825 when the SP was $3.90 but are just a BUY at $1.065 now with the SP at ~ $3.60.
Hope this almost endless ramble makes some sense to people trying to decide between bonds and shares.

[ziggy415]

Roger.
Be prepared to be surprised.!
Next year will be an absolute cracker.!
The "outlook" statement, when this year's result is announced, will move you from the food bowl to the buy more button.!
I am offcourse already "well positioned."
Hehe....love it when you guys get enthusiastic about a share but noticed on my chart that the squiggly blue line just dropped...nay plummetid thru the squiggly green line which is about to do the same thru the red one and I thought that was a bad sign........just saying:scared:

[BlackPeter]

Hehe....love it when you guys get enthusiastic about a share but noticed on my chart that the squiggly blue line just dropped...nay plummetid thru the squiggly green line which is about to do the same thru the red one and I thought that was a bad sign........just saying:scared:

Just wait for market s to open ...

[percy]

Hehe....love it when you guys get enthusiastic about a share but noticed on my chart that the squiggly blue line just dropped...nay plummetid thru the squiggly green line which is about to do the same thru the red one and I thought that was a bad sign........just saying:scared:

Correct.The market has been expecting more,however the recent acquisitions ,Buy Right Cars and Autosure will only start to really perform from April.
The non recourse loans via MTF are well ahead of expectations.
So I repeat my earlier post;"Ground work laid for exponential growth laid."
Maybe we will have to wait until the interim, to know we are on track,although I think the charts will confirm it very quickly.

[blackcap]

Maybe they see their business model working in Aussie?
Their EC Credit business is already very strong in Aussie,and they did state in their last annual report;"EC Credit is a reputable,full service credit management provider in the SME market and we are looking to build on this as well as target the corporate debt collection market,particularly in Australia."
Being listed on the ASX would give them credibility with customers and lenders, as well as giving them access to Australian capital.

Thanks Percy, had sort of discounted EC Credit. That does make sense. Whatever it should support the SP, more buyers etc. MHI had a SP re-rating once they listed there as well.

[Fox]

Threw out the Black and Schoals option model and did some fresh clean sheet thinking as you suggested above the other day and reluctantly have to agree with your first post above now that the SP has come down 30 cents in recent weeks. Realistically best case is those 2667 shares are worth say $5 = $13,335 which gives a 33.5% gain over 18 months....who knows I suppose it could theoretically be worth a bit more in Sept 18 more but let's not go there until they get some more runs on the board.

Worst case is they're issued at a 5% discount to vwap so provided you can sell them for what they're issued to you at the bonds give a 5% capital gain as a minimum.
The running yield at 6.5% is okay notwithstanding you have to pay a small premium to the issue price of $1.00. Anything you pay over $1.05 at present, (say hitting the offer at $1.065) is a cost of the effective option element, in that case 1.5 cents get's you a look at the possibility of making a capital gain, maybe 33.5% less the initial premium paid now 6.5% = 27% net gain if they're $5 or maybe 20% - 6.5%, net gain 13.5% if they're $4.50. To look at it that way you have to accept that you are okay with getting slightly less than 6.5% on the bond value of your investment for the next 18 months. Some people aren't okay with that and demand a circa 10% return for any type of investment that has a capital risk of any kind to it, (these bonds rank behind bank debt and the new collaterised debt obligations the company is issuing) and I can see their point of view but I am happy with 6.5 / 1.06 5 = 6.1% running yield.

Throwing all the option pricing theories in the rubbish bin for a minute, (some would say they belong there but I couldn't possibly comment) and using pure gut instinct I think with the shares where they are currently ~ $3.60 your assessment of no more than $1.08 - $1.10 which represents paying a real effective option price right now of 3-5 cents, (remember you are more or less guaranteed a 5% premium so paying $1.05 now is the low water mark in my opinion) for the possibility of a net capital gain of 13.5% - 27% in eighteen months seems about right. My calculations were originally based on a share price of $3.90 so with the shares having come down ~ 30 cents, (glad I sold my shares) in recent times one has to be more realistic about the option value. All that said at current prices in my opinion, convertible bonds on offer for $1.065, a real option cost of only 1.5 cents per bond, they're the better and more one sided investment, (have very limited downside).

On the other hand non risk averse shareholders might argue that getting the full gain from here $5 / $3.60 = 38.9% without paying any premium up front for their investment gives them a better potential return than the bond investor who stands to make a potential 27%. (Note SP needs to be at a 5% premium to the floor exercise price of $3.75 = $3.95 before bondholders start to participate in the SP uplift).

The recent 30 cent SP drop has dramatically affected the bonds value because effectively the entire move down was from just before the threshold at which point the bonds start enjoying SP capital gain.
In effect the bonds were a high conviction BUY when I was buying at up to $1.0825 when the SP was $3.90 but are just a BUY at $1.065 now with the SP at ~ $3.60.
Hope this almost endless ramble makes some sense to people trying to decide between bonds and shares.

Following on from my prior analysis of the bonds and what research Roger has done, I've found some time to give my opinion on the value of these beauties using the Black Scholes pricing model. Basically within a convertible bond you have a straight bond and a callable option which can be valued using your preferred option pricing model. The only tricky part with valuing convertible bonds are the different terms to which they get converted at - for this case its the lesser of $3.75 or a 5% discount to the 90-day VWAP, and the assumptions we use in discounting the bond's cash flows and valuing the option.

My assumptions are the following:
- TNR standard deviation - 7.94%
- Div. yield - 3.31%
- Risk free rate (taken from RBNZ) - 2.48%
- Default spread - 3.00% (Giving us a YTM of 5.48% on the straight bonds)

The current derived value of the callable option per bond turns out to be $0.060, with the value of the straight bond being $1.016 (ignoring the 9 days of accrued interest), giving us a current bond price of $1.076.

Important things to note; this value was assuming a current share price of $3.62, so as at today we use the 5% discount to the share price model. Also the risk free rate and default spread have the most significant effects on the valuation outcome, so adjust accordingly to what you think is best.

I have included a bond value vs. share price payoff schedule in the link below which shows a logarithmic relationship between the bond value and share price before the $3.75 conversion model, which kicks in at $3.95 ($3.75/0.95). The price of the bond at an underlying share price of $2.50 is $1.062, and it increases to $1.079 at $3.94, at which point the model changes as we start using the $3.75 conversion price. From $3.95 onwards, there is a linear relationship between the bond value and underlying share price and the net payoff is no longer a proportional (5%) discount to the trading share price, but rather a fixed discount of $X.XX - $3.75.

In summary, the absolute lowest value of the bond is around $1.060 (with no accrued interest) and the upside potential is huge. At a share price of $5.00, we have a bond value of $1.339 and a net payoff of 33.84% from initial investment if we redeem the underlying shares :eek2:. The current intrinsic value of the bond as of today ($3.62 underlying SP) is $1.076, which is well above the current market price and sounds like a great opportunity.

Let me know if you'd like a more detailed analysis/copy of my working and I'd be more than happy to help.

http://puu.sh/v3cks/8803647798.png

Disc: Loaded up before record date and holding til' maturity.

[Beagle]

Superb work Fox, I agree 100%. Many thanks indeed for your analysis. We are both well positioned :)

[percy]

Fox.
A big thank you.
I don't think I was too far out with my back of the envelope workings.
When the bonds were issued at $1.00 I valued the bonds at $1.226 if the sp was $4.60.compared to your proper workings of $1.24 value for the bonds, at a share price of $4.60..
I love the clarity of your graph.Saves me a good many envelopes.!!

[Beagle]

Yes that graph graphically shows why the hound was getting perhaps a little over excited when the shares roared up quickly to ~ $3.90 a little while back.
Now things have settled down a bit I still think these are a great solid hold with excellent prospects and the shares also have excellent prospects. With quite some justification I believe it is fair to say that both shareholders and convertible bondholders are all well positioned. We know the SP follows earnings growth so if we see ~ 25% earnings growth in FY 18 that should lead to $3.62 x 1.25 = approx. $4.53 share price around reporting time in late May 2018 and everyone will be happy :)

[percy]

Yes that graph graphically shows why the hound was getting perhaps a little over excited when the shares roared up quickly to ~ $3.90 a little while back.
Now things have settled down a bit I still think these are a great solid hold with excellent prospects and the shares also have excellent prospects. With quite some justification I believe it is fair to say that both shareholders and convertible bondholders are all well positioned. We know the SP follows earnings growth so if we see ~ 25% earnings growth in FY 18 that should lead to $3.62 x 1.25 = approx. $4.53 share price around reporting time in late May 2018 and everyone will be happy :)

I concur...lol.
I do have a slightly higher eps growth which may lead to a slightly higher PE which in turn will give a slightly higher sp of $4.60,although I will be more than happy with your $4.53, and the increasing divies, paid quarterly.

[blackcap]

[QUOTE=percy; the increasing divies, paid quarterly.[/QUOTE]

You forgot a word or two there there Percy... "fully imputed" :)

[Snoopy]

Following on from my prior analysis of the bonds and what research Roger has done, I've found some time to give my opinion on the value of these beauties using the Black Scholes pricing model. Basically within a convertible bond you have a straight bond and a callable option which can be valued using your preferred option pricing model. The only tricky part with valuing convertible bonds are the different terms to which they get converted at - for this case its the lesser of $3.75 or a 5% discount to the 90-day VWAP, and the assumptions we use in discounting the bond's cash flows and valuing the option.

My assumptions are the following:
- TNR standard deviation - 7.94%
- Div. yield - 3.31%
- Risk free rate (taken from RBNZ) - 2.48%
- Default spread - 3.00% (Giving us a YTM of 5.48% on the straight bonds)

The current derived value of the callable option per bond turns out to be $0.060, with the value of the straight bond being $1.016 (ignoring the 9 days of accrued interest), giving us a current bond price of $1.076.

Important things to note; this value was assuming a current share price of $3.62, so as at today we use the 5% discount to the share price model. Also the risk free rate and default spread have the most significant effects on the valuation outcome, so adjust accordingly to what you think is best.


Fox, when I had the option of either taking TNR shares or TNRHB bonds (at the time my TNRHA bonds matured), I reckoned the 'prospective gross yield' for the TNR shares priced at $3 was more or less equal to the yield offered by acquiring TNRHB bonds at par value: 6.5%. Granted dividend yield changes as the capital value of the underlying share changes. But share price changes since that time don't support the dividend yield dropping to just 3.31%. Can you explain where this input figure comes from please?

TIA

SNOOPY

discl: hold TNR and TNRHB

[percy]

You forgot a word or two there there Percy... "fully imputed" :)

Like me to forget the most important part.
Thank you.

[Fox]

Fox, when I had the option of either taking TNR shares or TNRHB bonds (at the time my TNRHA bonds matured), I reckoned the 'prospective gross yield' for the TNR shares priced at $3 was more or less equal to the yield offered by acquiring TNRHB bonds at par value: 6.5%. Granted dividend yield changes as the capital value of the underlying share changes. But share price changes since that time don't support the dividend yield dropping to just 3.31%. Can you explain where this input figure comes from please?

TIA

SNOOPY

discl: hold TNR and TNRHB

Hi Snoops, the div yield I approximated of 3.31% comes from an annual total div of 12c taken at the current share price (12/362). Yes I would have to agree with you that it is probably a little conservative, but their dividend policy recently changed and we haven't got much to go off, so I assumed a quarterly payment of 3c. If we bump up the div yield to 4%, our call value drops from $0.060 down to $0.053, giving a current bond value of $1.070, but we have to be careful as the SP can often get ahead of itself and lead the dividend payments which would lower our yield - hence my conservative view.

[Beagle]

https://www.nzx.com/files/attachments/256590.pdf

[blackcap]

https://www.nzx.com/files/attachments/256590.pdf

I read it, looked good didn't it. I am surprised to see the SP still at 3.60 and would buy more if funds permit. Divs imputed now of 14 cents per annum (paid quarterly) and organic growth looking to boost the EPS to over 30. Low PE and good prospects. What is not to like.

[BlackPeter]

I read it, looked good didn't it. I am surprised to see the SP still at 3.60 and would buy more if funds permit. Divs imputed now of 14 cents per annum (paid quarterly) and organic growth looking to boost the EPS to over 30. Low PE and good prospects. What is not to like.

Noticed after reading the latest John Ryder newsletter (Global Investing) that he is shorting second hand car dealers in the US ... and he is more often right than wrong.

While I think that the situation in NZ is different (where the new car market is less of a competition), is it still possible that the depressed US second hand car market is impacting on sentiments over here as well ...

[blackcap]

Noticed after reading the latest John Ryder newsletter (Global Investing) that he is shorting second hand car dealers in the US ... and he is more often right than wrong.

.

You raise a good point there BP. I read his newsletter as well and I think last time he was short cars as well. I wonder though if TNR are somewhat insulted as well with their integrated model and the finance they provide. Although if they sell less cars they sell less finance so maybe there is something in that.

[percy]

Be careful with what happens in the US and thinking it will happen here.
Last big mistake I made a few years ago, was reading how well the likes of $2 shops were doing in the US, and expecting The Reject Shop in Aussie would be going gangbusters in Aussie.Reject shop then came out with a loss.
Then reading how well HB Hi-Fi and Harvey Norman were doing in Aussie,buying Smiths City, who then reported as usual,they were struggling.
Last result I read of new vehicle in NZ sales, they were another record.This flows onto used cars.

Nice to see the divie in my bank.!

[BlackPeter]

You raise a good point there BP. I read his newsletter as well and I think last time he was short cars as well. I wonder though if TNR are somewhat insulted as well with their integrated model and the finance they provide. Although if they sell less cars they sell less finance so maybe there is something in that.


Be careful with what happens in the US and thinking it will happen here.
Last big mistake I made a few years ago, was reading how well the likes of $2 shops were doing in the US, and expecting The Reject Shop in Aussie would be going gangbusters in Aussie.Reject shop then came out with a loss.
Then reading how well HB Hi-Fi and Harvey Norman were doing in Aussie,buying Smiths City, who then reported as usual,they were struggling.
Last result I read of new vehicle in NZ sales, they were another record.This flows onto used cars.

Nice to see the divie in my bank.!

Absolutely ... I didn't say that the situation with Turners in NZ is comparable to the second hand car dealerships in the US.

NZ has a much stronger second hand market with little competition from new car dealers - and TNR has a unique position in this market, not just as the only larger fish in a big pond with many many small fish, but as well as only player who can integrate car sales, finance and insurance.

I just said that our (stock-) market might feel the blues coming from the US ... which might be a good thing ... opportunity to buy more TNR for a lower price than normal ;);

[Snoopy]

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.

Here is a link to the latest presentation from 12th April 2017.

https://www.nzx.com/files/attachments/256590.pdf

I notice that these presentations do not seem to be archived on the Turners website. So to avert the risk of some valuable information disappearing into the ether here is some useful information from that presentation.

-----

NZ’s leading second hand car, truck and machinery retailer

• Turners is a “household name” with strong brand qualities and position in the market
• A clear multi-channel strategy with increasing focus on retail/end user sales
• Vehicles sold on behalf of owners (60%) and Turners - owned vehicles (40%) with average vehicle held for less than 45 days. (Buy Right Cars has a longer holding period due to its higher margin model)
• Provides the wider Turners group with access to a highly targeted customer base at source, to whom finance and insurance products can be sold
• Despite having the number one market position, Turners holds less than 10% share of highly fragmented used vehicle market
• Turners has recently completed the acquisition for Buy Right Cars to grow its bricks and mortar footprint and is also growing its online presence through initiatives such as Cartopia (new on-line only car store)
• Turners relationship with other car dealers allows it to identify high quality scale businesses it may wish to acquire
• 36,500 vehicle units or machinery items sold in FY16

Finance and Insurance

Reputable brands and businesses providing flexible finance and insurance solutions for personal and SME customers as well as to dealers and brokers

• Products include range of personal and commercial finance solutions; as well as mechanical breakdown and motor vehicle insurance, and life and other non-life insurance products
• Majority of lending is for motor vehicle loans to consumers (75%) arranged both directly and through dealers and brokers. The remainder is commercial lending for plant and equipment, property, working capital and leasing
• Combined finance book ledger approx. $176M ($143M March 15)
• Finance receivable funding is a mix of bank debt, securitisation and shareholder funding
• Now 8% shareholder in MTF – announced exclusive partnership with MTF to provide a non-recourse lending product to MTF’s network of franchisees and dealers (approx. 250).
• Approx. 50% of insurance policies sold direct through Turners Limited businesses, remainder through broker/dealer channels
• Increasing focus on cross - selling across the wider Turners group
• The link to origination transaction means less competition, long term relationship with customer, more control.
• 11,000 loans written in FY16
• 10,000 insurance contracts written in FY16

New Initiative: MTF Exclusoive Partnership

Exclusive partnership with Motor Trade Finance to provide non-recourse lending product

 2 year agreement with rights of renewal
 Reflects a long and valuable relationship between MTF and Turners (Turners owns 8% of MTF)
 Product will be offered through MTF network of 250 dealers, brokers and franchisees
 Introduction of a non-recourse product will provide dealers with a single portal for all both recourse and non-recourse financing, significantly improving convenience and processing times
 Estimate the partnership could deliver $50M+ in new lending over the next 2 years
 All loans are full secured and are eligible for Turner’s securitisation program.

Debt Management

EC Credit, a recognised leader in the debt collection and credit management industries
• Total debt management and credit control services for NZ and Australia customers
• Contingent debt collection (agency) model –EC Credit does not acquire books of bad debt using its balance sheet
• Experts in Terms of Trade documentation and implementation of best practice credit solutions
• Long term contracts with large corporates including banks, government departments, insurance and other sectors
• Total revenues split 60:40 between New Zealand and Australia
• Turners Finance and Insurance can refer its bad debt collection to EC Credit, however, the extent of this cross-sell opportunity is less than the other businesses in the Turners Group due to Turners' historically low bad debts
• Highly cash generative, very little capital to run and counter cyclical protection for group

----

SNOOPY

[percy]

https://www.nzx.com/files/attachments/256590.pdf

Here it is again.

[Beagle]

I'm clinging on to my convertible bonds like a sick terrier that's slightly underwater but determined to extract a feed from this potentially juicy bone.
There must be some goodness down somewhere in this bone if I just keep clinging on...maybe its deep down in the marrow with this one and I have to cling on all the way to maturity to extract the goodness.
SP starting to look a little encouraging...

[blackcap]

I'm clinging on to my convertible bonds like a sick terrier that's slightly underwater but determined to extract a feed from this potentially juicy bone.
There must be some goodness down somewhere in this bone if I just keep clinging on...maybe its deep down in the marrow with this one and I have to cling on all the way to maturity to extract the goodness.
SP starting to look a little encouraging...

FY 17 coming out at the end of this month. Has been signaled but profit up and things looking good. Will be interesting to see if quarterly div is at 4 cents or if they raise it to 5. The commentary looking forward may give a more accurate picture.

[percy]

FY 17 coming out at the end of this month. Has been signaled but profit up and things looking good. Will be interesting to see if quarterly div is at 4 cents or if they raise it to 5. The commentary looking forward may give a more accurate picture.

This year steady.
Next year gang busters,so watch the commentary.

[BlackPeter]

Time to rename this thread to TRA?

Got this morning a slight shock when discovering that 6% of my portfolio seemed to have disappeared over night without trace, but it was just the stupid renaming of TNR to TRA. ANZ Securities moved (correctly) my holding from TNR to TRA, but given that there was in their database no previous trade under TRA they put the value of the share down to Naught. Naughty - isn't it? Ah well, I assume this one will fix itself this morning.

However - really wondering who gets a kick out of the renaming of securities ... this one will just mean that trend charts and other databases won't work properly with this stock for another handful of months (at best) or years to come. Very annoying. Any idea where we can register our displeasure about the senseless renaming of securities?

[blackcap]

Time to rename this thread to TRA?

Got this morning a slight shock when discovering that 6% of my portfolio seemed to have disappeared over night without trace, but it was just the stupid renaming of TNR to TRA. ANZ Securities moved (correctly) my holding from TNR to TRA, but given that there was in their database no previous trade under TRA they put the value of the share down to Naught. Naughty - isn't it? Ah well, I assume this one will fix itself this morning.

However - really wondering who gets a kick out of the renaming of securities ... this one will just mean that trend charts and other databases won't work properly with this stock for another handful of months (at best) or years to come. Very annoying. Any idea where we can register our displeasure about the senseless renaming of securities?

Agree with you there BP, it happens a lot in Australia too. Its annoying and to me sometimes seems senseless and a waste of money.

[percy]

Agree with you there BP, it happens a lot in Australia too. Its annoying and to me sometimes seems senseless and a waste of money.

Aussie.
I hate to admit it,but
I don't know what some of the companies I own are.After about 4 changes of name I am lost.
Every now and again I get notification of a caital raise,then I have to figure out who,what,when,how I have those shares?
Latest one was MMI who were selling off small holdings.Looked at their announcements,and decided to add to my holding,saving been sold out.

[Beagle]

Aussie.
I hate to admit it,but
I don't know what some of the companies I own are.After about 4 changes of name I am lost.
Every now and again I get notification of a caital raise,then I have to figure out who,what,when,how I have those shares?
Latest one was MMI who were selling off small holdings.Looked at their announcements,and decided to add to my holding,saving been sold out.

Its called getting old Percy :) You've got to start work on that bucket list mate.

[percy]

Its called getting old Percy :) You've got to start work on that bucket list mate.

Yes you know you are old when your doctor says your back is what we expect of some one your age,and your right hip is worn out.!!
Not much left in the bucket list.Hope to visit Adelaide next year,or the year after on the way back from visiting my brother in Hobart.
Travelled the world when I was young,lived in London for two years,raced slow cars and chased fast women.
Contented.

[Beagle]

Yes you know you are old when your doctor says your back is what we expect of some one your age,and your right hip is worn out.!!
Not much left in the bucket list.Hope to visit Adelaide next year,or the year after on the way back from visiting my brother in Hobart.
Travelled the world when I was young,lived in London for two years,raced slow cars and chased fast women.
Contented.

Fair enough Percy. Get a couple of these for companionship in your retirement years and you're all sorted :) https://www.bing.com/images/search?q=beagle+puppies&id=51730FC1C75788A082D2379342D0816CB391B4A8&FORM=IQFRBA

[whatsup]

There is a company called " Delisted Australia " on the web which lists all Aust and N Z companies that have changed names both by code and name, I find it very helpful when researching companies.

[Snoopy]

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.


Following on from the above 2015 comment, I have decided to back track a couple of years from that merger/takeover date. I will use my historical file information to 'merge' the old TUA (it was Turners Auctions) from 2012 (actual merger took place in late CY2014) with what was Dorchester back then. That means we will have a few more years of historical information to create a track record of substance. What could possibly go wrong?

SNOOPY

[Snoopy]

What could possibly go wrong?


There are several problems I can forsee with doing an exercise like this.

1/ Balance date: The TUA balance date was 31st December. The DPC balance date was 31st March. So it is not possible to combine accounts between like periods. The last report from TUA was from the six month period ended 30th June 2014. The first report from TNR (as DPC became) was dated 31st March 2015. That means the last full year TUA period reported on was 30th June 2013 to 30th June 2014. And to compile that means extracting information from the FY2013 and HY2014 reports.

2/ Before the TUA takeover, Dorchester had a strategic stake of just under 20% in TUA. That stake was equity accounted in the results. So if you add TUA to DPC, you have to take out the equity accounted bit of the DPC result or you will 'double count' it.

3/ DPC has a considerable bank loan underpinning the underlying business in a way that TUA did not have. The combined entity that became TNR still has a considerable bank loan supporting the underlying business. To be consistent, I feel that I need to overlay the TNR funding structure back on what was TUA. This means combining EBIT figures (not NPAT figures). The effect of that would be to add, what is in effect, an 'extra interest charge' to what were the TUA accounts, based on the idea that the funding structure for TUA would have been rather different 'back then' if Dorchester had owned them 'back then'.

No doubt other problems will emerge as I work through this task.

The more I think about this, the more like a nightmare task it seems. However, having 'skin in the game' is a great motivator. You fellow mutts will have to wish me luck!

SNOOPY

discl: hold TNR, or whatever it is called these days!

[percy]

Don't bother.
Just look to their future.
The ground work has been laid,all divisions organised,all systems in place.
The excitement is about to happen.
Hold tight for eps growth of over 20%,and with a bit of tail wind ,over 25% eps growth.
The commentary on Monday's announcement should spell it out.
I am offcourse "well positioned."

[percy]

There is a company called " Delisted Australia " on the web which lists all Aust and N Z companies that have changed names both by code and name, I find it very helpful when researching companies.

Thank you.
Will be great knowing where some came from, and where others went.!

[Snoopy]

Interest is paid over a year and liabilities go up and down over that same period. The net interest paid, once the year has wrapped up, is a fixed amount. The 'average' amount of the loan on which that interest is paid is more nebulous. A crude way to estimate the average is to:

1/ Take the loan balance at the end of the financial year.
2/ Take the loan balance at the end of the previous financial year.
3/ Work out the average of 1/ and 2/

Take the known interest expense, divide that by the average loan balance (3 above) and you can calculate an implied interest rate paid over the financial year. This is what I have done to compile the table below. For the years 2014 and before, all figures come from the relevant year Dorchester report. For the years 2015 and beyond, the figures come from the 'Turners Limited' [TNR] (from FY2017 onwards renamed 'Turners Automotive Group' ) annual reports:


[TR]
FY2011FY2012FY2013FY2014FY2015FY2016


Interest Expense (A)$3.064m$2.928m$3.857m$7.381m$11.436m


Total Liabilities$48.634m$49.932m$70.765m$52.630m$207,97 0m$232,491m


Total Borrowings$9.197m+$15.666m$7.248m+$13.787m+$5.286m $22.784m+$10.857m$17.565m$156,995m$174,816m


Averaged Borrowing Balance (B)$25.592m$29.981m$25.603m$87.280m$165.906m


Implied Borrowing Interest Rate (A)/(B)12.0%9.8%15.1%8.5%6.9%



Note that the significant drop in borrowings between EOFY2013 and EOFY2014 was largely because $10.857m of 'Optional Convertible Notes' (borrowings) converted into equity over that year.

So why is this information useful?

The FY2016 years interest bill was $11.436m. But what would happen if the interest rate on that increased to the same as that of the previous year (8.5%)? That would mean the interest bill would go up to

$11.436m x (8.5/6.9) = $14.088m

The difference ( $14.088m-$11.436m= $2.652m) adjusted by the 28% company tax rate ( $2.652m x (1-0.28) = $1.909m ) represents the amount that net profit for FY2016 could have gone down with those higher interest rates in place. $1.909m on $15.517m represents a 12% profit drop. It is those kind of headwinds that investors might be facing over the next couple of years that TRA shareholders should know about.

SNOOPY

[Snoopy]

I will use my historical file information to 'merge' the old TUA (it was Turners Auctions) from 2012 (actual merger took place in late CY2014) with what was Dorchester back then so we have a few more years of historical information to create a track record of substance.


With the full 'Turners Automotive Group' result due out next week, time for some historical context.

The table below is my answer to the question: "What would the combined profits of 'Turners Limited' have looked like if the merger of DPC and TUA was in place back in FY2012?"

The financial years of DPC and TUA did not match up. However, TUA was definitely on a growth path before DPC took a cornerstone stake. So for FY2014, a financial year which for DPC ended on 31st March 2014, I have added the 1st July 2013 to 30th June 2014 financial year results for TUA. It seemed better to add the slightly higher (constructed) 1st July to 30th June 'annual figure', rather than rely on the lower January to December full year TUA figure 'as published' (Both options contain an unavoidable 3 month timing mismatch due to TUA and TNR having different reporting dates). This involved reconstructing results from the half year TUA reports, to time shift the published 'full year TUA results' forward by six months. The earnings results are generally expressed in EBIT terms as a starting point.

I have also assumed that the capital structure of DPC was in place for the whole period of analysis. This means that the total liabilities on the TUA balance sheet must be funded by borrowing at the DPC 'parent borrowing rate' (see my post 1398).

There are two years (FY2014 and FY2015) of 'Turners Limited' results, where 'Turners Auctions' is included as a equity accounted investment. I have removed this 'equity accounted investment income' from the 'other income' of 'Turners Limited' in both cases. Instead I have included the full year equivalent results of Turners Auctions in both instances, consistent with assuming everything was already combined by FY2012.

I am modelling all tax to be paid at a rate of 28%. Turners Limited is now paying tax at 28%, and, barring any unforseen lending market meltdown, will continue to do this into the future. Turners Auctions was paying tax at the 28% rate before the Turners Limited takeover. Dorchester was not paying tax because of previous tax losses being carried on the books. In my hypothetical 'early takeover' scenario, as shown in the table, I have ignored Dorchester's past tax losses (they are all used up today for future comparative purposes anyway) and assumed the combined DPC and TUA paid tax at 28% historically. It is best to do this if your objective is a fair comparison with present day earnings, undistorted by the effect of 'past tax losses' on 'historical comparative earnings'.

Five Year History of Turners Limited: Operational NPAT



FY2012FY2013FY2014FY2015FY2016


EBIT (Turners Auctions :TUA)$7.342m$7.948m$9.117m


less TUA Liabilities x TNR Interest$33.272m x 0.12 = ($3.993m)$36.423m x 0.098 = ($3.570m)$45.634 x 0.151= ($6.891m)


equals EBT (Turners Auctions)$3.955m$4.378m$2.226m


add EBT (Dorchester)($1.543m)($0.133m)$4.892m


EBIT (Turners Limited)$26.387m$32.987m


EBIT (Turners Auctions)$5.829m(*)


add back Turners Auctions acquisition costs$0.675m


Interest Expense (Turners Limited)($7.381m)($11.436m)


less tax paid equity accounted TUA income($0.721m)($0.742m)


less one off paper gain self-caused by TUA takeover($7.098m)


equals EBT (DPC+TUA)$2.412m$4.245m$6.397m$17.670m$21.551m


less tax at 28%($0.675m)($1.189m)($1.791m)($4.948m)($6.034m)


equals NPAT (DPC+TUA)$1.737m$3.056m$4.606m$12.722m$15.517m



----------

(*) 'Turners Auctions' was absorbed into 'Turners Limited' on 20th November 2014. This was during the FY2015 Turners Limited financial year which ended on 31st March 2015. Turners Limited FY2015 contained 365 days. For 234 of those days from 1st April 2014, 'Turners Auctions' was an equity accounted investment. Note 18 in Turners Limited AR2015 shows an equity accounted contribution to profit of $0.742m up until 20-11-2014. If we annualise this contribution, assuming a constant earnings rate throughout the year, then we get an annual earnings contribution from this 19.85% strategic stake in TUA of:

$0.742 x 365/234 = $1.157m (EBIT) for that 19.85% stake

This means that 100% of TUA must be making an EBIT of:

$1.157m / 0.1985 = $5.829m

---------

SNOOPY

P.S. Not entirely convinced my table is consistent, but it seemed to make sense as I was compiling it!

[Snoopy]

In case you are wondering where tests 'one' and 'two' went, I am completing them out of order. The net profit figures for the merged group I have taken from my post 1399.

We are looking here to see if we can apply a Warren Buffett style growth model to value Turners. We are looking for an ROE of greater than 15% for five years in a row, with one setback allowed.



FY2012FY2013FY2014FY2015FY2016


NPAT (Turners Limited) (A)$1.737m$3.056m$4.606m$12.722m$15.517m


Shareholder Equity (Turners Auctions :TUA)$17.510m$17.811m$13.378mm


Shareholder Equity (Dorchester Pacific: DPC)$26.167m$33.190m$74.052m


Shareholder Equity (Turners Limited: TNR)$121.002m$129.812m


Total Combined Shareholder Equity (B)$41.667m$51.001m$92.430m$121.002m$129.812m


Return On Equity (A)/(B)4.2%6.0%5.0%10.5%12.0%



It is clear that despite this indicator going in the right direction, Turners Limited have never achieved an ROE greater than 15%

Result: Fail Test

SNOOPY

[Snoopy]

We are looking here for a company's ability to raise their net profit margin above the rate of inflation, ~2% as I write this. A short term trend will suffice. A company does not have to do this every year.



FY2012FY2013FY2014FY2015FY2016


NPAT (Turners Limited) (A)$1.737m$3.056m$4.606m$12.722m$15.517m


Operating Revenue (Turners Auctions :TUA)$77.552m$82.836m$97.065m


Incremental Operating Revenue (Turners Auctions :TUA)$32.287m (*)


Operating Revenue (Dorchester Pacific: DPC)$9.799m$19.162m$31.327m


Operating Revenue (Turners Limited: TNR)$90.195mm$171.195m


Total Combined Revenues (B)$87.351m$101.998m$128.392m$122.482m$171.195m


Net Profit Margin (A)/(B)2.0%3.0%3.6%10.4%9.1%



(*) The incremental revenue comes about because 'Turners Auctions' was brought under the 'Turners Limited' umbrella during FY2015. The TUA accounts were not consolidated within TNR until this point. The revenue added represent the 'pre-consolidation' revenue earned by TUA before the full takeover of the company was complete.

Over FY2015 and FY2016, the profit margin has been taken to -and consolidated at- a new level.

Result: Pass Test

SNOOPY

[noodles]

Last years interest bill was $11.436m. But what would happen if the interest rate on that increased to the same as that of the previous year (8.5%)? That would mean the interest bill would go up to

$11.436m x (8.5/6.9) = $14,088m

The difference ( $14,088m-$11,436m= $2,652m) adjusted by the 28% company tax rate ( $2,652m x (1-0.28) = $1,909m ) represents the amount that net profit for FY2016 could have gone down with those higher interest rates in place. And $1,909m on $15,602m represents a 12% profit drop. It is those kind of headwinds that investors might be facing over the next couple of years that TRA shareholders should know about.

SNOOPY
Definitely it is worth exploring. I had expected a lower interest costs for 2 reasons:
1. The bond interest rate has drop from circa 9% to 6.5%
2. The have started a securitisation program with a bank. This implies lower interest rates as well.

These 2 factors should play out over FY18. After that, we might expect interest costs to follow the trend of bank wholesale rates.

[blackcap]

Definitely it is worth exploring. I had expected a lower interest costs for 2 reasons:
1. The bond interest rate has drop from circa 9% to 6.5%
2. The have started a securitisation program with a bank. This implies lower interest rates as well.

These 2 factors should play out over FY18. After that, we might expect interest costs to follow the trend of bank wholesale rates.

That said, they just said in their announcement that low interest caused "Despite the increase in policies sold, operating profit for the insurance
division decreased year on year. The low and stable interest rate environment
has caused a significant negative impact on life insurance reserves, which
will unwind as interest rates increase."

Although that may not be a material item.
Nice to see profit ahead of schedule and Snoopy will be happy... dividends are going up :) Looking really good for next year and the conference call at 11am will be interesting.

[Snoopy]

Five Year History of Turners Limited: Operational NPAT


FY2012FY2013FY2014FY2015FY2016


NPAT (DPC+TUA)$1.737m$3.056m$4.606m$12.722m$15.517m




The raw profit figure I have calculated. But changing these to an 'earnings per share' perspective is not an easy exercise. There have been so many share issues over the years, it takes dogged tracking through the last five years of annual reports to keep track of everything. But there are other conceptual issues too:

1/ 10:1 share consolidation. The recent share consolidation means that all previous share transactions must be 10:1 consolidated as well, to allow a 'like with like' comparison.
2/ Some of the business acquisitions have included a 'cash' and 'share' component. The cash component changes 'come out in the wash'. It is only the 'number of shares on issue changes' that are important when calculating 'earnings per share'.
3/ The takeover of TUA from the perspective of my analysis becomes an internal transaction. This is because I have already assumed that DPC and TUA are combined at the start of my exercise. So they cannot be combined again. This means that the shares issued to what were 'TUA holders' to become part of the new enlarged 'TNR Group' cannot be counted, because I have already considered the shareholder equity within TUA as part of the combined DPC + TUA group.

p58 of AR2015 provides some background numbers on this.

The integration of TUA into what was to become the TNR group was done in two parts. On 17th October 2014 TNR upped their stake in Turners from 19.85% to 86.8%. Later on 27th November 2014 TNR acquired the final outstanding 13.2%, lifeting their shareholding in TUA to 100%.

During the first part of the transaction $13.667m worth of 'identifiable net assets' were transferred. My reading of the accounts is that this represented 86.8% of the company, as the outstanding 13.2% had yet to be transferred at that time. This means the 13.2% 'identifiable net assets' at the time not transferred to TNR must add up to:

$13.667m x (13.2/86.8) = $2.078m

And that brings the total 'identifiable net assets' contained within TUA as at 17th October 2014 to be:

$13.667m + $2.078m = $15.745m

Now look at page 65 of AR2015 and you will see that the total 'new' (sic) share capital issued to TUA shareholders was:

62,119,212 (Shares issued at 25cents for the purchase of Turners) and 3,573,516 (Shares issued at 25 cents in lieu of Turners Group NZ's special dividend). (Note that the 'Shares issued to part fund the Turners Group NZ Limited takeover' 45,254,209 are not included in what I am doing because these shares were issued to TNR shareholders outside of the TUA structure, so these shares are not an internal transaction like the other two categories.)

I like to talk about shares using current parlance. So as a result of the subsequent 10:1 share consolidation, I find it best to consider that a rather lesser number of shares (1/10th) were issued at the (10 times) higher price of $2.50. This means the total shares issued to TUA shares holders had a value of:

(6,211,921*$2.50) + (357,352*$2.50) = $16.423m

There is no requirement for it to be this way. But if you compare the two emboldened totals, you will see that the 'new capital issued' to TUA shareholders is close to the total 'identifiable net assets' that was brought on board as TUA was integrated into the TNR fold. This means that from my perspective of looking at this transaction as 'internal', the transaction looks 'fair' from both sides. And that gives me confidence that even if I am talking through a hole in my head, and my way of looking at this transaction is bollocks, the overall position of the company has not been overly distorted by me considering the TUA takeover in this way.

See, I warned everyone that analysing a combined company in this way would turn into a nightmare analysis. And I was right. But stay with me fellow sharetraders. This particular nightmare is about to unwind.

SNOOPY

[trader_jackson]

https://nzx.com/companies/TRA/announcements/301842

Great results really... knew it was good because the first line they talked about profit, not revenue (and of course the annoucement itself was in capitals ;)

Disclosure: sold HBL @1.71 a month or so back to buy Turner's bonds @ 1.05... look forward to converting them into shares in a year and a bit

[Beagle]

Good solid result and solid outlook. Happy bondholder.

[BlackPeter]

I guess the reported numbers look solid to friendly, but a bit confused when looking at EPS:

They say that NPAT grew by 13% to $17.6m. They have currently 74.5m shares outstanding, which makes in my books 23.6 cts per share.

However - on slide 17 of their results presentation they claim that EPS is 25.5 cents.

Is this some funny partial accounting for shares issued throughout the year?

As well - If I use my method, than their EPS did even slightly drop from FY2016 to FY2017, using their method it marginally increased. Whatever it is - they are obviously not that proud of their EPS growth ... don't crow about it in their overview. Feels a bit dishonest to boast about NPAT growth without clarifying that this is due to new capital and not EPS accredictive.

Ah well, I guess they are human after all - but might justify to have a deeper look into their books ...

[BlackPeter]

Hmm - just used the wait for the conference call to update some of my other indicators.

Noticed that liabilities to total assets have been creeping up from 64.5% to 69.2% while Return on Equity dropped from 12.4% to 10.2%.

I guess nothing catastrophic yet (though the level of liabilities starts to create some discomfort) but might need some closer monitoring.

Discl: hold;

[winner69]

Black Peter - eps calculated on weighted average number of shares on issue

[trader_jackson]

Hmm - just used the wait for the conference call to update some of my other indicators.

Noticed that liabilities to total assets have been creeping up from 64.5% to 69.2% while Return on Equity dropped from 12.4% to 10.2%.

I guess nothing catastrophic yet (though the level of liabilities starts to create some discomfort) but might need some closer monitoring.

Discl: hold;

Do ask thsoe questions... and let us know how the call goes (if you are able to)
Thanks,

[winner69]

Heaps of intangibles on the Balance Sheet - $172m

[Beagle]

Yeap, EPS growth doesn't blow me away but is slightly better than expected. Hoping that FY18 will see genuine EPS momentum with synergies from recent acquisitions.

[BlackPeter]

Here are some of my takeaways from the presentation and Q/A:


"big chunk of revenue growth happened towards the end of the year ..."
they expect this FY 10% of organic growth of operating profit
liabilities increased because it contains finance receivables which grew during the year - (which responds to my observations re increased liabilities to asset ratio)
insurance was anomaly last year (too good) and back to normal this year (Not sure this is a reason to celebrate, but hey ...)
They see long term profit growth coming out of the finance business rather than from selling more cars at a higher margin ...
lack of EPS growth - this is just a timing effect - dilution of capital rises
increased liabilities to assets: as designed - they want to make money in the finance industry which means their balance sheet moves more towards a finance business ...


So I guess my observations are correct, but it looks like there are innocent explanations.

Didn't push the sell button ... :) and intend to keep holding.

[Snoopy]

1/ 10:1 share consolidation. The recent share consolidation means that all previous share transactions must be 10:1 consolidated as well, to allow a 'like with like' comparison.

<snip>

3/ The takeover of TUA from the perspective of my analysis becomes an internal transaction.


62,119,212 (Shares issued at 25cents for the purchase of Turners) and 3,573,516 (Shares issued at 25 cents in lieu of Turners Group NZ's special dividend). (Note that the 'Shares issued to part fund the Turners Group NZ Limited takeover' 45,254,209 are not included in what I am doing because these shares were issued to TNR shareholders outside of the TUA structure, so these shares are not an internal transaction like the other two categories.)


The folowing is my reference table for determining the number of 'equivalent' TRA shares on issue, when making an 'eps' calculation. Notice that it is not as simple as moving the decimal point on the published figures (bullet point 1), because I have had to treat the absorbtion of TUA as an internal transaction (bullet point 3).



Number of Shares


No. Shares EOFY201663,431,637


add Treasury shares bought back+109,366


less Shares issued under staff share plan-464,286


equals No. Shares EOFY201563,076,559


add Treasury shares bought back+73,063


less External Shares to fund TUA takeover-4,525,421


less Earn out from MISL acquisition-72,260


less Earn out from ECCC acquisition-695,530


less Institutional Investor Placement-1,890,000


equals No. Shares EOFY201455,966,411


less Convertible Notes transformed to Shares-11,000,000


less Earn out from MISL acquisition-60,200


less Earn out from ECCC acquisition-1,462,875


less ECCC acquisition options exercised-1,000,000


less Other share options exercised-13,409,884


less Institutional Investor Placement-1,637,820


equals No. Shares EOFY201327,395,632


add Shares cancelled+3,300


less Purchase of Mainstream Insurance Solutions Ltd. (05-04-2012)-50,000


less Purchase of EC Credit Control (12-11-2012)-2,800,000


less Share options exercised-461,632


equals No. Shares EOFY201224,087,900



At last we have the number of shares required to gain a meaningful 'eps' comparison over the years.

SNOOPY

[blackcap]

Here are some of my takeaways from the presentation and Q/A:


"big chunk of revenue growth happened towards the end of the year ..."
they expect this FY 10% of organic growth of operating profit
liabilities increased because it contains finance receivables which grew during the year - (which responds to my observations re increased liabilities to asset ratio)
insurance was anomaly last year (too good) and back to normal this year (Not sure this is a reason to celebrate, but hey ...)
They see long term profit growth coming out of the finance business rather than from selling more cars at a higher margin ...
lack of EPS growth - this is just a timing effect - dilution of capital rises
increased liabilities to assets: as designed - they want to make money in the finance industry which means their balance sheet moves more towards a finance business ...


So I guess my observations are correct, but it looks like there are innocent explanations.

Didn't push the sell button ... :) and intend to keep holding.

Hi BP, did you listen to the end of the questions. I think the second to last one asked a question on FY 18 profit.? Did you get the feeling that the consensus for FY 18 was $28-$29m and if that was the case can you help me. I was unsure if they were referring to NPAT or NPBT? Thanks.

Seemed to me that they are looking for 10% organic growth, about $5M from Buy right cars?, and $5.5m- $2m amortisation from Autosure.
That could add a lot of EPS growth if targets are met...... could see a dividend in the range of 18-20 cents if EPS is 38 cents....

[percy]

I am very pleased with the result.
All the time adding strength and scale,which is improving the "core" business.
All divisions are growing with plenty of further growth prospects.[Like to see Buy right cars in ChCh,and Dunedin].
Well done TRA, and thank you for the increase in divie.
Y18 looks as though it will be exciting and rewarding for shareholders,who remain "well positioned."....!..lol.

[Snoopy]

At last we have the number of shares required to gain a meaningful 'eps' comparison over the years.


Turners have had a fantastic record of increasing profits since coming out of the naughty corner in the finance company classroom. But they have had an almost equally impressive record of 'increasing the number of shares on issue' as well. Many of these shares have been issued with the ultimate intent of buying new businesses that 'bolt on' to the expanding TNR/TRA group. But if these acquisitions and/or the synergies generated are not 'eps' positive, that means the mum and dad shareholder will be going backwards in 'eps' terms. For this reason it is growth in 'eps', not growth in profit, that really matters to shareholders. So how has TNR been doing?

We are looking for a rising five year 'eps' trend. But one setback along the way is allowed.



FY2012FY2013FY2014FY2015FY2016


NPAT (DPC+TUA) (A)$1.737m$3.056m$4.606m$12.722m$15.517m


Adjusted Shares on Issue EOFY (B)24.088m27.396m55.966m63.077m63.432m


Earnings Per Share (A)/(B) {D}7.2c11.2c8.2c20.2c24.5c


Share Price 31st March {C}n/an/an/a$3.20$3.03c


PE Ratio {C}/{D}n/an/an/a15.812.4



There was a hiccup in FY2014 as the company adjusted to its increased capital base. But otherwise the rising 'eps' trend is clear to see.

Result: Pass Test

SNOOPY

[BlackPeter]

Hi BP, did you listen to the end of the questions. I think the second to last one asked a question on FY 18 profit.? Did you get the feeling that the consensus for FY 18 was $28-$29m and if that was the case can you help me. I was unsure if they were referring to NPAT or NPBT? Thanks.

Seemed to me that they are looking for 10% organic growth, about $5M from Buy right cars?, and $5.5m- $2m amortisation from Autosure.
That could add a lot of EPS growth if targets are met...... could see a dividend in the range of 18-20 cents if EPS is 38 cents....

Hi BC, can confirm the 10% organic growth, but sorry - didn't hear them talking about quite detailed numbers for 2018. However - I think they plan to put the presentation on their website - i.e. just have another go at it.

[blackcap]

Hi BC, can confirm the 10% organic growth, but sorry - didn't hear them talking about quite detailed numbers for 2018. However - I think they plan to put the presentation on their website - i.e. just have another go at it.

Thanks BP, I had a look at the presentation, thats where I got the numbers for Autosure, the Buy Right cars what I thought I heard. the talk about the 28-29 profit was ambiguous at best. The analyst thought that was what was implied, but the TRA guy said that there was no mention of FY figures on their presentation but they were comfortable with that range. But I was half listening and didn't pick up if they were talking about NPAT or BT. But assuming the 10% organic, and the extra coming on board from the acquisitions one could almost presume they are talking about NPAT... if this is the case they it really is full steam ahead for FY 18. Anyone else have any insights into my ramblings? Or willing to set me strait?

[percy]

Yes 10% organic growth...
Plus full year contributions from Buy Right Cars and Autosure.
So NPAT should be up 25% to $22mil.
Now this could be exceeded if TRA do another eps accretive acqusition.
As I have already posted I would like to see Buy Right Cars in ChCh and Dunedin.Perhaps they could develop their own sites as they have done with the Commercial site at Wiri.Developing their own sites means they can book the development margin,and either retain the site or sell it and lease it back.All options should be extremely profitable.

[Joshuatree]

A million thanks to the sterling informative posts from all today; the sharetrader community in top form; lots of great sharing and quality posts; i won't lower it other than to say much appreciato:t_up:

[Snoopy]

'Scale' is very important in a business if you, as a new growing operation, are not going to be 'snuffed out' by low ball pricing from the established market players.

Turners Motor Group are New Zealand's largest retail car dealer, with branches in main centres all across New Zealand: Whangarei, Auckland ,Tauranga, Hamilton, Napier, Palmerston North, Wellington, Christchurch, Dunedin & Invercargill. As an extension of this network, Turners own the sub brand 'Buy Right cars' group that has eight Auckland locations. The goal is to be a 'one stop shop' nationwide, not just for buying a second hand vehicle, but also to supply the financing and insurance associated with each vehicle purchase. There are separate 'Trucks & Machinery' branches in Auckland, Hamilton, Tauranga, Wellington and Christchurch. Included in the car sales channels are the weekly 'Turners Auctions', which attract both retail and wholesale bidders. Many vehicles up for auction can be obtained pre-auction at a 'buy now' price.

Turners fully own three finance companies: Dorchester Finance (Auckland headquartered), Oxford Finance (Southern North Island - Levin based) and Southern Finance (Christchurch headquartered). Work is underway to bring all of these formerly separate companies onto a common computer platform. Although over 70% of their loan book is motor vehicle related, these finance companies also loan to the consumer, and do personal and business loans to the SME market.

Turners insurance may be found under the DPL Insurance banner. The 'Autosure' and 'Mainstram Insurance' brands offer general vehicle insurance, mechanical breakdown insurance and repayment protection insurance. Contributory factors to increased motor vehicle claims include:

1/ increased motor vehicle usage, with a clear correlation to cheaper petrol prices, and
2/ a higher incidence of wetter weather

'Pacific Life', 'Greenwich Life' and 'Dorchester Life' offer 'ordinary life', 'funeral plan' and 'stopgap redundancy' insurance.

The final 'arm' of the Turners operation is "EC Credit Control". "EC Credit Control" provides debt collection services, as well as credit management, credit reporting and terms of trade documentation to the SME market. EC Credit Control is the second largest provider in this niche in New Zealand, but operates in both NZ and Australia. Customers include the big banks. There are ambitions to grow the Australian arm of the business. The announced intention to list TRA shares in Australia, as a profile raising exercise, may have something to do with this.

So do Turners have scale? For selling cars - yes. For car insurance they are up against:

1/ Australian owned IAG [State & AMI (direct to customer), NZI & Lumley (via agents) and underwritten bank partners (third party brands, including ASB, BNZ, Westpac)]. IAG has a 66% market shares of the direct combined house/contents/vehicle market (2014 figures) plus 40% of the market sold through brokers.
2/ Australian owned Suncorp ['AA Insurance' (32% owned by AA, 68% owned by Vero/Suncorp), 'Vero Insurance' and 'Asteron' for Life Insurance] groups brands and underwritten partners (ANZ and Warehouse Money).
3/ "Youi" (nz staff number 420- all types of insurance) whose ultimate parent is South African based - "Rand Merchant Insurance Holdings Limited".
4/ NZ owned Tower Insurance (underwrites TradeMe Insurance)

'Autosure' was bought by Turners from Suncorp on 01-12-2016, but Suncorp will continue to underwrite the policies. Consolidating the brands, Turners must be close to being the number three insurance 'brand' player these days?

The EC Credit Control business has a strong position.

Overall Conclusion: Pass Test

SNOOPY

[Snoopy]

The four tests have been completed and the results are as follows:

Buffett Test 1 (post 1422): 'Top Three' position in chosen market. Result: Pass
Buffett Test 2 (post 1417): Increasing 'eps' Trend. Result: Pass
Buffett Test 3 (post 1400): Return on Equity > 15% for five years. Result: Fail
Buffett Test 4 (post 1401): Ability to increase Net Profit margin faster than inflation: Result: Pass

On the surface, passing three of these four tests looks good. However, in order to use 'company generated earnings' to feed into a Buffett growth model, a pass of all four tests is needed. The key failure point is reprised below.



FY2012FY2013FY2014FY2015FY2016


Return On Equity 4.2%6.0%5.0%10.5%12.0%



Returns like this are not enough to ensure that Turners will be earning more than their cost of capital across the business cycle. So the Buffett growth model cannot be used in this instance to provide a reliable valuation. This doesn't mean that TRA is necessarily a bad investment. In just means we have to find another method to evaluate the company.

SNOOPY

.

[Snoopy]

This doesn't mean that TRA is necessarily a bad investment. In just means we have to find another method to evaluate the company.


I am going to keep working with the earnings and dividend figures from the group as though things were already combined by FY2012 (refer post 1399) 'Merging DPC and TUA early'.

To summarize what has happened so far:

1/ I have assumed that DPC/TNR/TRA (I'll call it TRA from now on as that is the current company name) took over TUA prior to FY2012.
2/ I have assumed that the capital structure in terms of 'bank interest due' (and implied interest rates charged) from the party that completed the takeover (TRA), was superimposed over the old TUA structure in years FY2012, FY2013 and FY2014 (no need to assume this after EOFY 2015 as the takeover really had happened by then).
3/ The TRA earnings for FY2014 (year ending 31st March) have been mixed with the the TUA full year annual earnings for the period ending 30th June 2014. The predator (TRA) and prey (TUA) have different balance dates. So it is not possible to strictly combine earnings over a 'like for like' period from published company accounts. Earnings for FY2013 and FY2012 have been combined in a similar way.

The first question to answer is, what happens to the earnings from TUA, when the higher cost TRA borrowing structure is imposed upon them? All figures in the table relate to TUA, unless otherwise stated.



FY2011FY2012FY2013FY2014[/TD]


Bank Liabilities$31.457m$33.272m$36.423m$45.654m


Interest Charges$0.895m+$0.917m$0.913m+$0.952m$1.148m+$1.01 3m


Implied Interest Rate (TRA): (*)12.0%9.8%15.1%


Implied Interest Rate (TUA)5.6%5.4%5.3%


Implied Interest Rate Difference6.4%4.4%9.8%


Implied Interest Charge Difference (Extra Interest)$2.059m$1.520m$3.996m



(*) from post 1398 "DPC/TNR/TRA and implied borrowing Interest Rates"

SNOOPY

[Snoopy]

The second question to answer is, how would the higher cost TRA borrowing structure have affected TUA profits?



Turners Auctions (TUA)FY2011FY2012FY2013FY2014[/TD]


EBIT$7.342m$7.948m$9.117m


less Interest Charges$1.812m$1.865m$2.161m


less Implied Interest Charge Difference (Extra Interest)$2.059m$1.520m$3.996m


equals EBT $3.481m$4.563m$2.960m


less Tax at 28%$0.975m$1.278m$0.829mm


equals Extra Interest Adjusted NPAT $2.506m$3.285m$2.131m



For comparative purposes, let's look at the underlying profit from TUA over my redefined FY2014, without those extra interest charges.

NPAT = (EBIT - I -T) =($9.117m - $2.161m - $1.948m) = $5.008m

As you can see it makes a huge difference. Net profit after tax has more than doubled. It is from these much higher profits that the old TUA was able to pay out such a good dividend stream to shareholders. So how much in normalized dividends did that old TUA actually pay?



Turners Auctions (TUA)FY2011FY2012FY2013FY2014[/TD]


NPAT $3.982m$4.380m$5.008m


Actual Dividend Paid$3.012m$4.106m$4.380m


Extra Interest Adjusted NPAT $2.506m$3.285m$2.131m



You can see that the NPAT more than covered the actual dividend paid. But look one line further down on the table. This shows that my modelled adjusted profits no longer cover the dividend. And that leads me to a conundrum.

With a 'Capitalised Dividend Model' I am usually quite strict on using actual dividend figures in my valuations. Why so? Because actual dividends represent actual cash deposited in a shareholders bank account. Measuring actual cash in a bank account is a measure of investment return that no-one can really dispute, because 'it is there' and as a shareholder you can spend it. However, looking at the table above with the TRA funding structure -imposed retrospectively on the TUA group-, there is no longer enough money to pay that dividend. Long term, a company can only distribute the amount of imputed dividend that actually existed as tax paid net profit. And that means that under my alternative scenario, that dividend could not have been paid, because the underlying profit was not there to support it.

For modelling purposes this means I must change my approach. The modelled dividends paid will now be equivalent to all of my adjusted profits, but no more than those figures.

SNOOPY

[Snoopy]

Turners Auctions (TUA) + Turners Limited (TNR/TRA)FY2012FY2013FY2014FY2015FY2016FY2017


Modelled Dividend Paid {A}$2.506m$3.285m$2.131m


No. Shares on Issue (TNR/TRA) {B} (*)24.057m27.395m55.966m63.077m63.433m74.524m


Modelled Dividend Paid (cps) {A}/{B}10.42c12.00c3.81c


Actual Dividend Paid (cps) (**)5c + 4c6c + 6c7c + 3c +3c




(*) The number of TNR shares on isssue at the end of the financial year has been adjusted retrospectively for the 10:1 share consolidation. To see how the number of TRA shares on issue was derived refer to my post 1414 "Buffett Test 2: Increasing 'eps' Trend (FY2016 perspective): Preamble Part 2.

(**) The actual dividends paid by TNR/TRA over FY2015 and FY2016 were unimputed. This was because of prior losses incurred under the DPC/TNR/TRA structure. However, in my modelling the TUA group was already combined with DPC/TNR/TRA. Previous year TUA profits wiped out those previous year equivalent DPC/TNR/TRA losses. Under this modelled scenario, those FY2015 and FY2016 dividends would have been fully imputed. That's because looking at the combined picture, those prior offsetting DPC/TNR/TRA losses never happened. Further note that all dividends have been adjusted retrospectively to account for the 23rd March 2016 10:1 share consolidation.

From the above table the 'six year average' dividend payout was:

(10.42c + 12.00c + 3.81c + 9c + 12c + 13c)/ 6 = 10.04c (net)

Average Gross Dividend Yield (based on a 28% tax rate) is therefore:

10.04/(1-0.28) = 13.94c

Using a capitalized value gross interest rate of 7.5% (see thread An Investment Story - Geneva/Turners/Heartland, post 40), this translates to a fair value share price of:

13.94/ 0.075 = $1.86

That makes for sobering reading, when the last price paid in the market on Friday was $3.75!

SNOOPY

[Snoopy]

<snip>

Average Gross Dividend Yield (based on a 28% tax rate) is therefore:

10.04/(1-0.28) = 13.94c

Using a capitalized value gross interest rate of 7.5% (see thread An Investment Story - Geneva/Turners/Heartland, post 40), this translates to a fair value share price of:

13.94/ 0.075 = $1.86

That makes for sobering reading, when the last price paid in the market on Friday was $3.75!



I dare say that this $1.86 valuation will come as a bit of a shock to shareholders. It did to me! But is it right? When you are constructing a scenario, by combining two companies (TUA and TRA) before they actually were combined, then whether it is 'correct' or not is possibly not the way to think of it. I think what I have done is consistent and based on actual dividends paid.
If TRA management today had been in charge of TUA back in 2012, 2013 and 2014, then it is unlikely that any of those three years of dividends would have been paid out. At the time TRA, or DPC as it was then, were busy raising new capital from shareholders, not paying out money to them!

I toyed with the idea of superimposing the current TRA dividend policy of paying out 50%-55% of NPAT back onto years 2012, 2013 and 2014. But that would go against what actually happened. And the current policy of "paying out 50%-55% of net earnings as dividends" could change in the future. So I figured it is best to stick to what actually happened and allow readers to apply their own 'fudge factor' to this valuation calculation as they see fit. I see the $1.86 price as a 'fair valuation', assuming no growth across the business cycle. Turners management have already told us that they see themselves growing strongly. But what happens if the market for new/used cars stops growing? And defaults make finance sector earnings at lot more difficult? $1.86 would look a much more likely share price target under those circumstances!

I think given current 'interest rate' and 'economic' settings, that Turners shares will grow towards a much higher 'fair valuation' figure. But this puts me in the category of 'one of the Turners faithful'. And whether my faith in holding Turners shares that I could sell on the market last week at $3.75 means the share is ultimately worth $3.75 is something that will play out over the next few months. Just because management say they have a "growth plan", does not mean that they will definitely achieve it. I wonder if the 'smart ones' in this situation are really the TRAHB bond holders?

SNOOPY

[McGinty]

Looks like Hugh Green Investments just sold their stake in TRA for a good discount at $3.35 (only shareholder to hold that many shares)

[biker]

Looks like Hugh Green Investments just sold their stake in TRA for a good discount at $3.35 (only shareholder to hold that many shares)

Will be interesting to see who the buyer is.

[BlackPeter]

Looks like Hugh Green Investments just sold their stake in TRA for a good discount at $3.35 (only shareholder to hold that many shares)

Well, yes - 19% of all TRA shares changing hand - will be interesting to see who the buyer is. The clock for 2 SSH's is ticking ...

[percy]

Looks like Hugh Green Investments just sold their stake in TRA (only shareholder to hold that many shares)

Correct
Sold at $3.35.
Been a great investment for them.
I am having a costly bad day by not owning a mobile phone.
Went to pay daughter's car rego,and having the usual long wait, missed the call from my broker offering me some at $3.35.
By the time I phoned back,they were gone.
Very expensive car rego at $3,152.05.!!!

[winner69]

Correct
Sold at $3.35.
Been a great investment for them.
I am having a costly bad day by not owning a mobile phone.
Went to pay daughter's car rego,and having the usual long wait, missed the call from my broker offering me some at $3.35.
By the time I phoned back,they were gone.
Very expensive car rego at $3,152.05.!!!

That's a bummer percy

But I would suggest you get a mobile (cheapest prepay will do) just for peace of mind and security reasons. What happens if your wife needs you in an emergency at home when you are out ...or you forget where you parked the car and need assistance.

You not getting any younger - need to consider your own safety and well being

[Beagle]

Correct
Sold at $3.35.
Been a great investment for them.
I am having a costly bad day by not owning a mobile phone.
Went to pay daughter's car rego,and having the usual long wait, missed the call from my broker offering me some at $3.35.
By the time I phoned back,they were gone.
Very expensive car rego at $3,152.05.!!!

You kids are old enough to do their own chores mate. Agree with what Winner has just said above.
Regarding the subject matter at hand am I the only one disappointed with the price ? If the company was doing so well and its prospects for 2018 so good why the need for a such a deep discount ?

[blackcap]

You kids are old enough to do their own chores mate. Agree with what Winner has just said above.
Regarding the subject matter at hand am I the only one disappointed with the price ? If the company was doing so well and its prospects for 2018 so good why the need for a such a deep discount ?

You are not the only one disappointed. I wonder why Hugh Green Investments are selling out now though. Maybe they need the cash? And $3.35 was all they could get for such a big stake in a short amount of time? Other than that any other theories are welcome.

[JeremyALD]

Omg what a fright I got today when I looked the depth and saw 47 million!!!!! Gosh $3.35 is super cheap but this stock has low liquidity so to sell that many shares I'm not suprised there was a massive discount. Anyone topping up? Seems good value.

[BlackPeter]

Omg what a fright I got today when I looked the depth and saw 47 million!!!!! Gosh $3.35 is super cheap but this stock has low liquidity so to sell that many shares I'm not suprised there was a massive discount. Anyone topping up? Seems good value.

Managed to top up slightly above 3.50. Better a small(er) gain than nothing ...

[sb9]

Correct
Sold at $3.35.
Been a great investment for them.
I am having a costly bad day by not owning a mobile phone.
Went to pay daughter's car rego,and having the usual long wait, missed the call from my broker offering me some at $3.35.
By the time I phoned back,they were gone.
Very expensive car rego at $3,152.05.!!!

Try doing it online, very easy also you can pay with credit card and the label arrives to your doorstep.

Sorry to digress...but I find going to post shop very cumbersome, time consuming and inconvenient not to mention their operating hours!!

[McGinty]

Correct
Sold at $3.35.
Been a great investment for them.
I am having a costly bad day by not owning a mobile phone.
Went to pay daughter's car rego,and having the usual long wait, missed the call from my broker offering me some at $3.35.
By the time I phoned back,they were gone.
Very expensive car rego at $3,152.05.!!!


Yes if I was offered some at $3.35, I would have been licking my lips.

I'm finding out of all my holdings, TRA is the most internally conflicting one to hold.

FA wise it's a 'steady as she goes' company with some good growth coming in soon to an already established business with great management. The problem is now the TA! Today's sell down has cause all sorts of TA fail signals (Price has broken $3.55 support & 200 SMA with an already negative MACD & DMI). My system uses a hybrid FA & TA approach so will mull over this for a bit as I feel the lack of liquidity in TRA causes the TA to not be as reliable as the liquid companies.

[JeremyALD]

Yes if I was offered some at $3.35, I would have been licking my lips.

I'm finding out of all my holdings, TRA is the most internally conflicting one to hold.

FA wise it's a 'steady as she goes' company with some good growth coming in soon to an already established business with great management. The problem is now the TA! Today's sell down has cause all sorts of TA fail signals (Price has broken $3.55 support & 200 SMA with an already negative MACD & DMI). My system uses a hybrid FA & TA approach so will mull over this for a bit as I feel the lack of liquidity in TRA causes the TA to not be as reliable as the liquid companies.

It's a strange chart in the last 6 months really. Seems to fly up to $3.90 after reports then come back down to $3.55 or so a few months after. I've been following it for a while and there isn't much liquidity, usually about 10K shares traded a day, sometimes less.

[percy]

Try doing it online, very easy also you can pay with credit card and the label arrives to your doorstep.

Sorry to digress...but I find going to post shop very cumbersome, time consuming and inconvenient not to mention their operating hours!!

Dear daughter handed me the form this morning.Her rego expires tomorrow.!!!!!!!!!!!!!!
My deafness makes it very difficult to hear on mobile phones.

[kizame]

Dear daughter handed me the form this morning.Her rego expires tomorrow.!!!!!!!!!!!!!!
My deafness makes it very difficult to hear on mobile phones.

But you can text and use the internet to follow your stocks,they can email you then too.

[ziggy415]

Well, yes - 19% of all TRA shares changing hand - will be interesting to see who the buyer is. The clock for 2 SSH's is ticking ...

always thought they would be a good fit for heartland

[BlackPeter]

always thought they would be a good fit for heartland

Interesting thought ...

[JeremyALD]

Sounds like the sale has more to do with the Green family and settlements, rather than wanting to get out of TRA as such.

https://www.nbr.co.nz/article/hugh-green-exits-second-listed-asset-turners-sale-maryanne-green-leaves-family-firms-b

[blackcap]

Milford buys in with 5% and change, who has the other 14%?
Summary for Milford Funds Limited

For this disclosure,--
(a) total number held in class: 3,862,909
(b) total in class: 74,523,527
(c) total percentage held in class: 5.183%

Details of relevant interests
Details for Milford Funds Limited

Nature of relevant interest(s):
Milford NZ Equities Wholesale Fund (1.369%), (Custodian - NNL Custodians),
Milford Active Growth Wholesale Fund (2.808%), (Custodian - NNL Custodians),
Milford Income Wholesale Fund (1.006%), (Custodian - NNL Custodians).
Details of transactions and events giving rise to substantial holding
Details of the transactions or other events requiring disclosure: Please see
attached.

[Under Surveillance]

Milford buys in with 5% and change, who has the other 14%?
Summary for Milford Funds Limited

For this disclosure,--
(a) total number held in class: 3,862,909
(b) total in class: 74,523,527
(c) total percentage held in class: 5.183%

Details of relevant interests
Details for Milford Funds Limited

Nature of relevant interest(s):
Milford NZ Equities Wholesale Fund (1.369%), (Custodian - NNL Custodians),
Milford Active Growth Wholesale Fund (2.808%), (Custodian - NNL Custodians),
Milford Income Wholesale Fund (1.006%), (Custodian - NNL Custodians).
Details of transactions and events giving rise to substantial holding
Details of the transactions or other events requiring disclosure: Please see
attached.
The attachment is explicit that Milford bought 2,250,000 of the Green shares. Milford already held 1,612,909, so the purchase ex Green took Milford to the disclosed 3,862,909.

[LAC]

Salt funds got a chunk of it

SPH Notice - Salt Funds Management Limited4:05pm, 4 Jul 2017 | SHINTRDisclosure of beginning to have substantial holding
Section 276, Financial Markets Conduct Act 2013
To NZX Limited
and
To Turners Automotive Group Ltd
Date this disclosure made: 4 July 2017
Date on which substantial holding began: 30 June 2017
Substantial product holder(s) giving disclosure
Full name(s): Salt Funds Management Limited
Summary of substantial holding
Class of quoted voting products: Turners Automotive Group Ltd – Ordinary Shares
Summary for Salt Funds Management Limited
For this disclosure,—
(a) total number held in class: 6,169,000
(b) total in class: 74,523,527
(c) total percentage held in class: 8.278%

[blackcap]

The attachment is explicit that Milford bought 2,250,000 of the Green shares. Milford already held 1,612,909, so the purchase ex Green took Milford to the disclosed 3,862,909.

Ahha apologies.. my bad. So there are buyers out there for a few more. Interesting to find out who they are if they come in the next few days, or its possible that a lot of different parties have been allocated shares from broker at 3.35 which would explain short term share price pressure.

[RTM]

http://www.sharechat.co.nz/article/dbd08df6/regional-drivers-ditching-dungers-as-used-import-cars-set-new-records.html?utm_medium=email&utm_campaign=Regional%20drivers%20ditching%20dunge rs%20as%20used%20import%20cars%20set%20new%20recor ds&utm_content=Regional%20drivers%20ditching%20dunger s%20as%20used%20import%20cars%20set%20new%20record s+CID_b56b79a427b947c28b1ce2b172e72b9f&utm_source=Email%20marketing%20software&utm_term=httpwwwsharechatconzarticledbd08df6region al-drivers-ditching-dungers-as-used-import-cars-set-new-recordshtml

Gotta be good news. For HBL as well I guess.

[LAC]

I jumped into this one recently after doing some research on TRA all because I have been in the market for a decent used car but every time a model I was after came on the market it was gone within a week. Visited Turners a few times and the place is buzzing with used car sales, a great one stop shop for finance and mechanical insurance. So I have to agree with the article, the used cars sale market is in a boom at the moment. 4 of the 9 people in my team at work have all upgraded their cars. Autosure are very responsive to emails and calls, I found it difficult to deal with AA so all in all I am liking TRA's future.
A small TRA parcel at the moment but will be looking to increase that in the coming months.

[percy]

Hopefully we will see TRA extend their Buy Right Cars footprint Nationally.

[Beagle]

I jumped into this one recently after doing some research on TRA all because I have been in the market for a decent used car but every time a model I was after came on the market it was gone within a week. Visited Turners a few times and the place is buzzing with used car sales, a great one stop shop for finance and mechanical insurance. So I have to agree with the article, the used cars sale market is in a boom at the moment. 4 of the 9 people in my team at work have all upgraded their cars. Autosure are very responsive to emails and calls, I found it difficult to deal with AA so all in all I am liking TRA's future.
A small TRA parcel at the moment but will be looking to increase that in the coming months.
Confirming what you've said. I've been in the market for a replacement car for my wife aging Honda Civic hybrid. New cars are setting records and late model popular cars seem to be selling very well indeed. Couple I had my eye on were sold from underneath my nose. Had to move very quickly on a 2017 Honda Civic demo as there was a lot of interest in it the day I visited the Honda dealership. By the way, my wife absolutely loves this multi award winning all new 10th generation Honda Civic...picking it up today, happy wife = happy life :) I think the very strong level of immigration is also very supportive of the vehicle market. Very few cars are sold outright for cash so we realise we're in a fortunate position and also know that a one stop shop like turners is very well placed to meet the finance, after-market insurance and trade-in requirements of motorists. I'm maintaining a sizeable investment in Turners convertible bonds. Disc: Also have stakes in HBL and CMO, the latter of which I expect to do very well indeed from ongoing record new car sales.

[sb9]

Confirming what you've said. I've been in the market for a replacement car for my wife aging Honda Civic hybrid. New cars are setting records and late model popular cars seem to be selling very well indeed. Couple I had my eye on were sold from underneath my nose. Had to move very quickly on a 2017 Honda Civic demo as there was a lot of interest in it the day I visited the Honda dealership. By the way, my wife absolutely loves this multi award winning all new 10th generation Honda Civic...picking it up today, happy wife = happy life :) I think the very strong level of immigration is also very supportive of the vehicle market. Very few cars are sold outright for cash so we realise we're in a fortunate position and also know that a one stop shop like turners is very well placed to meet the finance, after-market insurance and trade-in requirements of motorists. I'm maintaining a sizeable investment in Turners convertible bonds. Disc: Also have stakes in HBL and CMO, the latter of which I expect to do very well indeed from ongoing record new car sales.

Nice car the new Honda Civic, promoted very heavily recently....

[sb9]

I jumped into this one recently after doing some research on TRA all because I have been in the market for a decent used car but every time a model I was after came on the market it was gone within a week. Visited Turners a few times and the place is buzzing with used car sales, a great one stop shop for finance and mechanical insurance. So I have to agree with the article, the used cars sale market is in a boom at the moment. 4 of the 9 people in my team at work have all upgraded their cars. Autosure are very responsive to emails and calls, I found it difficult to deal with AA so all in all I am liking TRA's future.
A small TRA parcel at the moment but will be looking to increase that in the coming months.

Took the opportunity to dip my toes on this y'day, let's see how it plays out. They surely seem to be doing very well in that used car market, couple of my mates recently bought their cars through them recently and are very happy customers.

[janner]

They surely seem to be doing very well .

At the risk of stirring a hornets nest..

I disagree... Held them when they were 0.36 .. They went 1 for 10 .. Sold during that time and ended up with enough to give the accounts department
a reason to grumble..
Nothing they have produced since my selling has made me regret it ..

I know percy will leap to their defence. :-)))

The share price has gone no where..

[LAC]

The business has done well in the last 8 years though....and I think their outlook is looking good. Debt a little on the high side but am looking fwd to the next 5 years.

[winner69]

How are those Bonds priced at the moment

Still a screaming buy?

[winner69]

Salt Took a decent chunk of Greens shares

That's good

....unless you read what punters think of Salt on the SUM thread

[percy]

At the risk of stirring a hornets nest..

I disagree... Held them when they were 0.36 .. They went 1 for 10 .. Sold during that time and ended up with enough to give the accounts department
a reason to grumble..
Nothing they have produced since my selling has made me regret it ..

I know percy will leap to their defence. :-)))

The share price has gone no where..

A "good" business can have a "bad" year,while a "bad " business can have a "good" year,but over time the "good" business will reward those who hold it.
As investors we have to judge the difference between a "good" business and a "bad" business.
In Sir James Goldsmith's brilliant book,Billionaire, he talks about Caversham Foods,and how everyone laughed at its poor performance.Sir James said "I knew if I put the right people in place,and gave them the tools to do the job, they would." Proved right.
So keeping the above in mind lets see how a "bad" [Dorcester Finance}business became a "good" {TRA} business.
First of all it came about by Dorcester getting the Bartel holding in Turners to agree to their takeover.
Then Dorcester wisely changed their name Turners because of the strong brand Turners had.
Turners through very astute acquisitions now control each part of their business.
Sourcing cars from Japan.
Compliance of vehicles.
Sale of vehicles.
Finance of vehicles.
Insurance of vehicles.
Repossession of vehicle.
The business model is brilliant and very easily to roll out.
Turners now have the financial strength to develop their own sites,such as the commercial vehicle site in Wiri.
Their online offerings are gaing traction.
Their non recourse loans via Motor Trade Finance are exceding budget.
The scale of each division,auctions,car sales,finance, insurance,and online means the business is "good",and the foundations for ongoing future growth have been well laid.They clip the ticket all the way through the business,and each ticket is getting bigger.I love big ticket clippers,

[BlackPeter]

The business has done well in the last 8 years though....and I think their outlook is looking good. Debt a little on the high side but am looking fwd to the next 5 years.

Yes debt is rising - but this comes with their growing financial business. If you want to see an indebted balance sheet - look at any of the big banks :p.

High liabilities to equity are typically a good sign for any financial institution (obviously within reason), otherwise they have a lazy balance sheet ... or would you want to own a bank which does not make money by offering loans ...?

[percy]

Yes debt is rising - but this comes with their growing financial business. If you want to see an indebted balance sheet - look at any of the big banks :p.

High liabilities to equity are typically a good sign for any financial institution (obviously within reason), otherwise they have a lazy balance sheet ... or would you want to own a bank which does not make money by offering loans ...?

The big difference between Turners and banks is the length of time a loan is for.Vechicle finnancing is very short term lending compared to bank lending.It is also a great deal more profitable.In Turners case they make a profit from the sale of a vehicle,then a profit on the finance,and then a profit on the insurance.
NB.It is estimated more than 80% of retail [car buyers] require finance of some kind.page 14 TRA 2017 annual report.

[janner]

Mission accomplished .. :-)))))

[percy]

Mission accomplished .. :-)))))

Sod.
And to think I fell for it, hook,line and sinker,you stinker.!!!..lol


ps.Thanks Turners my divie is in my bank a/c.

[LAC]

Haha:))))))

[JeremyALD]

Sod.
And to think I fell for it, hook,line and sinker,you stinker.!!!..lol


ps.Thanks Turners my divie is in my bank a/c.

I got more than I was expected too. Gotta love fully imputed divies!

[traineeinvestor]

Question for the hive mind: does anyone know why TRA provides imputation credits for NZ domiciled investors but does not pay supplemental dividends to offshore investors?

[Beagle]

How are those Bonds priced at the moment

Still a screaming buy?

Sorry mate I missed your earlier question...Just good value with the SP where it is now. I still hold.

[percy]

Today's presentation was of the usual very high standard we have come to expect from Turners.
Offcourse the fun part was on the last page, page 30.
Current FY 17 NPBT is $24.6 mil.
Now you can take your pick for FY 18 from Deutsche's $29mil [up17.8%] or Credit Suisse's $32mil [up 30%].
With the current PE of 13.92 I will be happy with either,although I think Credit Suisse's will be more likely.
In the meantime I am enjoying the increasing quarterly dividends.

[sb9]

Today's presentation was of the usual very high standard we have come to expect from Turners.
Offcourse the fun part was on the last page, page 30.
Current FY 17 NPBT is $24.6 mil.
Now you can take your pick for FY 18 from Deutsche's $29mil [up17.8%] or Credit Suisse's $32mil [up 30%].
With the current PE of 13.92 I will be happy with either,although I think Credit Suisse's will be more likely.
In the meantime I am enjoying the increasing quarterly dividends.

Nice presentation and ASX listing tomorrow.

FY18 will have full contribution from Buy Right and Auto Sure.

Looking good all in all.

[Snoopy]

The following information is more than most shareholders want to know. But it is background information that feeds into the published table above, and which I intend to use again. The first column is taken from the Segmented Information as presented in the annual report.



Divisional Asset Allocation FY2016


AssetsElimination Assets ReallocatedCorporate Assets Reallocated


Auctions & Fleet$83.09m15.96%$57.81m27.55%$99.81m


Finance$218.51m41.96%$152.04m72.45%$262.49m


Corporate & Other$219.11m42.08%$152.45m


Sub Total$520.71m


Eliminations[/TD]-$158.42m


Total$362.30m100.00%$362.30m100.00%$362.30m





Here is my update of background information that feeds into my divisional analysis, which I intend to use again. The first column is taken from the Segmented Information as presented in the annual report.



Divisional Asset Allocation FY2017


AssetsElimination Assets ReallocatedCorporate Assets Reallocated


Automotive Retail$134.16m18.60%$103.53m29.49%$164.16m


Finance$320.73m44.47%$247.51m70.51%$392.47m


Corporate & Other$266.40m36.93%$205.59m


Sub Total$721.30m


Eliminations[/TD]-$164.67m


Total$556.63m100.00%$556.63m100.00%$556.63m



Note that the 'finance' header in this instance also incorporates the insurance and debt collection divisions.

SNOOPY

[Snoopy]

Divisional Liability Allocation FY2016


LiabilitiesElimination Liabilities ReallocatedCorporate Liabilities Reallocated


Auctions & Fleet$62.63m22.97%$53.40m28.21%$65.58m


Finance$159.39m58.45%$135.89m71.79%$166.91m


Corporate & Other$50.67m18.58%$43.20m


Sub Total$272.68m


Eliminations[/TD]-$40.19m


Total$232.49m100.00%$232.49m100.00%$232.49m






Divisional Liability Allocation FY2017


LiabilitiesElimination Liabilities ReallocatedCorporate Liabilities Reallocated


Automotive Retail$103.82m26.89%$103.49m33.82%$130.18m


Finance$203.17m52.61%$202.52m66.18%$254.74m


Corporate & Other$79.17m20.50%$78.91m


Sub Total$386.16m


Eliminations[/TD]-$1.24m


Total$384.92m100.00%$384.92m100.00%$384.92m



Note that the 'finance' header in this instance also incorporates the insurance and debt collection divisions.

SNOOPY

[percy]

The bolt-on acquisition of Motorplus Nz Ltd ,with 6,000 policies, adds further scale to TRA's insurance division.
Sensible.

[BlackPeter]

The bolt-on acquisition of Motorplus Nz Ltd ,with 6,000 policies, adds further scale to TRA's insurance division.
Sensible.

Agree - it certainly will help them to get their insurance branch closer to (or maybe even above) critical mass ...

[percy]

Agree - it certainly will help them to get their insurance branch closer to (or maybe even above) critical mass ...

They reached [or went well above] critical mass when they acquired Autosure Insurance.

[Beagle]

They reached [or went well above] critical mass when they acquired Autosure Insurance.

That's all well and good but I did not see this phrase or anything to that effect in the announcement, "We expect this acquisition to be eps accretive immediately"
They are found of growing the company through raising capital and bolt on acquisitions but the EPS growth to date has been underwhelming in my opinion.
This has to change in FY18 or I will redeem my convertible notes for cash on 30 September 2018. I won't give them any more time than FY18 to prove they can materially grow EPS.

[percy]

Correct.
However they have been steadily laying very strong foundations for a truely great company.
I am happy to heavily invest in TRA,as they keep doing the right things.Each acquisition has improved the core business's strength.
The results will come,and they will be well worth waiting for.

[Snoopy]

Divisional EBIT Allocation FY2016


EBTRevenueEBT Corporate Reallocated (A)Interest ExpenseLiabilitiesCorporate Interest Expense Reallocated (B)EBIT: (A)+(B)


Auctions & Fleet$6.698m63.64%$3.090m$2.626m28.21%$3.226m$6.31 6m


Finance$20.531m36.46%$18.461m$6.685m71.79%$8.210m$ 26.671m


Corporate & Other-$5.678m$2.125m


Sub Total$21.551m


Eliminations[/TD]$0m


Total$21.551m100.00%$21.551m$11.436m100.00%$11.436 m$32.987m







Divisional EBIT Allocation FY2017


EBTRevenueEBT Corporate Reallocated (A)Interest ExpenseLiabilitiesCorporate Interest Expense Reallocated (B)EBIT: (A)+(B)


Automotive Retail$11.936m72.77%$6.046m$3.052m33.82%$3.838m$9. 884m


Finance$20.790m27.23%$18.585m$5.972m66.18%$7.512m
$26.097m


Corporate & Other-$8.095m$2.327m


Sub Total$24.631m


Eliminations[/TD]$0m


Total$24.631m100.00%$24.631m$11.350m100.00%$11.350 m$35.981m



SNOOPY

[Snoopy]

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$2.225m9.2%


Finance, Insurance & Collection Services (FY2016)$262.488m$166.909m$95.579m$8.21m$13.292m13 .9%


Divisional Total (FY2016)$362.303m$232.491m$129.812m$11.44m$15.52m1 2.0%







TRA for FY2017


AssetsLiabiliitiesShareholder EquityInterest ExpenseNPATROE


Automotive Retail (FY2017)$164.16m$130.18m$33.98m$3.84m$4.353m12.8%


Finance, Insurance & Collection Services (FY2017)$392.47m$254.74m$137.73m$7.51m$13.382m9.72 %


Divisional Total (FY2017)$556.63m$384.92m$171.71m$11.35m$17.73m10.3 %



Care needs to be taken when interpreting these figures, taken from the Annual Report of FY2017. The assets and liabilities are end of year figures. So they aren't necessarily representative of the assets and liabilities that were on the books through the year because two major acquisitions:

1/ 'Buy Right Cars' (29th July 2016), now part of 'Automotive Retail'
2/ 'Autosure' (31st March 2017), which I have grouped into 'Finance' above.

With 'Autosure' in particular, this came onto the Turners books on 31st March 2017. Yet no earnings for this business contributed to the 'Finance Division' result because 31st March 2017 was also the balance date. Thus the apparent sharp deterioration in 'Finance ROE' for the year is not what it seems.

SNOOPY

[Snoopy]

Care needs to be taken when interpreting these figures, taken from the Annual Report of FY2017. The assets and liabilities are end of year figures. So they aren't necessarily representative of the assets and liabilities that were on the books through the year because tow major acquisitions:

1/ 'Buy Right Cars' (29th July 2016), now part of 'Automotive Retail'
2/ 'Autosure' (31st March 2017), which I have grouped into 'Finance' above.

With 'Autosure' in particular, this came onto the Turners books on 31st March 2017. Yet no earnings for this business contributed to the 'Finance Division' result because 31st March 2017 was also the balance date. Thus the apparent sharp deterioration in 'Finance ROE' for the year is not what it seems.


Note 18 in AR2018 allows us to annualize the profit contribution from acquisitions.

1/ Buy Right Cars:

"If the acquisition had occurred on 1st April 2016, management estimates the group consolidated <snip> profit before acquisition for the year would have been $18.6m"

Since the group consolidated profit was $17.574m, the extra contribution to profit from 'Buy Right Cars' would have been: $18.6m - $17.574m = $1.026m

That in turn means the underlying ROE for the automotive retail business is significantly higher than in my table in post 1478.

ROE [Turners Automotive Retail Only]: ($1.03m + $6.67m) / $33.98m = 22.7%


2/ Autosure:

"If the acquisition had occurred on 1st April 2016, management estimates the group consolidated <snip> profit before acquisition for the year would have been $23m"

Since the group consolidated profit was $17.574m, the extra contribution to profit from 'Autosure' would have been: $23.0m - $17.574m = $5.44m

That in turn means the underlying ROE for the finance business is significantly higher than in my table in post 1478.

ROE [Turners Finance Only]: ($5.44m + $11.06m) / $137.73m = 12.0%

(Note: 12% is very similar to the previous year figure of 11.6% from FY2016)

My observation: Both the 'Automotive Retail' (formerly Auctions and Fleet) and 'Finance' divisions are operating with greater capital efficiency than in FY2016. But it is the Automotive Retail business that is giving a better return on investment than the finance division by a factor of almost two to one. And that is a big difference compared to FY2016!

SNOOPY

[Snoopy]

In recognition of TNR being a hybrid company, I am no performing the EBIT to Interest expense test on the finance section of TNR only (my post 1257).

Updating for the FY2016 financial year (ended 31-03-2016)

The underlying interest expense is shown under note 7 (AR2016) to be $11.436m. Of this ( $11.436m x 0.7179= ) $8.210m can be applied to the finance division.

The underlying EBT for the finance division may be found in the same post.

(EBT +Interest Expense)/(Interest Expense) = [$15.385m+$8.210m]/$8.210m = 2.87 > 1.2

=> Pass Test



In recognition of TNR being a hybrid company, I am now performing the EBIT to Interest expense test on the finance section of TNR only (my post 1477).

Updating for the FY2017 financial year (ended 31-03-2017)

The underlying interest expense is shown under note 7 (AR2017) to be $11.350m. Of this ( $11.350m x 0.6618= ) $7.511m can be applied to the finance division.

The underlying EBT for the finance division may be found in the same post.

(EBT +Interest Expense)/(Interest Expense) = [$18.585m+$7.511m]/$7.511m = 3.47 > 1.2

=> Pass Test

SNOOPY

[Snoopy]

I am changing my analysis this year so that the financial statistics that I am evaluating are applied only to the financial division of the company.

I<script src="https://adservice.google.co.nz/adsid/integrator.sync.js?domain=www.sharetrader.co.nz" ></script><script >processGoogleTokenSync({"newToken":"FBS"},5);</script> 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' (AR2016, p26).

Tier 1 capital > 20% of the loan book.

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

Tier 1 Capital = (Shareholder Equity) - (Intangibles: less Turners Auctions Intangibles) - (Deferred tax: Assume finance division using up deferred losses)
= (0.7245x$121.892m) - ($105.338m -$45.600 -$22.859) - $0m
= $57.170m

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': $18.455m
2/ 'Finance Receivables': $167.598m
3/ 'Receivables and deferred expenses': 0.7179 x $8.505m
4/ 'Reverse annuity mortgages': $9.374m

For the FY16 year these come to $201.532m

$57.170m > 0.2 x $201.532m = $40.307m (true)

=> Pass Test

SNOOPY

I am continuing my analysis this year so that the financial statistics that I am evaluating are applied only to the financial division of the company.

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' (AR2017, p38), and my post 1470 on asset allocation.

Tier 1 capital > 20% of the loan book.

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

Tier 1 Capital = (Shareholder Equity) - (Intangibles: less Turners Auctions Intangibles)
= (0.7051x$171.716m) - ($172.088m -$45.600 -$22.859)
= $17.448m

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': $10.320m
2/ 'Finance Receivables': $207.143m
3/ 'Receivables and deferred expenses': 0.7051 x $8.489m
4/ 'Reverse annuity mortgages': $9.222m

For the FY17 year these come to $232.678m

$17.448m > 0.2 x $232.678m = $46.536m (false)

=> Fail Test

SNOOPY

[Snoopy]

=> Fail Test


The above is the key point. But in non-numerical terms, what does it mean?

The basis behind this test is that, at some point in the longer term future, a significant proportion of the loans that Turners will cash up could lose value. If the value of the security cannot match the value of the loan then Turners could lose money. It is OK to lose some money. In fact if you are in the business of making loans, assuming that every loan will come back intact is unrealistic and an unacceptable business practice. As a money lending business owner, you cannot prepare for an absolute doomsday scenario. But it is comforting for stakeholders to know that there is something of worth inside the company that could be sold in an emergency. The first line of 'money potentially available' is the money that shareholders put in, to found the business - and retained profits from that business over the years. That money is 'shareholder equity'.

'Shareholder equity' can be thought of as a buffer to offset loans that go bad. But 'shareholder equity' is not the same as 'cash in the bank'. Much of Turners 'shareholder equity' has been spent on 'intangible assets'. This spending has been voluntary. The only reason that Turners is prepared to spend more than a business is worth, in tangible asset terms, is because it is worth spending that much to gain access to the acquired businesses cashflows. The potential outcome of buying a new business is always well researched. But the actual result of buying a 'bolt on business' can only be measured 'after the event'. There are many cases of businesses being acquired at 'above book value' with all sorts of hype, only to be written down years later with the head of the acquiring company claiming it is a 'non cash item', so shareholders shouldn't worry. Well, that 'non cash item' was cash once. And if a bolt on business has been acquired at an 'over the odds' price then that cash is gone and so is the 'capital safety buffer' that the cash once represented.

The 'Turners Auctions' business, as acquired three years ago, has consistently exceeded its sales and profit targets. It was bought at a price above net asset value, and that means both intangible assets and brand value (in this case) have found their way onto the acquisitors books. But there is little doubt that if the Turners parent wanted to float off the old Turners Auctions today, they would get all of their money back and then some. This is why I have removed the value of the Turners Auction acquisition form the intangible assets value. TNR would get all their money back on this one if they wanted to. The more recent acquisitions I think are yet to prove themselves. They could be gems. But from a creditors perspective, there is not the track record to show this. And herein lies the problem.

If one or more of these new acquisitions does not work out as management planned, then they might not be saleable. Other creditors, in the wake of a wider automotive industry slowdown, could lose money. Management would describe these recent acquisitions as earnings acquisitive. Shareholders might equally view them as unsaleable and therefore putting their investment capital at risk. This is not a comfortable situation for shareholders/bondholders IMO.

SNOOPY

[Snoopy]

To ensure liquidity over the next twelve months, management has the ability to move resources between divisions. So despite this measure being of primary interest in sizing up financial companies, I believe it is more correct to study the TNR group as a whole. The current account information that I seek is in the FY2016 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$13.810m AR2016 p26


Financial Receivables Contractural Maturity$75.735m AR2016 p46


Reverse Annuity Mortgages$1.366m AR2016 p48 Note 16


Total Current Resources$90.911m (addition)


Financial Liabilities0-12 monthsReference


Current Liabilities$115.679m+$10.984mAR2016 p37


Total Current Liabilities$126.663m (addition)



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

$126.663m - $90.911m = $35.752m

I say 'theoretical' because I have based this forecasted cashflow deficit on contracted maturity of financial receivables and historically negotiated repayment of bank borrowings. In fact many of these 'contracted receivables' can be rolled over, if a new car is bought on finance to replace the old one (for example). It is also true that the planned repayment of bank borrowings can be renegotiated and retimed. This means that the actual cash deficit will very likely much less than the $35.752m that I have predicted, if it exists at all.

However, if any of the shortfall remained, the difference could be:

1/ Much reduced if most/all of the TNRHA bonds, maturing on 30th September 2016, are rolled over into shares. This would be the equivalent of injecting up to $23.189m (AR2016 Note 24) of new cash into the company, while simultaneously reducing debt by the same amount.
2/ Selling $14.156m in stock from the Turners Fleet/Auction side of the business.
3/ Retaining half the expected earnings over the twelve month period 1st April 2016 to 31st March 2017. This is stated company policy, which based on the last six monthly period would see cash reserves boosted by: 0.5 x $8.162m x 2 = $8.162m.
4/ Increase borrowings from the banks, under variations to the current banking syndicate deal (amount undeclared and unknown, so I will leave this out of my analysis).

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)

=> ($90.911m+$23.189m+$14.156m+$8.162m) > 1.1 x $126.663m
=> $136.418m > $139.329m (this is false)

The theoretical shortfall of $2.911m represents:

$2.911m/$167.598m = 1.74% of the end of year loan book balance

In summary, not a good result, but rather better than last year. The equation would have worked if it wasn't for the 10% margin required. So a 'fail' against a tough standard, but a close 'fail'.

SNOOPY

To ensure liquidity over the next twelve months, management has the ability to move resources between divisions. So despite this measure being of primary interest in sizing up financial companies, I believe it is more correct to study the TNR group as a whole. The current account information that I seek is in the FY2017 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$69.069m AR2017 p38


Financial Receivables Contractural Maturity$99.349m AR2017 p62


Reverse Annuity Mortgages$1.892m AR2017 p65 Note 16


Total Current Resources$170.310m (addition)


Financial Liabilities0-12 monthsReference


Current Liabilities$18.750m+$50.998mAR2017 p51


Total Current Liabilities$69.748m (addition)



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

$69.748m - $170.310m = -$100.562m

A 'negative shortfall' is in fact a surplus, and that is superficially a very healthy position to be in with this test's twelve month (current) time horizon.
I say 'theoretical' because I have based this forecasted cashflow deficit on contracted maturity of financial receivables and historically negotiated repayment of bank borrowings. In fact many of these 'contracted receivables' can be rolled over, if a new car is bought on finance to replace the old one (for example). It is also true that the planned repayment of bank borrowings can be renegotiated and retimed. This means that the actual cash surplus will very likely be greater than the $100.562m that I have predicted.


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)

=> ($170.310m + $'X'm) > 1.1 x $69.178m
=> $170.310m > $76.096m (this is true)

The theoretical extra cash available " $ 'X'm from a net sell down of car inventory and retaining more earnings rather than paying dividends I haven't even bothered to calculate this year. The contracted cash position is so strong that it would be a waste of time showing that even more cash could be raised.

This is a huge turnaround from FY2016, and a very strong 'pass'

SNOOPY

[BlackPeter]

To ensure liquidity over the next twelve months, mangement has the ability to move resources between divisions. So despite this measure being of primary interest in sizing up financial companies, I believe it is more correct to study the TNR group as a whole. The current account information that I seek is in the FY2017 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$69.069m AR2017 p38


Financial Receivables Contractural Maturity$99.349m AR2017 p62


Reverse Annuity Mortgages$1.892m AR2017 p65 Note 16


Total Current Resources$170.310m (addition)


Financial Liabilities0-12 monthsReference


Current Liabilities$115.679m+$10.984mAR2016 p37


Total Current Liabilities$126.663m (addition)



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

$126.663m - $90.911m = $35.752m

I say 'theoretical' beacuse I have based this forecasted cashflow deficit on contracted maturity of financial receivables and historically negotiated repayment of bank borrowings. In fact many of these 'contracted recievables' can be rolled over, if a new car is bought on finance to replace the old one (for example). It is also true that the planned repayment of bank borrowings can be renegotiated and retimed. This means that the actual cash deficit will very likely much less than the $35.752m that I have predicted, if it exists at all.

However, if any of the shortfall remained, the difference could be:

1/ Much reduced if most/all of the TNRHA bonds, maturing on 30th September 2016, are rolled over into shares. This would be the equivalent of injecting up to $23.189m (AR2016 Note 24) of new cash into the company, while simutaneously reducing debt by the same amount.
2/ Selling $14.156m in stock from the Turners Fleet/Auction side of the business.
3/ Retaining half the expected earnings over the twelve month period 1st April 2016 to 31st March 2017. This is stated company policy, which based on the last six monthly period would see cash reserves bossted by: 0.5 x $8.162m x 2 = $8.162m.
4/ Increase borrowings from the banks, under variations to the current banking syndicate deal (amount undeclared and unknown, so I will leave this out of my analysis).

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)

=> ($90.911m+$23.189m+$14.156m+$8.162m) > 1.1 x $126.663m
=> $136.418m > $139.329m (this is false)

The theoretical shortfall of $2.911m represents:

$2.911m/$167.598m = 1.74% of the end of year loan book balance

In summary, not a good result, but rather better than last year. The equation would have worked if it wasn't for the 10% margin required. So a 'fail' against a tough standard, but a close 'fail'.

SNOOPY

Hmm - not sure whether this "liquidity buffer" test makes in TRA's context a lot of sense. TRA is increasing its financial branch - i.e. in parts moving their balance sheet towards a banking type operation. How many banks do you know which would have enough liquidity to pay all their "current" liabilities (i.e. less than 12 months dues date) without the need to take on some new (or rolled over) liabilities?

Wouldn't we call this a (very) lazy balance sheet?

[Snoopy]

Hmm - not sure whether this "liquidity buffer" test makes in TRA's context a lot of sense. TRA is increasing its financial branch - i.e. in parts moving their balance sheet towards a banking type operation. How many banks do you know which would have enough liquidity to pay all their "current" liabilities (i.e. less than 12 months dues date) without the need to take on some new (or rolled over) liabilities?

Wouldn't we call this a (very) lazy balance sheet?


As usual BP you are far too 'on the ball' and 'sharp on the mark' for me!

You ask
"How many banks do you know which would have enough liquidity to pay all their "current" liabilities?"

If you look at the finished post you referenced, (not the one of mine that was half baked in the oven when you quoted it), you will see that that Turners easily cover their 'current' liabilities from contracted liquidity that is coming due. That has to be very reassuring for shareholders and bondholders.

The 'problem', if you choose to see it as such, is the longer term resilience position as outlined in post 1481, titled 'Tier 1 and Tier 2 Lending Covenants FY2017'. What it comes down to is this.

If Turners management keep "doing what they say they will do" and keep delivering on results then there is no problem. But what happens if the car market slows?

Slower car sales mean less new finance contracts written and less new insurance business written. This would be a 'triple kick in the head' for Turners, and could result in goodwill write offs and an urgent capital injection need from shareholders. It wouldn't be a pretty picture and is the potential downside of the current growth strategy. I am not saying this scenario is likely. But I think investors should bear in mind that it is possible. The bare fact is the net tangible asset backing of TNR at balance date was:

($171.716 - $172.088) / 74.523m = -0.005c per share

The multi year asset value decline I have laid out in the table below



Shareholder Funds {A}Intangible Assets {B}No.Shares on Issue {C}NTA/share {{A}-{B}}/{C}


EOFY2015$121.002m$103.595m63.077m27.6c


EOFY2016$129.812m$118.106m63.432m18.4c


EOFY2017$171.716m$172.002m74.532m-0.4c



You read that right. Turners have negative tangible assets, all signed off by the auditors. No-one will mention this if things continue to go well. But actually Turners is a highly leveraged house of cards. You might not want to be in there if the automotive market catches a cool breeze.

SNOOPY

[Snoopy]

Turners is free to negotiate with its parent bankers on what is a suitable level of funding for the company. It seems inconceivable that they would negotiate their own loan package in a way that would put their own 'funding core' at risk. So we can use the information we have combined with a 'rule of thumb' to calculate an appropriate sized funding core.

The table below has taken items from the balance sheet (marked (1)). I have written the table with all the pieces adding up to a whole. However, the table has largely been constructed in a reverse way. That means starting with 'the whole' then figuring out a way to allocate 'the whole' to the separate constituent pieces.



[AssetsLiabilitiesShareholder Equity


[Finance (Not Underlying)$94.892m (3)-$85.403m (4)=$9.489m (6)


[Underlying Finance$167.592m (1)-$81.506m (5)=$86.090m (6)


[Finance Sub Total$262.488m (*)-$166.909m (*)=$95.579m (2)


[Auctions & Fleet$99.815m (*)-$65.582m (*)=$34.223m (2)


[Balance Sheet Total (All)$362.303m (1)-$232.491m (1)=$129.812m (1)



Calculation (3) allows us to work out the core assets not related the underlying finance contracts of the business (everything else apart from the receivables book) by simple subtraction. The finance company 'rule of thumb' for their core is to ensure that:

(Non-Risk Liabilities)/(Non-Risk Assets) < 0.9

From this, we can work out that the Non-Risk Liabilities must be no more than:

(Non-Risk Assets) x 0.9 = $94.892m x 0.9 = $85.403m (which is answer 4 above).

Simple subtraction and addition is then used to work out the rest of the numbers in the table.

So what's the point of this so far?

By working out the minimum size of the business core (as measured by assets and liabilities), that means we can measure how well the rest of the business is set up to do the customer lending, the bit that actually generates the profits for the Turners Finance division. This is done by looking at the assets and liabilities left outside the core.

Implied Available Financing Gearing ratio
= (At Risk Liabilities)/(At Risk Assets)
= $81.506m/$167.596m
= 48.6%

Generally you would want to match your 'At Risk Liabilities' with your 'At Risk Assets'. This particular match looks acceptably conservative. But how does it compare with other listed finance entities? Rather better than the 65.6% that I have calculated for 'Geneva Finance' as it turns out. In practical terms this means that Turners has the capacity to expand their finance business loan book at a greater rate than Geneva, without issuing new capital. Not saying I wouldn't buy Geneva. But on this measure TNR looks better, which is probably why it trades on a higher PE than Geneva.

SNOOPY

Turners is free to negotiate with its parent bankers on what is a suitable level of funding for the company. It seems inconceivable that they would negotiate their own loan package in a way that would put their own 'funding core' at risk. So we can use the information we have combined with a 'rule of thumb' to calculate an appropriate sized funding core.

The table below has taken items from the balance sheet (marked (1)). I have written the table with all the pieces adding up to a whole. However, the table has largely been constructed in a reverse way. That means starting with 'the whole' then figuring out a way to allocate 'the whole' to the separate constituent pieces.



[AssetsLiabilitiesShareholder Equity


[Finance (Not Underlying)$185.326m (3)-$166.793m (4)=$18.533m (6)


[Underlying Finance$207.143m (1)-$87.948m (5)=$119.195m (6)


[Finance Sub Total$392.469m (*)-$254.741m (*)=$137.728m (2)


[Automotive Retail$164.164m (*)-$130.176m (*)=$33.988m (2)


[Balance Sheet Total (All)$556.633m (1)-$384.917m (1)=$171.716m (1)



(*) These items are from my off-line 'segmented' spreadsheet. Assets/Liabilities are sized in proportion to segmented balance sheet information, but with eliminations and corporate costs apportioned between the 'automotive retail' and 'all other finance' divisions.

Calculation (3) allows us to work out the core assets not related the underlying finance contracts of the business (everything else apart from the receivables book) by simple subtraction. The finance company 'rule of thumb' for their core is to ensure that:

(Non-Risk Liabilities)/(Non-Risk Assets) < 0.9

From this, we can work out that the Non-Risk Liabilities must be no more than:

(Non-Risk Assets) x 0.9 = $185.326m x 0.9 = $166.793m (which is answer 4 above).

Simple subtraction and addition is then used to work out the rest of the numbers in the table.

So what's the point of this so far?

By working out the minimum size of the business core (as measured by assets and liabilities), that means we can measure how well the rest of the business is set up to do the customer lending, the bit that actually generates the profits for the Turners Finance division. This is done by looking at the assets and liabilities left outside the core.

Implied Available Financing Gearing ratio
= (At Risk Liabilities)/(At Risk Assets)
= $87.948m/$207.143m
= 42.5%

Generally you would want to match your 'At Risk Liabilities' with your 'At Risk Assets'. This particular match looks acceptably conservative. But how does it compare with other listed finance entities? Rather better than the 64.3% that I have calculated for 'Geneva Finance' for FY2017 as it turns out. In practical terms, one might take this to mean that Turners has the capacity to expand their finance business loan book at a greater rate than Geneva, without issuing new capital. Not saying I wouldn't buy Geneva. But on this measure TNR looks better, which might be one reason why it trades on a higher PE than Geneva.

SNOOPY

[Snoopy]

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!


Another year goes by and now we have four separate annual perspectives to consider.



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$2.960m$37.692m7.85%-$0.532m-$1.452m$43.212m1.23%3.36%


EOFY2015$3.182m$143.365m2.22%-$1.607m-$1.375m$150.351m1.07%0.94%


EOFY2016$5.129m$168.889m3.04%-$1.041m-$1.041m$175.675m0.59%0.59%


EOFY2017$1.331m$207.143m0.64%-$2.025m-$1.442m$213.130m0.95%0.68%


Total-$5.205m-$5.310m


Average0.96%1.39%



'Stressed Loans' in the context of Turners as follows (figures given are calculations from the Annual Report of that Year, 'b' being a subsequent year retrospective):



Financial Year2014b201520162017


Impaired Loans Past due for 90+ days$4.740m$5.572m$5.939m$3.516m


plus Impaired Loans Less than 90 days due$0m$0m$0.461m$0.485m


plus Not Impaired Loans Past due for 90+ days$3.637m$4.012m$4.417m$2.583m


plus Not Impaired Loans Past due for 60 to 90 days$0.103m$0.584m$1.088m$0.775m


less Specific Impairment Provision-$2.061m-$2.505m-$1.952m-$0.973m


less Collective Impairment Provision-$3.459m-$4.481m-$4.824m-$5.055m


equals Total$2.960m$3.182m$5.129m$1.331m






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$48.974m$1,961.402m2.50%-$22.567m-$13.660m$2,060.867m1.10%0.66%


EOFY2014$49.654m$2,566.039m1.94%-$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%


EOFY2016$37.851m$3,113.957m1.21%-$13.501m-$18.663m$3,140.105m0.43%0.59%


EOFY2017 (*)$38.324m$3,545.897m1.08%-$15.015m-$11.671m$3,575.613m0.42%0.33%


Total-$40.567m-$57.069m


Average0.52%0.64%



(*) Results listed from EOY Disclosure Statement, pending the release of the full annual report.

'Stressed Loans' in the case of Heartland are defined as follows:



Financial Year20132014201520162017


Loans at least 90 days past due$26.598m$34.034m$34.975m$21.967m$35.629m


plus Loans individually impaired$69.301m$27.617m$25.622m$33.764m$28.578m


plus Restructured Assets$3.566m$4.064m$3.881m$3.281m$0m


less Provision for Impairment-$50.491m-$16.061m-$25.412m-$21.161m-$25.865m


equals Total$48.974m$49.654m$39.066m$37.851m$38.324m





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$86.887m$2,161.193m4.02%-$7.123m-$12.339m-$3.745m$2,198.653m0.32%0.73%


EOFY2014$95.444m$2,344.131m4.07%-$11.733m-$18.633m+$3.300m$2,375.936m0.49%0.65%


EOFY2015$82.267m$2,429.695m3.39%-$10.427m-$12.162m-$0.659m$2,421.224m0.43%0.53%


EOFY2016$85.475m$2,721.710m3.14%-$7.418m-$11.055m+$1.297m$2,750.619m0.27%0.35%


Total-$36.701m-$53.996m


Average0.38%0.57%





Financial Year2013201420152016


Take loan total from categories 7 and 8$87.054m$92.366m$81.156m$96.727m


add 'Default' loans$37.293m$34.883m$32.640m$17.657m


less Provision for Credit Impairment-$37.46m-$31.805m-$31.529m-$28.909m


equals Total$86.887m$95.444m$82.267m$85.475m



SNOOPY

[blackcap]

I am a happy TRA holder since the DPC days but do have a question I may pose at the next AGM.

That is what contingency if any do TRA have for the ever changing automotive market and how do they see their business model operate when people do not own cars anymore but "hire" them. ie I am thinking an autonomous world where ownership is no longer possible (could be as little as 15-20 years away) (or ownership is possible but not economically viable)

[silverblizzard888]

I am a happy TRA holder since the DPC days but do have a question I may pose at the next AGM.

That is what contingency if any do TRA have for the ever changing automotive market and how do they see their business model operate when people do not own cars anymore but "hire" them. ie I am thinking an autonomous world where ownership is no longer possible (could be as little as 15-20 years away) (or ownership is possible but not economically viable)

Great question, if Elon Musk gets his way we will be seeing level 5 autonomous driving cars in 2 years, won't be long till Uber adopts them after that and in as little as 5 years we could see driverless Ubers driving us around for a fraction of the current taxi prices then it would be cheaper not to have a car. How does Turners adapt is indeed a good question.
https://electrek.co/2017/04/29/elon-musk-tesla-plan-level-5-full-autonomous-driving/

[BlackPeter]

I am a happy TRA holder since the DPC days but do have a question I may pose at the next AGM.

That is what contingency if any do TRA have for the ever changing automotive market and how do they see their business model operate when people do not own cars anymore but "hire" them. ie I am thinking an autonomous world where ownership is no longer possible (could be as little as 15-20 years away) (or ownership is possible but not economically viable)

Fair question - though I'd think that this (15 to 20 years) is a time horizon not too many companies plan for ... and particularly in NZ (low population density) the adaption will take longer ...

[Brain]

I will be cashed up totally in 15 to 20 years time or dead. Not a time frame that I am concerned about. Probably applies to a lot of board members as well. So good luck with that question

[McGinty]

Have been re-looking in to TRA lately and consider this to be one of the better investment options on the NZX at current prices.

Using the information provided in their July 27 presentation, the company looks to have the perfect mix of growth, dividend and currently valued at an attractive multiple.

Using the lower of the FY18 Analysis guidance figures of NPBT of $29m (NPAT of $20.9m), I have EPS growth of 18.6% at a FY18 P/E of 12.43. Looks like a bargain when considering most of the flat or no growth companies trading at higher multiples.

I'm unsure why this is so unloved at the moment (maybe overhead resulting from the Hugh Green sell down at a good discount), but I have been topping up at $3.57 & $3.49 and happy to receive the quarterly dividends growing every year.

[sb9]

Have been re-looking in to TRA lately and consider this to be one of the better investment options on the NZX at current prices.

Using the information provided in their July 27 presentation, the company looks to have the perfect mix of growth, dividend and currently valued at an attractive multiple.

Using the lower of the FY18 Analysis guidance figures of NPBT of $29m (NPAT of $20.9m), I have EPS growth of 18.6% at a FY18 P/E of 12.43. Looks like a bargain when considering most of the flat or no growth companies trading at higher multiples.

I'm unsure why this is so unloved at the moment (maybe overhead resulting from the Hugh Green sell down at a good discount), but I have been topping up at $3.57 & $3.49 and happy to receive the quarterly dividends growing every year.

Yes, it does seem bit unloved atm. Since listing on ASX the price actually went backwards...go figure that!!!

[BlackPeter]

Yes, it does seem bit unloved atm. Since listing on ASX the price actually went backwards...go figure that!!!

I never understand why people think an ASX listing would be a guarantee for SP growth ... actually - I'd say that the two are quite uncorrelated.

[RTM]

Have been re-looking in to TRA lately and consider this to be one of the better investment options on the NZX at current prices.

Using the information provided in their July 27 presentation, the company looks to have the perfect mix of growth, dividend and currently valued at an attractive multiple.

Using the lower of the FY18 Analysis guidance figures of NPBT of $29m (NPAT of $20.9m), I have EPS growth of 18.6% at a FY18 P/E of 12.43. Looks like a bargain when considering most of the flat or no growth companies trading at higher multiples.

I'm unsure why this is so unloved at the moment (maybe overhead resulting from the Hugh Green sell down at a good discount), but I have been topping up at $3.57 & $3.49 and happy to receive the quarterly dividends growing every year.

Yes, I have been reconsidering them lately as well. Hold both bonds and shares. When I bought I thought I was buying into a diversified finance company. Acquisitions have meant that it is now largely a one stop car sales company. So I think it has morphed into something quite different. Not sure that I want this level of exposure to the second hand car business. Still mulling it over.

[sb9]

I never understand why people think an ASX listing would be a guarantee for SP growth ... actually - I'd say that the two are quite uncorrelated.

I never assumed listing on ASX would be a boost for sp, all I'm saying is the downtrend has been in place since listing on ASX, you call that correlation or something else. Bit that's what the chart says for now at least.

[Benny1]

I have thought about TRA on and off over the past year or so....Not sure if I'm keen on a second hand car business, especially if the economy turns a bit sour,
Spending on cars seems always to be the first thing that fall's off the shopping list when consumers decide keep their hands in their pockets.
Great industry while everything is rosy, not so when things go a little tit's up!..

I also replaced a car late last year and found new cars too be just as competitive if not more so than used cars, my brother did the same, as well as a few guys at work that also have bought cars recently.
Just some food for thought....

[BlackPeter]

I have thought about TRA on and off over the past year or so....Not sure if I'm keen on a second hand car business, especially if the economy turns a bit sour,
Spending on cars seems always to be the first thing that fall's off the shopping list when consumers decide keep their hands in their pockets.
Great industry while everything is rosy, not so when things go a little tit's up!..

I also replaced a car late last year and found new cars too be just as competitive if not more so than used cars, my brother did the same, as well as a few guys at work that also have bought cars recently.
Just some food for thought....

Actually - if things turn sour, people are much more likely to buy a used car than a new one, i.e. great hedge.

As well - 20% of New Zealand cars are more than 20 years old (that's 700.000 cars). Most of them clearly need a replacement soon. How many of their owners would you expect to buy a new car as a replacement?

Have a look at their recent investor presentation:

https://www.nzx.com/files/attachments/262355.pdf

[Beagle]

Quality of new cars is another factor. Bought the Mrs the all new 10th generation Honda Civic last month, a 2017 demo for $26,500. Really after ten generations this has morphed into a medium sized car now and has almost exactly the same proportions as the previous model Honda Accord. Its been a real eye-opener experiencing the quality of that car compared to much more expensive cars we've bought in the past and to say Mrs Beagle is extremely pleased with it would be quite an understatement. In my opinion the technology, features and quality of some of the latest models make a compelling case for themselves. That said the truth is there is a VAST mass market still in the used car field for people who can only afford a circa $12-15K car and that's where Turners comes in with their one stop shop business model. I think the shares are good value but my preference continues to be to invest in the convertible bonds with this one.

[BlackPeter]

Quality of new cars is another factor. Bought the Mrs the all new 10th generation Honda Civic last month, a 2017 demo for $26,500. Really after ten generations this has morphed into a medium sized car now and has almost exactly the same proportions as the previous model Honda Accord. Its been a real eye-opener experiencing the quality of that car compared to much more expensive cars we've bought in the past and to say Mrs Beagle is extremely pleased with it would be quite an understatement. In my opinion the technology, features and quality of some of the latest models make a compelling case for themselves. That said the truth is there is a VAST mass market still in the used car field for people who can only afford a circa $12-15K car and that's where Turners comes in with their one stop shop business model. I think the shares are good value but my preference continues to be to invest in the convertible bonds with this one.

Actually - I tend to look at it from the other side. We typically have one new and one pre-loved car in our "fleet" - and normally I am much happier with the used car (better value for money and lots of extras for free if you choose wisely;); Might stop buying new cars completely ...

[stoploss]

Quality of new cars is another factor. Bought the Mrs the all new 10th generation Honda Civic last month, a 2017 demo for $26,500. Really after ten generations this has morphed into a medium sized car now and has almost exactly the same proportions as the previous model Honda Accord. Its been a real eye-opener experiencing the quality of that car compared to much more expensive cars we've bought in the past and to say Mrs Beagle is extremely pleased with it would be quite an understatement. In my opinion the technology, features and quality of some of the latest models make a compelling case for themselves. That said the truth is there is a VAST mass market still in the used car field for people who can only afford a circa $12-15K car and that's where Turners comes in with their one stop shop business model. I think the shares are good value but my preference continues to be to invest in the convertible bonds with this one.

Imagine how happy Mr Beagle would be if Mrs Beagle hid this in the stable :)
https://www.youtube.com/watch?v=4YSjItQneNM

[Beagle]

Imagine how happy Mr Beagle would be if Mrs Beagle hid this in the stable :)
https://www.youtube.com/watch?v=4YSjItQneNM

WOW, that's pretty impressive stuff for a humble Honda Civic isn't it !, (albeit the hot hatch variant). I saw one in an Honda Cars Broadway when buying the cooking model version and they look like a pretty handy bit of kit with brembo brakes, fancy seats with dual harness capability e.t.c.
I won't show Mrs Beagle that video, she'll be barking mad I bought her the cheaper model LOL. These new Honda Civic's which have won a wide range of international motoring awards are an exceptional bit of kit for the money in my opinion. You can see why the Type R versions have a cult following with track day racers can't you !