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

[RTM]

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

There is a perspective that you can look at it from both sides.
In good times people update their cars.
And in bad times they repair them.
Guess you can make money on both sides. Do Turners do repairs...didn't think they did.

[BlackPeter]

There is a perspective that you can look at it from both sides.
In good times people update their cars.
And in bad times they repair them.
Guess you can make money on both sides. Do Turners do repairs...didn't think they did.

Don't think they do, either.

But then - how much money would you invest into repairing a 20+ year old car (excluding vintage cars ;)?

Repairs on a very old car quite easily get more expensive than buying a newer car. Now - if its not economical to repair it, and you still need a car to get to work, what would you do next?

[Beagle]

Don't think they do, either.

But then - how much money would you invest into repairing a 20+ year old car (excluding vintage cars ;)?

Repairs on a very old car quite easily get more expensive than buying a newer car. Now - if its not economical to repair it, and you still need a car to get to work, what would you do next?

You've also got to consider the downtime and inconvenience of vehicle breakdowns especially for those people who are relying on their vehicles to get to / from work or for business meetings or who need to pick up kids / grandkids from school at defined points in time. Owning vehicles older than 15 years has significant downsides in my opinion, (albeit a given that depreciation has run its course). Autosure breakdown insurance is fine but there's no insurance for all the inconvenience and downtime just the cost of the repair less the excess of course.

[Benny1]

You've also got to consider the downtime and inconvenience of vehicle breakdowns especially for those people who are relying on their vehicles to get to / from work or for business meetings or who need to pick up kids / grandkids from school at defined points in time. Owning vehicles older than 15 years has significant downsides in my opinion, (albeit a given that depreciation has run its course). Autosure breakdown insurance is fine but there's no insurance for all the inconvenience and downtime just the cost of the repair less the excess of course.

Wish you could convince my parents of the downsides of owning older cars! Can't for the life of me get them to get rid of their two old clunkers and replace them with something newer!

Still, need to have the retirement village chat to them as well.....that's a whole another level of "discussion":confused:

[percy]

Your parents are not alone.;From Turners Investor Presentation 27th July 2017,page 9.
Average age of a car in NZ is 14 years.
20% of cars [aprox 700,000] are more than 20 years old.
23% of NZ drivers say they are very likely or extremely likely to buy a car in the next 12 months.

It is also extremely likely I will be adding to our TRA holding this afternoon or tomorrow morning at $3.44.

[sb9]

It is also extremely likely I will be adding to our TRA holding this afternoon or tomorrow morning at $3.44.

Hmm...are you throwing a curly one there with ref to the large crossing of 800K shares at 3.44 a piece??

[percy]

Hmm...are you throwing a curly one there with ref to the large crossing of 800K shares at 3.44 a piece??

Put my hand up with Craigs for some.
Will have to wait for the contract note to see if I received what I asked for.
Would expect confirmation by tomorrow morning.

[Beagle]

The SP cannot get traction if major shareholders keep flooding the market with shares.

[sb9]

The SP cannot get traction if major shareholders keep flooding the market with shares.

I hope that's the last of any major selldown by a large holder at discount.

[percy]

I hope that's the last of any major selldown by a large holder at discount.

The very large sell down by Hugh Green family was always going to take time for the shares to find loving,caring homes.
I would think this parcel is just some one taking quick profits,from that sell down.
I have seen John Ryder sell out of Ryman very early on,Mark Stewart sell out of Ebos before they took off,so although I watch who is buying/selling I pay more attention to the actual company's fundamentals.
Milford again.?...lol.
Just received the contract note.Very please to get the number I asked for.

[sb9]

The very large sell down by Hugh Green family was always going to take time for the shares to find loving,caring homes.
I would think this parcel is just some one taking quick profits,from that sell down.
I have seen John Ryder sell out of Ryman very early on,Mark Stewart sell out of Ebos before they took off,so although I watch who is buying/selling I pay more attention to the actual company's fundamentals.
Milford again.?...lol.
Just received the contract note.Very please to get the number I asked for.

Nice one for you.:)

[percy]

Nice one for you.:)

Yes very nice , as I have been watching the TRA sp, and was thinking of adding to our holding at over $3.50.
Funny thing the market,all the latest results for shares I hold have been great,and the bonus takeover for OIC a total surprise.
Just getting myself ready for the market to give me a good kick up the backside, and say you are still a dummy.!!!! lol.

[Snoopy]

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.


Since the first year of the 'modern' incarnation of Turners in 2015, the breakdown between divisions in EBIT terms I have modelled as below.



EBIT FY2015EBIT FY2016EBIT FY2017


Automotive Retail$2.268m$9.392m$13.105m


Collection Services NZ$4.907m$6.119m$5.932m


Collection Services Aus$0.128m$0.005m-$0.038m


Finance$9.504m$14.854m$13.984m


Insurance$1.739m$2.617m$2.998m


Total$18.547m$32.987m$35.981m



I have always like the balance the 'debt collection' arm(s) of Turners gives to the overall business. Put simply, if the loan market goes down, then we can expect a corresponding increase in debt collection activity. Since 2015, Turners have built up the automotive retail, finance and insurance sides of the business with acquisitions. However, the debt collection side of the business has not been built up. In FY2015 the Australian and NZ loan collection business made up 27.2% of the EBIT of the whole business. In FY2016 that reduced to just 18.6%, and in FY2017 the figure was down to 16.4%.

This means that Turners as a group has become less resilient to possible changes in the automotive market. A downturn in the automotive market will affect 83.6% of the business as 'automotive' 'finance' and 'insurance' are now very much linked.

I find it very curious that Turners have now a secondary listing in Australia when earnings from that market are minuscule (negative if you apportion costs the way I have). Are the Aussies really going to be keen to come in and help fund future expansion? Or is the Oz listing all part of some grandiose plan that is getting very far away from the core business here in NZ?

The growth of Turners is good. But the reduction in resilience needs to be watched.

SNOOPY

[percy]

Come on Snoopy put your thinking cap on.
The Australian listing is not so Paul Byrnes can claim family holidays to Aussie as business fact finding trips.
Think little ChCh business Ebos, who do 80% of their $7 billion turnover, in Australia.
Do you think TRA will be doing 80% of their business in Australia in 10 years time,or would you guess 20 years?.No Australian business is going to accept NZ only, listed scrip as part payment.
Resilient? Downturns in the motor trade happen,but the trade recovers very quickly.The huge increase in vehicles over the past few years has grown the opportunites for TRA.
Vertical integration of vehicle imports,vehicle/equipment sales,finance and insurance,means TRA are a totally focussed business,which is further scalable in Australasia.
I would also point out EC Credit Control does not rely on TRA as a customer.The Australian listing will benefit their dealing with their Australian clients straight away.

ps.Most probably take Paul Byrnes less time to get to Brisbane or Sydney than Dunedin.Few more people there too.
If you have a great business model why not roll it out.!

[percy]

After I added to my TRA holding yesterday, I looked at the trust I help out with's portfolio.The trust only had TRAHB [bonds].
We therefore added some TRA shares to the portfolio today buying at $3.51.

[Elles]

Put my hand up with Craigs for some.
Will have to wait for the contract note to see if I received what I asked for.
Would expect confirmation by tomorrow morning.

Hi Percy, sorry for the newby question, but how does this off-market buying work? Did you know someone was willing to sell below market value or will Craig's try to find a seller for you? Presumably this only works for large transactions? Anyway, good to see you're positive about this stock, so am I :)

[Joshuatree]

Elles , a big shareholder decides to sell down quickly. They contact a broker,Craigs in this instance ; they work outa deal,price etc and ring around their clients offering them at a discount to mkt price, so you need an account and relationship with your broker at Craigs . I queried my guy late friday ,he said plenty there still, but not a big enough margin for me. Craigs make money by charging up to 1% commission.

[percy]

A large private shareholder or an institution approaches a broker, with say 800,000 or 1mil shares to sell.In this case Craigs said they would sell them.Head office of Craigs then advises their brokers to find buyers. The brokers then ring their clients,usually clients who already hold shares in that company,as was the case here with me already holding TRA shares.Sometimes they sell very quickly,and you either miss out or get fewer than you wanted.That is why I said it was extremely likely I would be buying more. as I was waiting see if I got them or not.A case of first in first served.
The placement or line of shares is usually done at a bit of a discount to market price.In this case the price was $3.44 compared to market price of $3.51 /$3.52.
As I was looking to adding to my TRA holding it suited me.

[Elles]

Interesting, thanks for the replies. It's a good way to do it as otherwise they'd push the share price down trying to sell that much on market, so now both seller and buyer get a good deal. Nice.

[Snoopy]

Come on Snoopy put your thinking cap on.
The Australian listing is not so Paul Byrnes can claim family holidays to Aussie as business fact finding trips.
Think little ChCh business Ebos, who do 80% of their $7 billion turnover, in Australia.
Do you think TRA will be doing 80% of their business in Australia in 10 years time,or would you guess 20 years?.No Australian business is going to accept NZ only, listed scrip as part payment.


Good point Percy. Yes if TNR are looking to acquire businesses in Oz, there is almost certain to be an element of 'share scrip' in the payment. The Oz market for used cars is rather different. I don't think they allow used imports from Japan as we do here. TRA in NZ sources a lot of their used car stock from Japan. But with the shutdown in local manufacturing in Oz, maybe this will change? Maybe TRA is looking to get in on the ground floor if/when import regulations change? Could be huge for TRA if they can crack the Aus retail market. Yet many kiwi retail companies have tried this in other product categories. The result is not always pretty.



Resilient? Downturns in the motor trade happen,but the trade recovers very quickly.The huge increase in vehicles over the past few years has grown the opportunites for TRA.


Lots of stories in the media around the ever aging NZ car fleet. One thing you never hear mentioned is how good a fifteen year old Japanese car can still be. Is there really they same pressure to update your car as there once was. I can think quite a few fifteen year old cars (built in 2002) I would be happy to drive around in as my everyday transport. Not sure I could say the same ten, fifteen years ago.



I would also point out EC Credit Control does not rely on TRA as a customer.


Yes absolutely correct. But the EC credit Control business is now less of the overall business than it was, in percentage terms. That was my point.

SNOOPY

[percy]

Good point Percy. Yes if TNR are looking to acquire businesses in Oz, there is almost certain to be an element of 'share scrip' in the payment. The Oz market for used cars is rather different. I don't think they allow used imports from Japan as we do here. TRA in NZ sources a lot of their used car stock from Japan. But with the shutdown in local manufacturing in Oz, maybe this will change? Maybe TRA is looking to get in on the ground floor if/when import regulations change? Could be huge for TRA if they can crack the Aus retail market. Yet many kiwi retail companies have tried this in other product categories. The result is not always pretty.



Lots of stories in the media around the ever aging NZ car fleet. One thing you never hear mentioned is how good a fifteen year old Japanese car can still be. Is there really they same pressure to update your car as there once was. I can think quite a few fifteen year old cars (built in 2002) I would be happy to drive around in as my everyday transport. Not sure I could say the same ten, fifteen years ago.



Yes absolutely correct. But the EC credit Control business is now less of the overall business than it was, in percentage terms. That was my point.

SNOOPY

20% of cars in NZ [approx 700,000] are more than 20 years old.
Average age of cars in NZ is 14 years.
Selling used vehicles in Aussie would give Turners profits on sales,finance and insurance.
Should they at any stage be able to import from Japan, would mean they are in the box seat.
EC Credit Control is only less of TRA's overall business, as the other divisions have grown by acquisition.
Good capital allocation. Profit on vehicle sales,finance and insurance.
Agree a 20 year old Jap car can still be great,but very few people hang onto their cars that long.Some people change ever couple or three years.Some at 50,000 klms some at 90,000 klms.
ps.You will note from their last presentation, they pointed out a large number of light commercial vehicles are coming to the end of their useful life.

[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

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]
FY2012FY2013FY2014FY2015FY2016FY2017


Interest Expense (A)$3.064m$2.928m$3.857m$7.381m$11.436m$11.350m


Total Liabilities$49.932m$70.765m$52.630m$207,970m$232,4 91m$384,917m


Total Borrowings$7.248m+$13.787m+$5.286m$22.784m+$10.857 m$17.565m$156,995m$174,816m$265,889m


Averaged Borrowing Balance (B)$25.592m$29.981m$25.603m$87.280m$165.906m]$220.353m


Implied Borrowing Interest Rate (A)/(B)12.0%9.8%15.1%8.5%6.9%5.2%



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 FY2017 years interest bill was $11.350m. But what would happen if the interest rate on that increased to the 6.9%? That would mean the interest bill would go up to

$11.350m x (6.9/5.2) = $15.060m

The difference ( $15.060m-$11.350m= $3.711m) adjusted by the 28% company tax rate ( $3.711m x (1-0.28) = $2.672m ) represents the amount that net profit for FY2017 could have gone down with those higher interest rates in place. $2.672m on $17.609m represents a 15% 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

[percy]

Actually it works the other way.
The higher interest rates go, the better the margins for lenders,such as finance companies and banks.

[Snoopy]

Actually it works the other way.
The higher interest rates go, the better the margins for lenders,such as finance companies and banks.

The effect of rising interest rates depends on how competitive the particular lending market is.

1/ If Turners are not able to pass on any of their own 'borrowing interest rate rises' to customers, then their NPAT will reduce according to the rise in their underlying borrowing rate.
2/ If Turners are able to pass on exactly all their own 'borrowing interest rate rises' to customers, then there will be no NPAT effect from a rise in their underlying borrowing rate.
3/ If Turners are able to pass on more than their own 'borrowing interest rate rises' to customers, then the NPAT at Turners will rise.

I think vehicle finance is quite competitive. So I am not sure that you can jump straight to 'outcome 3' as a dead cert Percy. However, I should point out that I am not forecasting that 'outcome 1' will happen either. I am trying to quantify a possible reduction in profits should interest rate rises not be able to be passed on. Part of an exercise in assessing possible risks.

SNOOPY

[Snoopy]

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 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)($6.035m)


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!

I am modelling all tax to be paid at a rate of 28%. Turners Automotive Group is now paying tax at 28%, and, barring any unforseen lending market market meltdown, will continue to do this into the future. Turners Auctions was paying tax at the 28% rate before the Turners Automotive Group 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 Automotive Group: Operational NPAT



FY2013FY2014FY2015FY2016FY2017


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


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


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


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


EBIT (Turners Automotive Group)$26.387m$32.987m$35.981m


EBIT (Turners Auctions)$5.829m(*)


add back Turners Auctions acquisition costs$0.675m


Interest Expense (Turners Automotive Group)($7.381m)($11.436m)($11.350m)


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


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


less Revaluation gains on Investments($0.200m)]($1.229m)


equals EBT (DPC+TUA=TRA)$4.245m$6.397m$17.670m$21.351m$23.402 m


less tax at 28%($1.189m)($1.791m)($4.948m)($5.978m)($6.553m)


equals NPAT (DPC+TUA=TRA)$3.056m$4.606m$12.722m$15.373m$17.849 m

[/TR]


----------

(* => Note for FY2015) 'Turners Auctions' was absorbed into 'Turners Automotive Group' on 20th November 2014. This was during the FY2015 Turners Limited financial year which ended on 31st March 2015. Turners Automotive Group 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

--------

Supersleuthers will notice that I have now removed the 'investment revaluation gains' from the net profit figures for FY2016 (and used the same policy for FY2017).

SNOOPY

[Snoopy]

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)=TRA (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

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




FY2013FY2014FY2015FY2016FY2017


NPAT (DPC+TUA)=TRA (A)$3.056m$4.606m$12.722m$15.373m$17.849m


Adjusted Shares on Issue EOFY (B)27.396m55.966m63.077m63.432m74.523m


Earnings Per Share (A)/(B) {D}11.2c8.2c20.2c24.5c24.0c


Share Price 31st March {C}n/an/a$3.20$3.03]$3.55


PE Ratio {C}/{D}n/an/a15.812.414.8



There was a hiccup in FY2014 as the company adjusted to its increased capital base. Nevertheless the rising 'eps' trend appears to have plateaued. Here is an example where there is significant divergence between the 'profit growth' and the 'eps' growth. It is the 'eps' growth that is the important figure for investors, not profit growth. Yet the second 'eps' decline is only 0.5cps, or within the margin of error if whole numbers were used. For this reason I am not prepared to say the rising 'eps' trend has ended.

Result: Pass Test

SNOOPY

[Snoopy]

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

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.



FY2013FY2014FY2015
FY2016FY2017


NPAT (Turners Limited) (A)$3.056m$4.606m$12.722m$15.373m$17.849m


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


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


Shareholder Equity (Turners Limited: TNR)$121.002m$129.812m$171.716m


Total Combined Shareholder Equity (B)$51.001m$92.430m$121.002m$129.812m$171.716m


Return On Equity (A)/(B)6.0%5.0%10.5%11.8%10.4%



Turners Limited have never achieved an ROE greater than 15%. The latest year deterioration looks unfortunate, but is connected to the timing of the capital raising.

Result: Fail Test

SNOOPY

P.S. The equity raising took place in October 2016, approximately half way through the financial year. This means the new equity was only available to work with from that date. This means a more accurate ROE figure could be obtained by simply using the 'average' shareholder equity between the two most recent end of year balance dates. Using this method:

ROE (2017) = $17.849m /($129.812m + $171.716m)*0.5 = 11.8%

That figure exactly matches the figure from FY2016.

[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

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.



FY2013FY2014FY2015FY2016FY2017


NPAT (Turners Limited) (A)$3.056m$4.606m$12.722m$15.373m$17.849m


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


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


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


Operating Revenue (Turners Limited: TNR)$90.195mm$171.195m$249.338m


Total Combined Revenues (B)$101.998m$128.392m$122.482m$171.195m$249.338m


Net Profit Margin (A)/(B)3.0%3.6%10.4%9.1%7.2%



(*) 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 the profit margin has been taken to a new level. However, this seems to have been a one off jump as the net profit margin has been steadily declining since.

Result: Fail 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.




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 1528): Increasing 'eps' Trend. Result: Pass
Buffett Test 3 (post 1529): Return on Equity > 15% for five years. Result: Fail
Buffett Test 4 (post 1530): Ability to increase Net Profit margin faster than inflation: Result: Fail

The most disappointing thing in comparison to last year is the deterioration in 'Net Profit Margin'. Some would say three down years in a row is the beginning of a trend.



FY2013FY2014FY2015FY2016FY2017


Net Profit Margin (A)/(B)3.0%3.6%10.4%9.1%7.2%



Make no mistake that in absolute terms, a net profit margin of 7.2% is still good. But this statistic is based on actual profits to actual sales. So it is difficult to make the excuse that the net profit margin deterioration is just a timing issue in the overall expansion plan.

By contrast, the apparent deterioration in the return on equity: ...



FY2013FY2014FY2015FY2016FY2017


Return On Equity 6.0%5.0%10.5%11.8%10.4%



...very definitely is a timing issue. Because the equity on the books at the end of the year was not available to the company all throughout the year. Yet disregarding this, we are still well short of our investment goal of a 15% return on shareholder equity. ROE returns generated are not enough to ensure that Turners will be earning more than their cost of capital across the business cycle. Lot's of the 'right noises' coming from management of course. But:

1/ more leverage on the balance sheet, (my post 21 on Geneva/Turners/Heartland Story Thread) and
2/ the downside risk from rate rises on that total (my post 1524) and
3/ the wiping out of all tangible assets, (my post 1485) and
4/ the divisional imbalance caused by the much smaller growth in debt collecting compared with the other divisions (my post 1515) and
5/ the 'early listing' in Australia, when the only Australian arm is going backwards (loss making) after all head office costs are apportioned, and
6/ the unusually low provisioning for 'stressed loans' (loans monitored but not impaired), even if the 'impaired loan balance' looks under control (my post 1487) and
7/ the lower profit margins in particular (my post 1530).

are all causes for concern (from the perspective of this hound at least). To me the most sensible strategy for Turners for now is to consolidate and grow their NZ operations. Turners may be the largest pre-owned car retailer in NZ. But there is still plenty of room for growth in the home NZ market. Having said this, I will not be selling out of TRA any time soon. But I will be watching them very carefully.

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

[Onion]

Interesting, thanks for the replies. It's a good way to do it as otherwise they'd push the share price down trying to sell that much on market, so now both seller and buyer get a good deal. Nice.

At the NZ Shareholder's Association Annual Conference in Wellington last weekend there was concern voiced to a presenter from NZX that there is a huge amount of off-market trading. From memory the proportion of off-market trades was in excess of 50% (probably by value).

The sentiment was that the off-market trading is bad, in particular for small retail investors.

Regarding your point about pushing the share price down -- well isn't that the point of an open trade market? If sellers outnumber buyers then that should be known to the market -- and ALL buyers can make the decision to buy or not.

[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!




Turners Auctions (TUA) + Turners Limited (TNR/TRA)FY2012FY2013FY2014FY2015FY2016FY2017FY2018


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 +3c4c +4.5c


Estimated Dividend to be Paid (cps)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 'seven year average' dividend payout was:

(10.42c + 12.00c + 3.81c + 9c + 12c + 13c + 14.5c)/ 7 = 10.68c (net)

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

10.68/(1-0.28) = 14.83c

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:

14.83/ 0.075 = $1.98

Turners closed on the market on Friday at $3.48. While everything continues to go well for Turners, I am not seriously suggesting the shares are only worth $1.98. The 'capitalized dividend valuation method' assumes no growth over the business cycle. And even if that assumption were true, the actual fair value of Turners would likely fluctuate around a $1.98 mean value, maybe up to around $2.40 when times looked good. Yet that high price still leaves us over a dollar behind the market price. One way to interpret that difference is to say that Turners currently carry a 'growth premium' of around $1. It is up to each TRA investor to decide if paying that $1 'growth premium' is justified.

The 27th July 2017 presentation to 'potential Australian investors' was an interesting development. Right at the end Turners quote the broker guidance for FY2018 earnings ranges from Net Profit Before Tax of $29M (Deutsche) to $32M (Credit Suisse).

Over FY2017 Turners Automotive Group made a NPAT of $17.674m. Annualizing that profit for the businesses acquired during the year (my post 1479) brings that figure to:

$17.674m + $1.026m + $5.440m = $24.140m

Assuming a tax rate of 28%, this equates to a comparative base for NPBT of: $24.140/0.72 = $33.528m for FY2017.

Can that be correct? At least two brokers are forecasting that underlying TRA profits will fall for FY2018? If you believe those brokers, that TRA share price of $3.48 at close on Friday is looking very hard to justify!

SNOOPY

[percy]

With a little help from www.4-traders.com
Forecast NPBT of $29mil to $32mil works out eps of either 29.25.cps or 31,4 cents cps.
On current [from 4-traders] eps of 25.1 cps we can look forward to eps growth of either 16.33% or 25%.
Makes the current PE of 13.86 look rather modest.
Other than SUM and THL, I can not think of another NZ share where the PE ratio is lower than the company's growth rate.
Strong buy.

[Beagle]

With a little help from www.4-traders.com
Forecast NPBT of $29mil to $32mil works out eps of either 29.25.cps or 31,4 cents cps.
On current [from 4-traders] eps of 25.1 cps we can look forward to eps growth of either 16.33% or 25%.
Makes the current PE of 13.86 look rather modest.
Other than THL, I can not think of another NZ share where the PE ratio is lower than the company's growth rate.
Strong buy.

See post #5446 in the SUM thread. Best BUY on the NZX at present by a considerable margin in my opinion and a proven performer.

[percy]

See post #5446 in the SUM thread. Best BUY on the NZX at present by a considerable margin in my opinion and a proven performer.

Post remedied.!!!.lol,and thanks for reminding me.

[McGinty]

With a little help from www.4-traders.com (http://www.4-traders.com)
Forecast NPBT of $29mil to $32mil works out eps of either 29.25.cps or 31,4 cents cps.
On current [from 4-traders] eps of 25.1 cps we can look forward to eps growth of either 16.33% or 25%.
Makes the current PE of 13.86 look rather modest.
Other than SUM and THL, I can not think of another NZ share where the PE ratio is lower than the company's growth rate.
Strong buy.


Yes agree completely.

Within the next week or two we should get an announcement with the next dividend and AGM date. It would be nice if they threw out a nice update on how things are ticking along as well :-)

Considering making this one a conviction stock

[percy]

Yes agree completely.

Within the next week or two we should get an announcement with the next dividend and AGM date. It would be nice if they threw out a nice update on how things are ticking along as well :-)

Considering making this one a conviction stock
Whatcha mean its not already on your conviction list.????????????????????????!!!!!!!!!!!!!!!!!!!!! !!!!

ps.Sales may have slowed down a bit due to the election.

[McGinty]

Whatcha mean its not already on your conviction list.????????????????????????!!!!!!!!!!!!!!!!!!!!! !!!!

ps.Sales may have slowed down a bit due to the election.


It's still my largest NZ holding at the moment, but as yet I haven't moved it to 'back the truck up' mode. Still unsure how much Hugh Green sell down overhead is floating around.

Usually I follow the TA + FA signals, but unlike THL which is in a great looking up trend. TRA's chart resembles a 3 day old party balloon forgotten in a corner of a room. :-)

[LAC]

It's still my largest NZ holding at the moment, but as yet I haven't moved it to 'back the truck up' mode. Still unsure how much Hugh Green sell down overhead is floating around.

Usually I follow the TA + FA signals, but unlike THL which is in a great looking up trend. TRA's chart resembles a 3 day old party balloon forgotten in a corner of a room. :-)

Totally agree, it seems to be the forgotten one, I have been slowly accumulating. Wish I could have gotten them at the prices Craigs clients got them for but oh well I am still happy to get them at current prices.

[Snoopy]

The 27th July 2017 presentation to 'potential Australian investors' was an interesting development. Right at the end Turners quote the broker guidance for FY2018 earnings ranges from Net Profit Before Tax of $29M (Deutsche) to $32M (Credit Suisse).

Over FY2017 Turners Automotive Group made a NPAT of $17.674m. Annualizing that profit for the businesses acquired during the year (my post 1479) brings that figure to:

$17.674m + $1.026m + $5.440m = $24.140m

Assuming a tax rate of 28%, this equates to a comparative base for NPBT of: $24.140/0.72 = $33.528m for FY2017.

Can that be correct? At least two brokers are forecasting that underlying TRA profits will fall for FY2018? If you believe those brokers, that TRA share price of $3.48 at close on Friday is looking very hard to justify!



With a little help from www.4-traders.com
Forecast NPBT of $29mil to $32mil works out eps of either 29.25.cps or 31.4 cents cps.


Assuming a company tax rate of 28% (and remembering that the Australian debt collection business, if it makes a profit at all will pay tax at 30%), we can change the NPBT predictions into 'eps' figures as follows:

$29m x (1-0.28) /74.524m = 28.0cps

$32m x (1-0.28) /74.524m = 30.9cps



On current [from 4-traders] eps of 25.1 cps we can look forward to eps growth of either 16.33% or 25%.


Current year was:

$17.849m/ 74.524m = 24.0cps

That figure is based on the number of shares at the end of the financial year, whereas I suspect that 4-traders may be using a weighted average number of shares over the year. That would produce a higher 'eps' figure. Using my end of year share figures, I get a projected eps growth of between 16.7% and 28.8%. That is comparable to the 4-traders figures (actually a little higher). However, all of this 'growth' can be explained by the fact that Turners did not own either 'Buy Right' cars or 'Autosure' for the full year.

If we assume that Turners did own both 'Buy Right' cars and 'Autosure' for the full year, then FY2017 eps would have been.

$24.140m/ 74.524m = 32.3cps

I submit that this 'growth' that 4-traders is predicting is not real growth at all. The only reason why it looks like growth is because of the timing of last years financial acquisitions. Looking at a constant 12 month ownership period shows that expected profits for FY2018 are below the equivalent FY2017 period. IOW Turners is shrinking, not growing.

I would expect Turners to be growing due to rationalization of brands and back office facilities and more cross selling. Yet this is not being predicted by 4-traders. Perhaps the Auckland market property trends are now weighing on Turners? Do analysts predict a slow down in car sales, now that waiting in an Auckland traffic jam for your house price top go up is no longer a wealth creation strategy?



Makes the current PE of 13.86 look rather modest.


For a company that is not growing, a PE of 13.36 is too high. A PE of 10 would be more appropriate. If we take the most optimistic 4-traders projection, 30.9cps, this points to a fair value share price of $3.09 at best. At worst $2.80 looks fair. Suddenly last Friday's market close of $3.48 is looking rather expensive.

SNOOPY

[percy]

However we work the eps figure, the fact is shareholders can look forward to excellent eps growth, which will enable TRA to keep increasing their footprint and dividends.

[Snoopy]

I have been looking some more into the 'interest income' received by Turners, because I want to re-evaluate my interest margin calculations for the Turners Finance division.

The following information is from the 'Segmental Information' in the respective annual reports.



Divisional Interest Revenue201720162015 (from AR2016)2015 (from AR2015)


Automotive Retail$7.590m$7.261m$2.781m$0.101m


Finance$22.907m$21.182m$16.661m$19.341m


Collection Services NZ$0.013m$0.006m$0.006m$0.006m


Collection Services Aus$0.0m$0.0m$0.0m$0.0m


Insurance$0.875m$0.822m$0.718m$0.718m


Corporate & Other$0.418m$0.448m$0.883m$0.883m



Readers can see that the FY2015 results were re-stated. Suddenly a lot more interest revenue was apportioned to the Automotive Retail division. This equivalent figure grew significantly in FY2016 and FY2017 as well. It is difficult to calculate a representative 'interest margin' when the 'interest revenue' figure gets moved around like this. Anyone have a view as to why management have pushed so much of their interest income across into the Automotive division?

SNOOPY

[Snoopy]

I have been looking some more into the 'interest income' received by Turners, because I want to re-evaluate my interest margin calculations for the Turners Finance division.

The following information is from the 'Segmental Information' in the respective annual reports.



Divisional Interest Revenue201720162015 (from AR2016)2015 (from AR2015)


Automotive Retail$7.590m$7.261m$2.781m$0.101m


Finance$22.907m$21.182m$16.661m$19.341m


Collection Services NZ$0.013m$0.006m$0.006m$0.006m


Collection Services Aus$0.0m$0.0m$0.0m$0.0m


Insurance$0.875m$0.822m$0.718m$0.718m


Corporate & Other$0.418m$0.448m$0.883m$0.883m



Readers can see that the FY2015 results were re-stated. Suddenly a lot more interest revenue was apportioned to the Automotive Retail division. This equivalent figure grew significantly in FY2016 and FY2017. It is difficult to calculate a representative 'interest margin' when the income figure gets moved around like this. Anyone have a view as to why management have pushed so much of their interest income into the Automotive division?


I have done a bit more sleuthing. If I look on p46 of AR2015, the following segment descriptions appear:

1/ Automotive Retailing (formerly Auctions & Fleet): Purchasing motor vehicles and commercial goods for resale. Remarketing motor vehicles, trucks, heavy machinery and commercial goods.

2/ Finance: Provides asset based secured finance to consumers and SMEs.

Contrast these to the equivalent segment descriptions found in AR2016 p40:

1/ Automotive Retailing (formerly Auctions & Fleet): remarketing (motor vehicles, trucks, heavy machinery and commercial goods) and purchasing goods for sale (motor vehicles and commercial goods) and related asset based finance to consumers.

2/ Finance: Provides asset based secured finance to consumers and SMEs.

The big change here is that 'asset based finance' can now be put into the 'automotive retailing' box or the 'finance' box. There appears to be no distinction, unless there is significance to that word 'secured'. If the word 'secured' is significant, then the Automotive Retailing arm could finance cars without any security, which seems unlikely. At the very least, if you were loaning funds on a car, you would expect to secure that loan against the residual asset value of the purchased car.

On p30 in AR2016 there is some useful information on defining 'interest income'.

"The effective interest method calculates the amortised cost of a financial asset or financial liability and allocates the interest income or interest expense over the relevant period. The calculation includes all fees paid or received and directly related transaction costs that are an integral part of the effective interest rate. The interest income or expense is allocated over the life of the instrument and is measured for inclusion in profit or loss by applying the effective interest rate to the instruments amortised cost."

It could be that Turners retrospectively decided that the Finance division should pay a 'loan finders fee' to the Automotive Retailing division for FY2015. Whatever fee was retrospectively allocated looking back on FY2015, looks to have gone up substantially (from 14% of the loan revenue in FY2015 to 26% of loan revenue for FY2016) in subsequent years. It could be that if the typical loan term was four years, then the Automotive Retailing segment pinched the equivalent of all the interest income for the first year. If that is the explanation, I think this severely distorts the groups declared finance earnings. To get a true 'finance' picture, it looks like I will have to add the 'Automotive interest revenue' to the 'Finance' interest revenue'.

None of this makes any difference to the overall TRA result, because the exercise I have described is just taking profits out of one segment and giving it to another. But when you are looking at how profitable the finance segment is, it is very disappointing to see such a large chunk of interest revenue shuffled off to another division. It means you can no longer take the finance division revenues at face value.

SNOOPY

[Snoopy]

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

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

g^2= 1.87 => g=1.37

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

Principal assumptions are as follows:

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

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


I posted the above two years ago.

What actually happened:

FY2016: EBITDA = EBT + I + DA = $21.551m + $11.436m + $2.144m = $35.131m

FY2017: EBITDA = $24.631m + $11.350m + $2.863m = $38.844m

SNOOPY

[sb9]

Hmm...beginning get bit itchy on this one, looks like downward trend is in tact slowly and steadily...

[percy]

The agm is not far away.It is on the 20th September.
I am expecting a further very positive outlook update.
Then we will have a better idea whether they will be looking for eps growth of more or less than the 25% I am looking for.

[sb9]

The agm is not far away.It is on the 20th September.
I am expecting a further very positive outlook update.
Then we will have a better idea whether they will be looking for eps of more or less than the 25% I am looking for.

Thanks percy, that's the target date I've in mind too for any further decision on my holding...

[Snoopy]

It could be that Turners retrospectively decided that the Finance division should pay a 'loan finders fee' to the Automotive Retailing division for FY2015. Whatever fee was retrospectively allocated looking back on FY2015, looks to have gone up substantially (from 14% of the loan revenue in FY2015 to 26% of loan revenue for FY2016) in subsequent years. It could be that if the typical loan term was four years, then the Automotive Retailing segment pinched the equivalent of all the interest income for the first year. If that is the explanation, I think this severely distorts the groups declared finance earnings. To get a true 'finance' picture, it looks like I will have to add the 'Automotive interest revenue' to the 'Finance' interest revenue'.

None of this makes any difference to the overall TRA result, because the exercise I have described is just taking profits out of one segment and giving it to another. But when you are looking at how profitable the finance segment is, it is very disappointing to see such a large chunk of interest revenue shuffled off to another division. It means you can no longer take the finance division revenues at face value.


I have been doing some number crunching to try and see what the 'net interest margin' would be if Turners treated their finance company segment profits like other finance companies. In this instance the finance segment does not include the insurance or EC Credit businesses.

I have taken out what I see as 'cross subsidy' to the Automotive Retailing segment, and put that back into the finance segment where I think it belongs. It is not unusual for a finance company to pay a commission to acquire new business. IIRC Heartland had an agreement like this with PGG Wrightson, when Heartland bought out the 'PGG Wrightson Finance' unit. I would be happy to see the Automotive Retailing segment be paid an internal 'loan finders fee'. But a 26% odd 'loan finders fee' over the life of a finance loan seems very high to me. I would go so far as to say it is 'misleadingly distortionary'. This is why I am taking the 'interest revenue' out of the Automotive Retail business segment, and putting it back into the finance segment.



Interest Revenue (Finance Declared) {A}Interest Revenue (Auto Retail Declared) {B}Interest Revenue (Corporate Overhead Adjustment) {C}Total Interest Revenue {A}+{B}+{C} ({F})Total Interest Expense {H}Receivables SOFY {D}Receivables EOFY {E}Receivables (averaged) {{D}+{E}}/2 ({G})Net Interest Margin ({F}-{H})/{G}


FY2015$19.512m$2.781m$1.985m$24.278m0.4895 x $7.381m$37.726m + $49.953m (*1)$142.827m$129.040m16.0%


FY2016$24.417m$7.261m$0.115m$31.793m0.5123 x $11.436m$142.827m$167.598m$155.213m16.7%


FY2017$26.818m$7.590m$0.063m$34.471m0.4122 x $11.350m$167.598m$207.143m$187.371m15.9%



(*1) For FY2015 I have added on the financial receivables of Oxford Finance acquired on 1st April 2014 (the first day of FY2015).

There are those on this forum who salivate on how the likes of how the finance company 'Heartland Bank' can operate on a net interest margin of 4.5%. But my calculations indicate 'Turners Finance' operates on an underlying net interest margin of over three times that figure.

SNOOPY

[Snoopy]

I would be happy to see the Automotive Retailing segment be paid an internal 'loan finders fee'. But a 26% odd 'loan finders fee' over the life of a finance loan seems very high to me. I would go so far as to say it is 'misleadingly distortionary'. This is why I am taking the 'interest revenue' out of the Automotive Retail business segment, and putting it back into the finance segment.


A company that operates across disparate divisions can sometimes be better understood by seeing what happens when those divisions are separated out into virtual stand alone companies.



FY2017 (as presented)Automotive RetailCollections NZCollections AusFinanceInsuranceCorporate & OtherTotalAs Declared (Check)


EBT (as reported)$15.397m$6.006m$0.239m$10.156m$0.928m($8. 095m)$24.631m


EBT (corp costs apportioned)$9.266m$5.590m($0.071m)$9.306m$0.540m$ 24.631m


Tax @ 28%($2.595m)($1.565)m$0m($2.606m)($0.151m)($6.917m )($7.057m)


NPAT$6.671m$4.025m($0.071m)$6.700m$0.389m$17.714m$ 17.609m



Note: Corporate costs have been apportioned according to divisional revenues.

That looks quite nicely balanced, particularly when you consider the new 'Autosure' acquisition will substantially boost insurance earnings in the coming year. But as an exercise, let's make the segment change to the finance market business, by transferring the interest revenue from Automotive Retail back to finance. This is representative of what Turners themselves did as recently as FY2015.



FY2017 (Snoopy adjusted)Automotive RetailCollections NZCollections AusFinanceInsuranceCorporate & OtherTotalAs Declared (Check)


EBT (as reported)$15.397m$6.006m$0.239m$10.156m$0.918m($8. 095m)$24.631m


EBT (interest revenue adjusted)$11.936m$6.006m$0.239m$13.617m$0.928m($8. 095m)$24.631m


EBT (corp costs apportioned)$6.046m$5.590m($0.071m)$12.527m$0.540m $24.631m


Tax @ 28%($1.693m)($1.565)m$0m($3.508m)($0.151m)($6.917m )($7.057m)


NPAT$4.358m$4.025m($0.071m)$9.019m$0.389m$17.769m$ 17.609m



Suddenly the picture looks less balanced, with finance making up over 50% of the group's profits. It also highlights the contribution of the NZ Debt collection business, which in reality contributes almost as much to the bottom line as the much higher profile 'Automotive Retail' segment. Once corporate overheads are tacked onto the Australian debt collection unit we can see it is not profitable, an observation I find surprising. I do hope that Turners management know what they are doing over there.

I wonder how vulnerable the business is to the Auckland property slowdown? Will the Auckland car market, that Turners have so heavily leveraged themselves into with the 'Buy Right' cars acquisition hold up? Remember that profits can fall in Automotive retail by $1.026m and yet still remain flat on the books, because 'Buy Right' cars was not owned by Turners for all of FY2017.

SNOOPY

[Snoopy]

But as an exercise, let's make the segment change to the finance market business, by transferring the interest revenue from Automotive Retail back to finance. This is representative of what Turners themselves did as recently as FY2015.


Just in case I suddenly disappear under a bus and my posts become incomprehensible, this is the record of how I have handled this 'tricky situation.' It involves looking at the earnings and revenue from 'Automotive Retail', as declared in the FY2015 and FY2016 (referencing FY2015) annual reports for the same 'Automotive Retail' division.



Automotive Retail FY2015from AR2016 {A}from AR2015 {B}Difference {A}-{B}


EBT FY2015$3.145m$1.877m$1.268m


Interest Revenue from Automotive Retail FY2015$2.781m$0.101m$2.680m



=> ratio of incremental EBT to incremental 'Interest Revenue' = $1.268m / $2.680m = 0.4731

OR

=> ratio of incremental 'Net Profit' to incremental 'Interest Revenue' = (0.72 x $1.268m) / $2.680m = 0.3406

I then use this same ratio to extract a profit from the extra revenue in subsequent years. If you think that sounds like a dubious extrapolation to make for those subsequent years, then you are probably right. However, with no disclosure of the actual profit from financing put into automotive retail in FY2016 and FY2017, this is the 'best guess' effort that I can calculate.

SNOOPY

P.S. Sometimes an analyst can be carried away with the numbers, chanting the mantra that more complicated is always better. In this instance I have to ask the question, what is the meaning of the $101k of 'base interest revenue' assigned to the Automotive Retail division in FY2015? I don't believe it has any particular importance or significance, and it may very well change from year to year in a way that is not predictable. I therefore intend to ignore this figure as a separate entity and 'roll it up' into the one interest revenue total of $2.781m.

=> ratio of incremental EBT to incremental 'Interest Revenue' = $1.268m / $2.781m = 0.4560

I have used this ratio to make an estimate of the incremental EBT generated by these Interest Revenue cashflows in subsequent years:

FY2016: 0.4560 x $7.261m = $3.311m
FY2017: 0.4560 x $7.590m = $3.461m

I have added the incremental EBT earnings and revenues to the 'finance segment' and removed them from the 'automotive retail segment'. That creates a zero sum result on the overall revenues and earnings.

[LAC]

Snoopy,

What are you expecting EPS to be for FY18?

[Snoopy]

Current year was:

$17.849m/ 74.524m = 24.0cps

That figure is based on the number of shares at the end of the financial year, whereas I suspect that 4-traders may be using a weighted average number of shares over the year. That would produce a higher 'eps' figure. Using my end of year share figures, I get a projected eps growth of between 16.7% and 28.8%. That is comparable to the 4-traders figures (actually a little higher). However, all of this 'growth' can be explained by the fact that Turners did not own either 'Buy Right' cars or 'Autosure' for the full year.

If we assume that Turners did own both 'Buy Right' cars and 'Autosure' for the full year, then FY2017 eps would have been.

$24.140m/ 74.524m = 32.3cps







Any rationalization of brands and back office facilities and more cross selling, plus a recovery of the insurance business should see an 'eps' even greater than this. However, I am assuming a continuation of the current buoyant market for second hand vehicles. A slowing of the housing market could affect eps negatively.



What are you expecting EPS to be for FY18?


Answered in my quoted post above.
Calculation of profit for "Buy Right' cars and 'Autosure' for the full year FY2017" is my projection for FY2018 (32.3cps). And that figure is higher than any of the analysts on 4-Traders pick.

Calculation of the incremental profit gain shown in my post 1479.

The real question though is what happens in FY2019? There is no doubt that Turners has performed well. But with everything delivering above expectations today, what will happen if the Automotive market slows to 'normal'? We shareholders get a triple hit of:

1/ lower auto sales and
2/ lower associated finance sales and
3/ lower insurance sales.

In those circumstances, how can a PE of 14 looking out into the FY2019 year be justified?

SNOOPY

[LAC]

But that is the risk in this type of business right. There might not be a slowdown and we will get another booming FY19 which we can then say the current PE is looking good. I still think looking at the future TRA is looking good for further EPS growth. Lets see what they say at the meeting in a few weeks time.
If they start to diversify outside of Automotive for the next few years, is there anything else that you would consider that would not justify a PE of 14?

[Snoopy]

But that is the risk in this type of business right? There might not be a slowdown and we will get another booming FY19 which we can then say the current PE is looking good.


The car market will go up and down. When it is up, I would expect a lower PE because of the expectation of a medium term slow down. When it is down I would expect a higher PE in anticipation of a medium term recovery.

I am aware that the market under the 'Turners' banner is now muddled as it contains more commercial vehicles. The commercial vehicle market and private vehicle market do not always operate in tandem. I am also aware that Turners operate in the used vehicle not the new vehicle market. 'Turners Auctions' in the old sense you might expect to lag the new vehicle market, because new vehicles are the upstream feeder of the second hand market. I am not quite sure how the 'Buy Right Cars' acquisition in particular or selling more second hand cars direct to the public in general affects this picture. I would guess that in a downturn, people who buy a new car might just hang onto it a bit longer rather than 'trade down' to a new 'second hand' vehicle.

The second hand vehicle fleet in NZ is old, but that is no guarantee that there will be pressure to lower that average vehicle fleet age. A fifteen year old Japanese car may have only done 150,00km. With careful servicing an owner might expect to eke out 300,00km from such a vehicle. Try that in your Ford Cortina or Morris Minor from a bygone era.



I still think looking at the future TRA is looking good for further EPS growth. Lets see what they say at the meeting in a few weeks time.


I agree. There is no need to panic.



If they start to diversify outside of Automotive for the next few years, is there anything else that you would consider that would not justify a PE of 14?


They are already diversified outside of Automobiles with the EC Credit Control collections business! Ok, I suppose they might give the job of chasing up recalcitrant car loan payers to EC Credit. But EC Credit, if anything should be negatively correlated to 'Automotive Retail' ( IOW when Automotive Retail and the associated finance does badly, then EC Credit should do well). I like business arms with a negative correlation to the primary business, because this should help smooth profits over market cycles.

I don't have a problem with Turners getting even deeper into Automotive Retail and all the associated finance and insurance though, as a matter of principle. But this brings in a greater cyclical business risk. And that should mean a more conservative balance sheet. I am not seeing much conservatism on the balance sheet of Turners at the moment.

SNOOPY

[Snoopy]

I don't have a problem with Turners getting even deeper into Automotive Retail and all the associated finance and insurance though, as a matter of principle. But this brings in a greater cyclical business risk. And that should mean a more conservative balance sheet. I am not seeing much conservatism on the balance sheet of Turners at the moment.


To expand on this, my standard debt measure is something called MDRT or 'Minimum Debt Repayment Time'. This is a figure in years which is the answer to the question:

"If all normalised profits for the year were channelled into repaying 'net company borrowing debt', how many years would that take?"

For FY2016 the answer was as follows:

MDRT Turners Limited FY2016

[(Parent Bank Borrowings) + (MTA Borrowings) + (TNRHB bonds)) - (Cash)] / [(Net Profit) + (Impairment Adjustment)]
= [($109.327m+ $42.300m + $23.189m) - $13.810m] / [ $15.573n + 0.72($1.041m) ] = 9.8 years

At EOFY2017, this figure has somewhat blown out.

MDRT Turners Limited FY2017

[(Parent Bank Borrowings) + (MTA Borrowings) + (TNRHB bonds)) - (Cash)] / [(Net Profit) + (Impairment Adjustment)]
= [($191.565m+ $49.021m + $25.561m) - $69.069m] / [ $16.261 ] = 12.1 years

I don't usually like putting 'fudge factors' into these calculations. But in this instance, with the purchase of 'Autosure' right at the end of the financial year, and no earnings contribution received, I will 'fiddle the result' so you can see what difference it makes.

If we look at 'annualised earnings', including a full year contribution from 'Buy Right cars' and 'Autosure' (my post 1479), then we can argue NPAT should be:

$16.261 + $1.03m +$5.44m = $22.731m

[($191.565m+ $49.021m + $25.561m) - $69.069m] / [ $22.731m ] = 8.7 years

So maybe the debt repayment picture isn't so bad? Even so, I wouldn't call 8.7 years a low figure. The TRA balance sheet is, IMO, being worked pretty hard.

SNOOPY

[Snoopy]

My voting form for directors piqued my interest in the composition of the TRA board. Three directors represent significant shareholdings.

Paul Byrnes: owns 4.44% of the company.
Grant Baker: represents 'Business bakery' that owns 16.34% of the company.
Alister Petrie: represents Bartel Holdings, owning 9.05% of the company.

Next we have

Matthew Harrison: former MD of EC Credit Control, now a Turners subsidiary.
John Roberts: former Veda Advantage (debt collector) senior executive.
Antony Vriens: former DPL Insurance executive, now a Turners subsidiary.

I don't question the competence of any of these board members. They all look like fine appointments considered on their own. But it does strike me as extraordinary that there are no independent directors with historic expertise in either the automotive retail industry or the finance industry. I don't begrudge significant shareholders a voice on the board to push their own barrow. But I do worry that there seems to be no-one independent on the board with automotive/finance experience to question whether that barrow is really being pushed in the right direction. It looks like a board of yes men to me. I hope I am wrong.

SNOOPY

[JeremyALD]

What's going on. 3.36 now.

[sb9]

What's going on. 3.36 now.

Back to 3.45 now....someone must've had their jitters about North Korea and tht the world was going to end today :p

[Beagle]

In those circumstances, how can a PE of 14 looking out into the FY2019 year be justified?

SNOOPY

Average EPS estimate off 4 traders for FY18 is 29.2 cps and for FY19 is 31.4 cps.
At $3.45 this morning that puts the stock on a prospective FY18 and FY19 PE of 11.8 and 11 respectively compared to a market average forward PE of close to 20.
I think much like HBL you have the wrong end of the stick with this one. Population growth will continue with immigration and when cars get to 15 years old they become like a nagging wife, there's usually one problem after another after another...people will keep changing cars, the world will keep turning and turners will probably continue to grow market share steadily.
The stock and the convertible bond look good value to me.
Disc: Convertible bond holder

[Snoopy]

Average EPS estimate off 4 traders for FY18 is 29.2 cps and for FY19 is 31.4 cps.
At $3.45 this morning that puts the stock on a prospective FY18 and FY19 PE of 11.8 and 11 respectively.


A PE 0f 11 to 11.8 still implies modest growth. But there isn't that much cash on the balance sheet to play with. And issuing new shares that are 'eps accretive' gets harder and harder the higher the current 'eps' goes. Modest organic growth of 5% or so could happen with high probability (say 70%). Then you might have hyper growth from a brilliant but as yet unannounced acquisition (chance say 10%). Or you could get a triple whammy automotive retail market slowdown due to falling property prices (chance say 20%).

I know that a beagle can only grab one end of the stick in his mouth at a time. But with a Y shaped branch there are three ends. Grabbing one end doesn't make the other two go away.



compared to a market average forward PE of close to 20.


Convincing yourself that buying a particular share is cheap because everything else is outrageously expensive doesn't wash with me. You can still overpay for a 'cheap' share.



I think much like HBL you have the wrong end of the stick with this one. Population growth will continue with immigration and when cars get to 15 years old they become like a nagging wife, there's usually one problem after another after another...people will keep changing cars, the world will keep turning and Turners will probably continue to grow market share steadily.
The stock and the convertible bond look good value to me.
Disc: Convertible bond holder


'probably continue to grow market share steadily.' A statement of faith in Turners management? I too am one of the Turners faithful, holding both the bonds and the shares. But just because I hold them doesn't prevent me seeing the other ends of the stick.

SNOOPY

[Beagle]

Well my misguided beagle friend its a simple case of you making things too complicated.
I am sure you will be familiar with this hounds modified Ben Garaham formula where I use a no growth PE of 10 for the current super low interest rate environment prevailing and then substitute 1G for Ben Graham's 2G, (because at my heart I hate paying too much for growth and love a bargain).
So how does G shape up ?
4traders lists the following result and expectations for the years ahead
2017 25.1c cps (actual)
2018 29.2 cps (forecast - forecast growth rate 16.3%)
2019 31.4 cps (forecast - forecast growth rate 7.5%)
2020 33.9 cps ( forecast - forecast growth rate 8%)

Average forecast growth rate 10.6%.
There is no two ended stick here my beagle friend, nor a Y shaped three ended stick just a juicy bone and seeing as you already own both the bonds and the shares its evident you already understand that its worth at least a PE of 11.8.

Actually using my own valuation formula it should be accorded a market average PE of 20. Management have to prove up these numbers and projected growth before I'd be looking to lock jaws on a bigger share of the bone but suffice to say I'm very comfortable with my significant sized but low risk stake with the convertible bonds.

You overthink things mate...just like you have with HBL which closed at an all time high today of $1.94.

[percy]

Used car sales usually follow new car sales,so the article in The Herald is of interest to us.
Headed "NZ new vehicle sales rise 3 per cent in August,heading for annual record".
MIA ceo David Crawford commented;"We have strong net immigration,competitve new vehicle prices,low cost finance and the NZ dollar is relatively strong,we expect these conditions remaining for a while."
TRA shareholders are "well positioned."

[Snoopy]

Well my misguided beagle friend its a simple case of you making things too complicated.
I am sure you will be familiar with this hounds modified Ben Graham formula where I use a no growth PE of 10 for the current super low interest rate environment prevailing and then substitute 1G for Ben Graham's 2G, (because at my heart I hate paying too much for growth and love a bargain).
So how does G shape up ?
4traders lists the following result and expectations for the years ahead
2017 25.1c cps (actual)
2018 29.2 cps (forecast - forecast growth rate 16.3%)
2019 31.4 cps (forecast - forecast growth rate 7.5%)
2020 33.9 cps ( forecast - forecast growth rate 8%)

Average forecast growth rate 10.6%.


Those forecast growth rates are cumulative.

So after three years you can expect a cumulative growth rate of:

1.163 x 1.075 x 1.08 = 1.35

The average growth rate for this period, let's call it 'g' satisfies the equation:

g x g x g =1.35 <=> g^3=1.35 <=> g=1.35^(1/3) => g =10.5%

The Ben Graham formula for stock valuation as originally advocated in 'Security Analysis' was:

V = eps x (8.5+2g) = 25.1 x (8.5 + 0.21) = $2.19

So I take it the 'Beagle' modified version is

V = eps x (10+g) = 25.1 x (10 + 0.105) = $2.54

Still somewhat short of where the share price is today. What am I missing?



There is no two ended stick here my beagle friend, nor a Y shaped three ended stick just a juicy bone and seeing as you already own both the bonds and the shares its evident you already understand that its worth at least a PE of 11.8.


Actually I have never bought 'Turners Automotive Group' shares or bonds. I acquired both of them through the TUA takeover. In the process an extremely conservatively financed car auction and retail business has transformed into the highly leveraged finance group you see today. Some people who came on to the share register by the same route I did may feel comforted by the latest name change to 'Turners Automotive Group', thinking the company has gone back to its roots. But they'd be wrong.



Actually using my own valuation formula it should be accorded a market average PE of 20. Management have to prove up these numbers and projected growth before I'd be looking to lock jaws on a bigger share of the bone but suffice to say I'm very comfortable with my significant sized but low risk stake with the convertible bonds.

You overthink things mate...

In the name of Ben Graham going from a PE of 8.5 to 10 and now 20? You are now valuing the share TRA by self created PE inflation?

SNOOPY

[Beagle]

g in those formula's Snoopy is expressed as a whole number not a decimal point. i.e. 10.5
To be fair Ben Graham asked what is the sustainable 7-10 year growth rate when estimating g. This is almost impossible to predict with stocks other than those that have very long track records of steady growth like RYM.
See below.

[Beagle]

Those forecast growth rates are cumulative.

So after three years you can expect a cumulative growth rate of:

1.163 x 1.075 x 1.08 = 1.35

The average growth rate for this period, let's call it 'g' satisfies the equation:

g x g x g =1.35 <=> g^3=1.35 <=> g=1.35^(1/3) => g =10.5%

The Ben Graham formula for stock valuation as originally advocated in 'Security Analysis' was:

V = eps x (8.5+2g) = 25.1 x (8.5 + 21) = $7.40

So I take it the 'Beagle' modified version is

V = eps x (10+g) = 25.1 x (10 + 10.5) = $5.15

Still somewhat short of where the share price is today. What am I missing?



Actually I have never bought 'Turners Automotive Group' shares or bonds. I acquired both of them through the TUA takeover. In the process an extremely conservatively financed car auction and retail business has transformed into the highly leveraged finance group you see today. Some people who came on to the share register by the same route I did may feel comforted by the latest name change to 'Turners Automotive Group', thinking the company has gone back to its roots. But they'd be wrong.



In the name of Ben Graham going from a PE of 8.5 to 10 and now 20? You are now valuing the share TRA by self created PE inflation?

SNOOPY
Amended theoretical valuations, corrected as above assuming they can maintain 10.5% growth over the long run which is not necessarily a safe assumption.
I do feel however that the current PE is inconsistent with their growth rate but the market sees this differently so it would appear I am missing something.....
Not adding to this one until they can prove their eps growth.

[Snoopy]

g=10.5%

The Ben Graham formula for stock valuation as originally advocated in 'Security Analysis' was:

V = eps x (8.5+2g) = 25.1 x (8.5 + 0.21) = $2.19

So I take it the 'Beagle' modified version is

V = eps x (10+g) = 25.1 x (10 + 0.105) = $2.54

Still somewhat short of where the share price is today. What am I missing?




g in those formula's Snoopy is expressed as a whole number not a decimal point. i.e. 10.5


Happy to rerun the numbers on that basis:

g=10.5%

The Ben Graham formula for stock valuation as originally advocated in 'Security Analysis' was:

V = eps x (8.5+2g) = 25.1 x (8.5 + 2x10.5) = $7.40

So I take it the 'Beagle' modified version is

V = eps x (10+g) = 25.1 x (10 + 10.5) = $5.15

I guess such valuations might be possible with a 10.5% growth rate sustained for 7-10 years. But it would be a brave person to predict that kind of growth going forwards. I would call those valuations brain flushes from a super optimist.

SNOOPY

[winner69]

A PE of 20 for TRA is ridiculous


Methinks 12/13 is about fair, maybe that is even a bit high

[Beagle]

To be clear - I think you'd be a brave man to predict 10%+ growth over the next 7-10 years for any company on the NZX with SUM exceptions.
Fact - SP has been in steady decline in recent months as has the bond price.
The market is telling us the vehicle industry has peaked and we're headed down. I hope this isn't right as I have HBL and CMO shares both of which are also heavily dependent on a healthy vehicle market. Won't surprise me if the word "flat" or steady is used at some stage soon by Turners.

[percy]

A PE of 20 for TRA is ridiculous


Methinks 12/13 is about fair, maybe that is even a bit high

I rate TRA higher than the following,and they are my second largest holding after HBL..
AWF pe 18.07....EBO pe 19.88.....FRE pe 19.69....MFT pe 24.21.
Therefore yes a PE of 20 is possible,and may be is not rediculous after all,and they deserve to trade on a PE of twice MPG's pe 10.52....lol...

[percy]

Used car sales usually follow new car sales,so the article in The Herald is of interest to us.
Headed "NZ new vehicle sales rise 3 per cent in August,heading for annual record".
MIA ceo David Crawford commented;"We have strong net immigration,competitve new vehicle prices,low cost finance and the NZ dollar is relatively strong,we expect these conditions remaining for a while."
TRA shareholders are "well positioned."

I think David Crawford's comments are worth a second read.

[Snoopy]

I do feel however that the current PE is inconsistent with their growth rate but the market sees this differently so it would appear I am missing something.....
Not adding to this one until they can prove their eps growth.


Mr B, I draw your attention to note 20 in AR2017. There you will find assumptions used to test the value of the goodwill on the books, and the modelled future growth rates. The goodwill on the books from the old 'Turners Auctions','Buy Right Cars' and the 'Autosure' acquisition are all based on the following growth rates:



Growth ForecastsYear2Year3Year 4-5Terminal Rate


Turners Group, Buy Right Cars, Autosure10%7.5%5%2%



If we take the 29.2c forecast for FY2018 and consider that represents a growth rate of 16% over the 25.1c from FY2017, then we can work out a ten year growth picture.

1.16 x 1.1 x 1.075 x 1.05 x 1.05 x 1.02 x 1.02 x 1.02 x1.02 x1.02 = 1.67

The geometric average annual growth rate to achieve that 67% of growth over ten years is:

g^10 = 1.67 <=> g = 1.67^(1/10) = 5.26%

Using the Ben Graham formula for stock valuation as originally advocated in 'Security Analysis':

V = eps x (8.5+2g) = 25.1 x (8.5 + 2x5.26) = $4.77

Using the 'Beagle' modified version we get

V = eps x (10+g) = 25.1 x (10 + 5.26) = $3.83

$3.83 based on forecast earnings of 29.2c gives a forward PE of: 383/29.2 = 13

That is pretty close to the sort of PE figure that Winner was bandying about. Perhaps the thing that the other beagle was 'missing' was nothing more than a more conservative growth rate?

SNOOPY

[Beagle]

Thanks mate. All the brokers do that terminal growth estimate with their DCF models because they have no show of accurately predicting the long term growth rate. Whichever way you slice and dice it a forward PE of 11.8 looks good value considering their current and projected growth rate. They need more runs on the board though. Once we have the election out of the way, some positive comments at the annual meeting and if things settle down a bit in Korea, all other things being equal we (at least theoretically) should see this starting to get traction.

[Snoopy]

Thanks mate. All the brokers do that terminal growth estimate with their DCF models because they have no show of accurately predicting the long term growth rate.


I remember buying into WHS quite a few years ago at about $4 after working out that with their expansion strategy in Australia they would be worth $8 per share about five years later. I was quite convinced of my growth figure modelling as I was using my expansion modelling based on experience of how the WHS had been rolling out all over NZ. What could possibly go wrong? The point here is that if you assume even a a modestly low growth rate in the low 10s ( i.e. not too outrageous) and roll it out over just a few years it is very easy to convince yourself that you have bought a 'bargain'.

Postscript to my WHS story is that I sold into the first stake building offer at $5 after about three years, so got away with a modest profit.



Whichever way you slice and dice it a forward PE of 11.8 looks good value considering their current and projected growth rate. They need more runs on the board though.


I think you have highlighted the issue. Talk is cheap, and Turners in its current incarnation is a very young company. Build 'runs on the board' and a re-rating will come.

SNOOPY

[percy]

It all comes down to businesses/people doing what they say they will do.
The proof of the pudding, will be there for us to make judgement, of whether we are correct or not, on our eps growth rate, on the 20th.
They will have had 5 and a half months trading,so will have a fair idea what the first 6 months will be like.
Watch for outlook comments.

[Snoopy]

It all comes down to businesses/people doing what they say they will do.


As much as company executives like to think they are in control of their business, there are always market factors outside of their control. So just because a CEO "does what he/she says he/she will do" does not automatically mean he/she is good. Likewise when a CEO fails their stated targets, that doesn't necessarily mean they are bad. A CEO can mitigate 'market hits' by having a contingency plan. Usually 'money in the bank' is a good contingency plan. But money in the bank can also be used for growth. The problem is money in the bank cannot be used both for growth and as a contingency at the same time. What we as shareholders should be looking at is a CEO with a plan that can change direction, should the market change direction.

Leveraging your financial strength will lead to faster growth. But it will also increase the chance of a fall should broad market forces turn against the sector in which the business operates. If you look at the 'bond covenants' that I have been discussing on the Turners Bonds thread, you will see that I have raised a red flag on leverage. Does this mean that TRA is in any trouble? No. But what if market conditions change and Turners Automotive Group become more stressed? This is a contingency a TRA share or bond investor must consider. Particularly so in a share that does not have the liquidity of a typical 'top 50' share (don't even talk about the liquidity of the bonds!).



The proof of the pudding, will be there for us to make judgement, of whether we are correct or not, on our eps growth rate, on the 20th.
They will have had 5 and a half months trading,so will have a fair idea what the first 6 months will be like.
Watch for outlook comments.

The current six months of trading (HY2018) I expect to be strong for profit growth. But you have to remember that these figures will include a six monthly contribution from Autosure (no contribution in the comparable half last year) and six months contribution from 'Buy Right' cars (three months contribution in the comparable half last year). So it won't be an 'apples with apples' comparison.

SNOOPY

[LAC]

I been slowly accumulating in these lows, will see how it plays out. I just see things looking good over the next 24 months and the current SP looks very good to me.

[percy]

I been slowly accumulating in these lows, will see how it plays out. I just see things looking good over the next 24 months and the current SP looks very good to me.

Agree, but think the next 10 years plus ,will be super rewarding for shareholders.
Growing eps will lead to growing dividends.

[JayRiggs]

Expecting an announcement on 1st quarter dividend any day now....

[Leftfield]

Mmmm interesting, trading halt and cap raise underway...

Turners Automotive Group Limited (NZX/ASX: TRA) ("Turners", the "Company") has announced a NZ$25 million equity raising through an underwritten placement of new ordinary shares in Turners (“Placement”). Turners has sought a trading halt from the NZX and ASX pending completion of the Placement.
The Placement has been fully underwritten at a fixed price of $3.02 per share.

[winner69]

Good positive move - obviously going to make heaps in next few years

Good bond holders can share in the cheap new ones







Snoops will need to redo his sums now.

[Beagle]

https://www.nzx.com/files/attachments/265725.pdf

Please review and comment. (Too busy on client work this morning to review).

[JeremyALD]

Forecast 29m to 31m for FY18.

[Snoopy]

If you look at the 'bond covenants' that I have been discussing on the Turners Bonds thread, you will see that I have raised a red flag on leverage.



https://www.nzx.com/files/attachments/265725.pdf

Please review and comment.

Last week, on this thread (and in more detail on the Turners bond thread), I raised the issue of Turners looking very stretched from a leverage point of view. Yet this message didn't resonate on this thread, with other shareholders focussed with relentless positivism that future growth will bring. New shares to be issued means that future 'eps' will decline, and the value of existing shares will be eroded. Those that piled in during the latest significant shareholder sell down at the 'bargain' (sic) price of $3.40 will be tending their subsequent market lashings. All I can say is, I tried to warn you. I have previously suggested that those holding the bonds over the shares might be end up being the smart ones. Below is a quote from me in June:


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?


Having said this my own shareholding in TRA is relatively modest, and I do hold a few bonds. I am right behind TRA strengthening their capital base and may look to increase my holding when the smoke from the capital raising clears. I won't be paying $3.40 a share though.

SNOOPY

[percy]

Huge growth means demands for further capital.
No surprises there.
Confirms TRA's business model is ontrack.

[sb9]

Forgive me if I'm wrong but if they hit 30m NPAT doesn't that mean they'll be on a PE of less than 10?

I am also wondering if people knew this capital raising was happening. The SP has dropped 20% from recent highs on no news

Certainly appears that way going by the recent trading pattern of continuous sell down...

[winner69]

Last week, on this thread (and in more detail on the Turners bond thread), I raised the issue of Turners looking very stretched from a leverage point of view. Yet this message didn't resonate on this thread, with other shareholders focussed with relentless positivism that future growth will bring. New shares to be issued means that future 'eps' will decline, and the value of existing shares will be eroded. Those that piled in during the latest significant shareholder sell down at the 'bargain' (sic) price of $3.40 will be tending their subsequent market lashings. All I can say is, I tried to warn you. I have previously suggested that those holding the bonds over the shares might be end up being the smart ones. Below is a quote from me in June:



Having said this my own shareholding in TRA is relatively modest, and I do hold a few bonds. I am right behind TRA strengthening their capital base and may look to increase my holding when the smoke from the capital raising clears. I won't be paying $3.40 a share though.

SNOOPYSurely at $3.02 though

[blackcap]

YTD revenue up 14% and profit up 13% on pcp is exceptional.

If you add the acquisitions revenue up 59% and profit up 31% on pcp.

Cannot complain, will apply for some more at 3.02.

[winner69]

Snoops has a point re eps

some 10 million new shares on top of the 74 million already out there is quite a lot

But when everything is calculated on weighted averages it will be all honky dory

and all this new liquidity along with the ASX listing will do wonders to the share price as well

No worries

[winner69]

Does the redemption price of $3.75 for the bonds get adjusted for the new shares?

[sb9]

YTD revenue up 14% and profit up 13% on pcp is exceptional.

If you add the acquisitions revenue up 59% and profit up 31% on pcp.

Cannot complain, will apply for some more at 3.02.

Yes, pretty solid growth numbers..will apply for full amount.

[percy]

Snoops has a point re eps

some 10 million new shares on top of the 74 million already out there is quite a lot

But when everything is calculated on weighted averages it will be all honky dory

and all this new liquidity along with the ASX listing will do wonders to the share price as well

No worries

Econmies of scale through supply chain and back offices amalgamation should lead to eps growth.
The $25mil of capital will support over $100mil of lending.

[JeremyALD]

Lots of questions by Greg from First Capital on this call!

Overall sounds fairly positive, but I must say I wasn't blown away by the update or presentation.

[winner69]

Lots of questions by Greg from First Capital on this call!

Overall sounds fairly positive, but I must say I wasn't blown away by the update or presentation.

Interesting

What prompted that statement

[Beagle]

Can someone please crunch the numbers on EPS for FY18 taking into account the new shares issued at the half way point of the year, i.e weighted average EPS this year and calculate this at the mid point of the forecast range and compare to last year's EPS to calculate EPS profit growth forecasted for FY18. Hound is too busy today to chew the fat but would like to know a quick real calculation of estimated EPS growth after last year's (from memory) pretty ordinary 4% ? EPS growth. Shame they had to discount the shares so heavily to get this issue away, suppose that's a product of the current uncertain environment, yesterday's Arivida discount was pretty heavy as well.
Yes Snoops, they are keen for more capital and I for one am pleased to only hold the bonds and not holding out much hope of a premium to the conversion price of $3.75 any more.

[JeremyALD]

Interesting

What prompted that statement

It sounds like they are keen for more M&A's which will require additional capital and they said they would likely come back to the market if another opportunity presented itself. They are looking to extend their banking facility with BNZ and are also going to search for another bank to compliment the relationship.

I didn't think they answered the questions that well, especially when the NBR asked why there wasn't a rights issue. I finding Todd a fairly unspiring speaker in general and all they did was read one by one off the slides.

It's a sound business with growth ahead, but it does seem that they've stretched themselves financially with so many aquisitions - albeit this is diversifying their revenue and creating an established model with good organic growth ahead.

I'll still be partcipating in the SPP - but the scale down is going to be huge, considering it's only 5 million.

[percy]

I much prefer rights issues.
SPPs I loath.

[Snow Leopard]

Can someone please crunch the numbers on EPS for FY18 taking into account the new shares issued at the half way point of the year, i.e weighted average EPS this year and calculate this at the mid point of the forecast range and compare to last year's EPS to calculate EPS profit growth forecasted for FY18. Hound is too busy today to chew the fat but would like to know a quick real calculation of estimated EPS growth after last year's (from memory) pretty ordinary 4% ? EPS growth. Shame they had to discount the shares so heavily to get this issue away, suppose that's a product of the current uncertain environment, yesterday's Arivida discount was pretty heavy as well.
Yes Snoops, they are keen for more capital and I for one am pleased to only hold the bonds and not holding out much hope of a premium to the conversion price of $3.75 any more.

Yeah, done that, send komodo crypto-coins and I will send result :p.

And for everybody else I get an EPS increase range of 2.9% to 10.0%.
Obviously there is a bit of a 'margin of error' on those figures.

Best Wishes
Paper Tiger

[Under Surveillance]

I much prefer rights issues.
SPPs I loath.
Same here.
I'm partial to a DRP.

[winner69]

Yeah, done that, send komodo crypto-coins and I will send result :p.

And for everybody else I get an EPS increase range of 2.9% to 10.0%.
Obviously there is a bit of a 'margin of error' on those figures.

Best Wishes
Paper Tiger

Just as well for weighted average number eh - wont be waited next year!

So current PE could be a lot higher than EPS growth?

[Beagle]

Yeah, done that, send komodo crypto-coins and I will send result :p.

And for everybody else I get an EPS increase range of 2.9% to 10.0%.
Obviously there is a bit of a 'margin of error' on those figures.

Best Wishes
Paper Tiger

LOL.... that sort of growth does not get the tail wagging much. This capital raise...hmmm, the hounds nose detects something a little fishy. Shares have been in a steady downtrend for a while and some bulls on here reckoned we were looking at 25% growth this year. (cough cough). Will run my own abacus over it when I get time before deciding on SPP. Sorry I'm a bit short on the crypto-coins my furry feline friend :)

[RTM]

Just had a look through the presentation. I guess you either believe the story and buy into it....or you don't and move out of them. For the time being I am in with stock and bonds.

Hope this is not a silly question...

What is the difference between a placement and a share purchase plan (SPP) ?
Is the placement already made to their mates ( for lack of a better way to describe it)....and the SPP an offering that may be scaled to their existing share holders ? Who might their mates be ? (if I have it right)

[Beagle]

Just as well for weighted average number eh - wont be waited next year!

So current PE could be a lot higher than EPS growth?

No it won't be weighted next year and there will be even more shares on issue at the half way point again next year when much of the $25m bonds convert to shares.

[percy]

I much prefer rights issues.
SPPs I loath.

The more I think about this SPP, instead of a rights issue,I keep thinking it has been done in a hurry.
Why then????
I think they must have an aquisition or acquistions lined up.and need the funds straight away.
If this is the case,bring them on.!!

[blackcap]

No it won't be weighted next year and there will be even more shares on issue at the half way point again next year when much of the $25m bonds convert to shares.

One positive if not two is that this stock will be coming close to Top 50 consideration as the free float increases and if the SP could increase a bit more may come into contention. If that is a good think one can debate, but at $3.02 I shall be buying a few more. Agree with others that a rights issue is far more equitable than a SPP.

[percy]

Just had a look through the presentation. I guess you either believe the story and buy into it....or you don't and move out of them. For the time being I am in with stock and bonds.

Hope this is not a silly question...

What is the difference between a placement and a share purchase plan (SPP) ?
Is the placement already made to their mates ( for lack of a better way to describe it)....and the SPP an offering that may be scaled to their existing share holders ? Who might their mates be ? (if I have it right)

A placement is where,in this case, broker UBS says they will place $25mil of shares to their clients.If they can't place them, UBS takes them.
SPP is to existing shareholders.
I rang Craigs this morning and said I would take X amount should UBS offer them any.I doubt they will,but you never know.Always pays to be "well positioned."

[JayRiggs]

For this SPP, assuming everyone participates, do we all get an equal amount of shares? Will it be scaled based on how many TRA shares we already have?

The timing of the Hugh Green selldown at $3.35 a couple of months back a tad suspicious, huh???

[JeremyALD]

The more I think about this SPP, instead of a rights issue,I keep thinking it has been done in a hurry.
Why then????
I think they must have an aquisition or acquistions lined up.and need the funds straight away.
If this is the case,bring them on.!!

They said on the call 75% was going towards helping with lending growth so I can't see that happening.

[JeremyALD]

For this SPP, assuming everyone participates, do we all get an equal amount of shares? Will it be scaled based on how many TRA shares we already have?

The timing of the Hugh Green selldown at $3.35 a couple of months back a tad suspicious, huh???

Everyone gets the same. For example if I apply for 15k and you apply for 15k and we are scaled back 50% due to oversubscriptions we'll both get 7.5k worth of shares. If you applied for 5k you'll get 2.5k

[percy]

They said on the call 75% was going towards helping with lending growth so I can't see that happening.

Therefore 25% acquistions.?

[winner69]

Therefore 25% acquistions.?

........further strategic property and dealership acquisitions they said

[percy]

........further strategic property and dealership acquisitions they said

Yes on page 2 or 3 and more on page 26 of the presentation.Extra dealership acquisitions, will offcourse lead to extra lending etc.
So the extra bank,plus the extra money from current bank,plus extra securitization,means extra fun.
Makes the extra $30mil being raised to very small,but it is capital,and that will support the extra fun.

[horus1]

This stinks . Small shareholders miss out again

[blackcap]

This stinks . Small shareholders miss out again

How so? You get a chance to pick some up at $3.02.

[RTM]

A placement is where,in this case, broker UBS says they will place $25mil of shares to their clients.If they can't place them, UBS takes them.
SPP is to existing shareholders.
I rang Craigs this morning and said I would take X amount should UBS offer them any.I doubt they will,but you never know.Always pays to be "well positioned."

Thanks Percy. That's clear.
Well.....I won't be that well positioned then ! As I don't think UBS will call me, that's for sure. Not really wanting anymore so will probably sell any extra I manage to get.

[JayRiggs]

Everyone gets the same. For example if I apply for 15k and you apply for 15k and we are scaled back 50% due to oversubscriptions we'll both get 7.5k worth of shares. If you applied for 5k you'll get 2.5k

cool thanks for the explanation.

[Not too Flash]

cool thanks for the explanation.

Don't think the explanation is correct
The presentation says
Subject to demand, scaling to be pro rata based on shareholding as at the Record Date
If 1 shareholder owns 10,000 and another owns 1,000 then the 1st shareholder will get 10 times as many if pro rata applies

[JayRiggs]

Don't think the explanation is correct
The presentation says
Subject to demand, scaling to be pro rata based on shareholding as at the Record Date
If 1 shareholder owns 10,000 and another owns 1,000 then the 1st shareholder will get 10 times as many if pro rata applies

Thank you, that is nice to know, because I've been buying the past few weeks around 3.40, so I'll be allowed to have a little bit more!

[Snoopy]

The more I think about this SPP, instead of a rights issue,I keep thinking it has been done in a hurry.
Why then????


Bond debt covenants at the point of being breached? TRA have to move fast to satisfy those greedy backing bankers!


This stinks . Small shareholders miss out again

But there is a possibility here that large shareholders miss out as well. (I say possibility because I don't know if the existing large shareholders are either:

1/ taking part in the share placement OR
2/ underwriting the share placement

)

One reason for not doing a straight rights issue could be that one or more of the existing large shareholders does not support such an issue!

SNOOPY

[JeremyALD]

Thank you, that is nice to know, because I've been buying the past few weeks around 3.40, so I'll be allowed to have a little bit more!

Ahh sorry I thought it was the same as the heartland bank SPP a little while back

[percy]

)

One reason for not doing a straight rights issue could be that one or more of the existing large shareholders does not support such an issue!

SNOOPY
Thanks for your post.
I think this could be the reason,along with the fact a rights issue would not achieve their stated object of improving the "free float".

[percy]

Yeah, done that, send komodo crypto-coins and I will send result :p.

And for everybody else I get an EPS increase range of 2.9% to 10.0%.
Obviously there is a bit of a 'margin of error' on those figures.

Best Wishes
Paper Tiger

The "margin of error" will be greatly affected by the quality and quantity of further either car yard acquisitions,or roll out of Buy Right cars.
Both the Turners and Buy Right brands make further roll outs easier.
TRA have the capital to develop their own sites,and with finance and insurance systems already in place, any new outlets should be profitable from their first day of trading.

[LAC]

Exciting times ahead.
I think there will be lots of demand and scaling will be pretty heavy:(

[Beagle]

Their insatiable requirement for new capital, ($25m last year with new convertible bond issue), $30m now and conversion of existing bonds next year, another $25m if everyone chooses shares on redemption but only quite mediocre EPS growth is starting to concern this hound, as did the depth of the discount to current SP of this issue and going to the market before the election and having to have it fully underwritten, (I presume at significant cost) at first sniff gives this hound cause to reflect. Also concerning is the way in which a major shareholder exited their shareholding and the way the shares have been in a downtrend for some time. I read an article the other day, sorry haven't got a link and can't remember where I read it but the thrust of it was that used car stocks are very very high. Are more people buying new cars given the widespread proliferation of interest free deals being offered by Heartland through Holden and heavily discounted interest deals through Honda, Mazda and other brands ? Is this undermining the used car sector to some degree ?

The quite serious lack of liquidity in the shares is another area of concern as a bondholder and it is by no means a given that I will convert my bonds to shares at the end of their term next year as whilst a theoretical 5% discounted to VWAP sounds fine, it isn't if there's a woeful lack of liquidity when trying to sell down and that theoretical 5% discount could easily work out to be insufficient.

The low forecasted EPS growth leaves me pondering if this isn't just another mediocre company and certainly not capable of the 25% EPS growth some shareholders have been implying. Whilst headline profit growth looks good, EPS growth is hardly inspiring.
Its a fairly young reconstituted company too...I like to see them get some more runs on the board before repeatedly asking for more shareholder money. Trust is earned, not given, (at least as far as this dog is concerned).

Disc: Cautious and somewhat underwhelmed and unconvinced bondholder.

[winner69]

Beagle said - it is a fairly young reconstituted company

Heartland once was that

TRA at $5 in a year or two once they start delivering on what they say they will do.

[percy]

The 25% eps growth I have been refering to has been based on "reputable" broker research,which was slightly over 25%.
With the placement this will not now be acheivable,however the capital raise will support a lot of growth,and a bigger free float of shares.The Hugh Green estate selling out, was no surprise to anyone who followed their ongoing family feud saga,and court appearances.
Turners business model is simple and easily rolled out in a fragmented market place.Their brands are well known and reputable.
eps growth will be dependant on either further acquisitions or roll outs.
Until these are announced I can't make an informed guess.However I expect there will be announcements in the not to distant future.

[percy]

Beagle said - it is a fairly young reconstituted company

Heartland once was that

TRA at $5 in a year or two once they start delivering on what they say they will do.
They too deliver on what they say they will do.Trusted.Proven.Reliable.

[sb9]

They too deliver on what they say they will do.Trusted.Proven.Reliable.

Agree, the institutions that took part in Placement would've been assured (no guarantees though) of them delivering on results.

[percy]

Agree, the institutions that took part in Placement would've been assured (no guarantees though) of them delivering on results.

You know Dorcester used to be a two bit finance company,while Turners Auctions were a pretty good small company.
Today Turners Automotive Group is an excellent mid sized company,which is soundly directed,managed and financed,with a proven business model that is scalable.
Some of the placement shares will go to good homes,but the loose ones? I expect I am not alone waiting for them..!!!!

[Beagle]

The 25% eps growth I have been refering to has been based on "reputable" broker research,which was slightly over 25%.
With the placement this will not now be acheivable,however the capital raise will support a lot of growth,and a bigger free float of shares.The Hugh Green estate selling out, was no surprise to anyone who followed their ongoing family feud saga,and court appearances.
Turners business model is simple and easily rolled out in a fragmented market place.Their brands are well known and reputable.
eps growth will be dependant on either further acquisitions or roll outs.
Until these are announced I can't make an informed guess.However I expect there will be announcements in the not to distant future.

Fair enough Percy. Will give them the benefit of the doubt for now. Might even put my paws up for some under the $3.02 SPP plan. Bonds have been a losing investment for me so far. I hate losses. Share price performance on the market over the next few days will be interesting. I suspect people recently buying at $3.40 will have cause to lick their own wounds.

Winner - Mate, I wouldn't be holding my breath hoping for a 50% gain to $5 on this one over the next two years. Want gains like that ?, you'd be better off SUMwhere else where I'd rate your chances as excellent.

[percy]

Fair enough Percy. Will give them the benefit of the doubt for now. Might even put my paws up for some under the $3.02 SPP plan. Bonds have been a losing investment for me so far. I hate losses. Share price performance on the market over the next few days will be interesting. I suspect people recently buying at $3.40 will have cause to lick their own wounds.

Winner - Mate, I wouldn't be holding my breath hoping for a 50% gain to $5 on this one over the next two years. Want gains like that ?, you'd be better off SUMwhere else where I'd rate your chances as excellent.

There is a huge difference between buying a fair company at a good price,and buying a good company at a fair price.
TRA is a very good company.They have improved every part of their businesses,property development,vehicle sales,finance,and insurance.
All the tickets they clip, are now very large and are growing steadily.
And the share price will grow too,as the market notes TRA deliver ,which in turn will see TRA's PE expand, much like HBL's did as they put more runs on the board.
Whether the share price is $4.50 or $5 in a couple of years we will have to wait and see.I will be happy with either.

[Beagle]

There is a huge difference between buying a fair company at a good price,and buying a good company at a fair price.
TRA is a very good company.They have improved every part of their businesses,property development,vehicle sales,finance,and insurance.
All the tickets they clip, are now very large and are growing steadily.
And the share price will grow too,as the market notes TRA deliver ,which in turn will see TRA's PE expand, much like HBL's did as they put more runs on the board.

Hope you're right mate. Early bids, (if you can call them that) in the pre-open don't inspire much confidence. I guess time will tell.

[BlackPeter]

Hope you're right mate. Early bids, (if you can call them that) in the pre-open don't inspire much confidence. I guess time will tell.

"the markets are short term a voting and long term a weighing machine".

Beagle is currently observing the voting characteristics of the market ... stock not that popular at the moment. And to be honest - I can't remember too many capital rises (of good companies) where the SP didn't go for some time down to or even slightly below the issue level of the new shares. Synlait had less than a year ago a Cap rise for $3 - and this is where the SP went ... look where it is now!

I am pretty sure the TRA share price will (at least short term) drop down to (or close to) the $3 as well ... Obviously - underwriter will try to fight that prior to the closing date - i.e. wait until after that.

Percy describes the fundamentals - and I agree - long term the prospects of the company do look pretty good (unless they screw up terribly what they are doing and so far I don't believe that). Becoming the big fish in a growth markets with lots of small fish can only be good - and look at all these potential synergy gains!

What does this all mean? There may well be potential for some speculation - sell some before the CR and buy them back cheaper afterwards. Obviously - this only works if not everybody else tries to do the same thing - so, you better don't tell anybody ;);

Discl: hold (a reasonably sized parcel) and not too worried;

[JeremyALD]

Hope you're right mate. Early bids, (if you can call them that) in the pre-open don't inspire much confidence. I guess time will tell.

Looks like no one's interested in buying or selling this morning. Buy offer at 3.10 and sell at 3.32. That's some sort of gap!

[percy]

Hope you're right mate. Early bids, (if you can call them that) in the pre-open don't inspire much confidence. I guess time will tell.

I must admit my long term view is a lot longer than the next hour or two.!...lol.

[freddagg]

Looks like no one's interested in buying or selling this morning. Buy offer at 3.10 and sell at 3.32. That's some sort of gap!

I am interested in buying but if the institutions figure it is worth 3.02 then I will not be paying more.

[percy]

Thank you Craigs.
Thought it was a very long shot,so was pleasantly surprised to receive 43% of what we bid for in the placement.

[RTM]

Thank you Craigs.
Thought it was a very long shot,so was pleasantly surprised to receive 43% of what we bid for in the placement.

Interesting Percy, wonder what that might be signaling about the uptake? Quite a standoff on the market so far.

[BlackPeter]

Interesting Percy, wonder what that might be signaling about the uptake? Quite a standoff on the market so far.

If we use TA, than the next support level worthwhile mentioning would be around $3.00; Pretty sure this is where it will go, but still - why not support a good company at $3.02?

[percy]

Interesting Percy, wonder what that might be signaling about the uptake? Quite a standoff on the market so far.

I rang my broker this morning to place two orders,one at $3.08 and one at $3.05.That was when he told me we had received allocations.I then decided not to place any buy orders,and hold off to see what the market did,keeping in mind we can apply for the SPP.
So was a liitle surprised ,and pleased, to see three buyers, each wanting 5,000 shares at $3.18,$3.17 and $3.16.

[percy]

If we use TA, than the next support level worthwhile mentioning would be around $3.00; Pretty sure this is where it will go, but still - why not support a good company at $3.02?

I will be..lol.
Bit of ammo to come from OIC.[nice people]

[Snoopy]

Can someone please crunch the numbers on EPS for FY18 taking into account the new shares issued at the half way point of the year, i.e weighted average EPS this year and calculate this at the mid point of the forecast range and compare to last year's EPS to calculate EPS profit growth forecasted for FY18.




No. Shares on issue EOFY201774,523,527


No. Shares Sept 2017 Placement$25m / $3.02 = 8,278,146


No. Shares Sept 2017 SPP$5m / $3.02 = 1,655,629


Post capital raising total No. Shares84,457,302 {A}



Guidance for FY2018 is for NPBT of $29m - $31m
Guidance for FY2018 is for NPAT is NPBT x 0.72 = $20.9m - $22.2m {B}

Forecast 'eps' based on the number of shares at the end of the financial year is therefore {B}/{A} which translates to a range of:

24.7c to 26.3c per share

I know this doesn't take into account the 'weighted average number of shares' that Beagle asked for, but I have my reasons for not doing so.

The equivalent figure for FY2017 was:

$17.609m / 74,523,527 = 23.6cps

Using the end of year share measure, the projected NPAT 'eps' gain for FY2018 is: 4.7% to 11.4%. If we use Percy's yardstick of 'fair value' being when the PE reflects the growth, this means the 'fair value' projected share price for FY2018 is between:

4.7 x 23.6 = $1.11 (minimum)
11.4 x 23.6 = $2.69 (maximum)

I am not feeling much excitement looking at share price target figures like that.

{Further adjustment from (my post 1478) to come.}


SNOOPY

[Beagle]

I rang my broker this morning to place two orders,one at $3.08 and one at $3.05.That was when he told me we had received allocations.I then decided not to place any buy orders,and hold off to see what the market did,keeping in mind we can apply for the SPP.
So was a liitle surprised ,and pleased, to see three buyers, each wanting 5,000 shares at $3.18,$3.17 and $3.16.

I ran the snout test over that depth. Three equal bids one cent apart. My nose to detect creative market making tells me that's a contrived bid by one interested party, possibly the underwriter ? My gut instincts tell me there's more juice in the new car market right at the minute with interest free or super low interest deals on no deposit on new highly fuel efficient vehicles with cutting edge technology...acknowledge my sense could be affected by our own buying tendencies but holding CMO to cover both bases :)

[winner69]

No. Shares on issue EOFY201774,523,527


No. Shares Sept 2017 Placement$25m / $3.02 = 8,278,146


No. Shares Sept 2017 SPP$5m / $3.02 = 1,655,629


Post capital raising total No. Shares84,457,302 {A}



Guidance for FY2018 is for NPAT of $29m - $31m {B}

Forecast 'eps' based on the number of shares at the end of the financial year is therefore {B}/{A} which translates to a range of:

34.3c to 36.7c per share

I know this doesn't take into account the 'weighted average number of shares' that Beagle asked for, but I have my reasons for not doing so.

The equivalent figure for FY2017 was:

$17.609m / 74,523,527 = 23cps

SNOOPY

Before you go too far Snoops don't forget to take tax into account

Guidance is net profit before tax

[percy]

Before you go too far Snoops don't forget to take tax into account

Guidance is net profit before tax

He forgot..!!!
Big difference between NPBT and NPAT....lol.
No wonder his eps figures were a lot higher than mine.
I note buyers are now at $3.20.

[Beagle]

LOL indeed. Forced me to do my own quick EPS growth calculation forgetting about all this nonsense weighted average capital basis (because they issue shares so regularly its hard to keep up).
Last year $17.6m on 74.75m shares gives 23.5 cps.
This year $30m before tax gives $21.6m after tax on 84.4m shares = 25.6 cps. EPS growth keeping it simple at the mid point of forecast, (and assuming there isn't yet another placement before FY18 year end) is thus 8.9%. At $3.20 it trades on a prospective PE of 12.5....higher than CMO's PE. Hmmmm that's pretty interesting especially with the latter having a very well established long history of profit growth. The apparent bargain some might imagine...I beg to differ, its actually higher than many other car companies globally and in N.Z. Check Ford's PE listed on the U.S. market as one example and there are many others. Lets not forget that in many respects car sales are cyclical, they do well when the economy is doing well, interest rates are very low and funding to credit worthy customers is readily available and they do not do well in tough economic recessions or during a GFC.
At $3.02 it trades on 11.8 times forecasted FY18 earnings...looks more like fair value to me although still not a bargain by any means for a company with fairly strong cyclical characteristics. I will probably give the SPP plan a miss and buy more of SUM thing else.

[percy]

LOL indeed. Forced me to do my own quick EPS growth calculation forgetting about all this nonsense weighted average capital basis (because they issue shares so regularly its hard to keep up).
Last year $17.6m on 74.75m shares gives 23.5 cps.
This year $30m before tax gives $21.6m on 84.4m shares = 25.6 cps. EPS growth keeping it simple at the mid point of forecast, (and assuming there isn't yet another placement before FY18 year end) is thus 8.9%. At $3.20 it trades on a prospective PE of 12.5....higher than CMO's PE. Hmmmm that's pretty interesting especially with the latter having a very well established long history of profit growth. The apparent bargain some might imagine...I beg to differ.
At $3.02 it trades on 11.8 times forecasted FY18 earnings...more like it I think.

I once worked at a CMO dealership in ChCh.
Growth potential for TRA is a lot higher in my opinion.
CMO is a very fine company,however, having the Ford agency may be limiting.

[RTM]

...acknowledge my sense could be affected by our own buying tendencies but holding CMO to cover both bases :)
Yes, it could be. We have never purchased a new car and looking forward are not likely to. And we have never purchased a 2nd hand Jap import. Having said that, did have company cars for a long time.

[Beagle]

Ford's ute selling like hot cakes. New 10 speed auto V8 Mustang coming will also be an exceptionally hot ticket item. (I have this earmarked as a possible acquisition for my own use). They have finally ditched their problematic DSG gearbox equipped Focus and are fitting them with proper convectional auto gearbox's.
Ford are behind with electrification but that's not the be all and end all as I've alluded to at some length in the electric car thread.
Mazda's new high tech petrol engine coming with all the benefits of a petrol and diesel engine looks interesting. I'm expecting very strong sales of Mazda vehicles.
Sound very well and conservatively managed company with a very very long track record of consistent growth.

[winner69]

Have had to discount my DFC valuation by 9% to allow for more shares ...now less than $3

[percy]

Have had to discount my DC valuation by 9% to allow for more shares ...now less than $3

So you are now with me at $4.50 rather than $5.00 in a couple of years time.?............lol.

[Beagle]

Have had to discount my DFC valuation by 9% to allow for more shares ...now less than $3

Had another look at my numbers on CMO which at $7.70 is trading cum a 31 cent fully imputed divvy. At a theoretical ex divvy price on $$7.39 it is trading on a historical PE of 10.8. No formal forecast for FY18 has been issued but my expectations are for steady growth and I have them on a forward PE of just 10 with their long and highly credible track record of consistent growth compared to Turners with their much shorter history of growth on a forward PE of 12.5 at $3.20. Hmmmm..you guys can have my ones at $3.02. I will hold the bonds to their maturity next year and decide in due course whether to convert them of ask for the cash back.

[blackcap]

Had another look at my numbers on CMO which at $7.70 is trading cum a 31 cent fully imputed divvy. At a theoretical ex divvy price on $$7.39 it is trading on a historical PE of 10.8. No formal forecast for FY18 has been issued but my expectations are for steady growth and I have them on a forward PE of just 10 with their long and highly credible track record of consistent growth compared to Turners with their much shorter history of growth on a forward PE of 12.5 at $3.20. Hmmmm..you guys can have my ones at $3.02. I will hold the bonds to their maturity next year and decide in due course whether to convert them of ask for the cash back.

I have some CMO too... but there is a caveat. What are the dealerships going to do once EV's are the norm... all that maintenance and WOF service money gone. Another is board succession... do they have any plans? Jim is getting a bit long in the tooth, still very good but do they have contingencies for further down the track. I may ask that question at the AGM.

[Beagle]

I have some CMO too... but there is a caveat. What are the dealerships going to do once EV's are the norm... all that maintenance and WOF service money gone. Another is board succession... do they have any plans? Jim is getting a bit long in the tooth, still very good but do they have contingencies for further down the track. I may ask that question at the AGM.

My forward vision best guess mate is that we are at the very least a decade away from EV's becoming mainstream to a major degree and probably at least 15 years away from EV's outselling cars that include an ICE engine. After that they will still be maintaining all the former ICE engine vehicles and newer hybrids and EV's that will need regular checks and WOF's and will need very expensive new battery replacements, (with huge dealer margins) every 8-9 years or they become disposable items so volumes of new sales could increase. Had an interesting discussion with a MB salesman the other day, they're trying to build cars now that don't last as long. Turn up the wick on small turbo petrol engines so they don't last as long as a traditional naturally aspirated engine and fit a hybrid system that will require a battery replacement after about 10 years that's so expensive the vehicle becomes a disposable item...all in the name of fuel efficiency...a remarkable admission from a Mercedes-Benz senior salesman. Having personally experienced the woes of finite hybrid battery life I have no qualms about the volume of car sales going through dealerships in the brave new electric world and honestly believe that durability will only deteriorate and hence the replacement cycle will he shortened and annual volume of new car sales increased :t_up:

[percy]

I have some CMO too... but there is a caveat. What are the dealerships going to do once EV's are the norm... all that maintenance and WOF service money gone. Another is board succession... do they have any plans? Jim is getting a bit long in the tooth, still very good but do they have contingencies for further down the track. I may ask that question at the AGM.

They are tied to Ford/Mazda.

[Beagle]

N.Z. Shareholders Association unhappy.
http://www.sharechat.co.nz/article/a2e31831/nz-shareholders-association-takes-aim-at-turners-placement.html?utm_medium=email&utm_campaign=NZ%20Shareholders%20Association%20tak es%20aim%20at%20Turners%20placement&utm_content=NZ%20Shareholders%20Association%20take s%20aim%20at%20Turners%20placement+CID_ac3be5c64ee 13b0c863bc6086904c814&utm_source=Email%20marketing%20software&utm_term=httpwwwsharechatconzarticlea2e31831nz-shareholders-association-takes-aim-at-turners-placementhtml

[peat]

https://www.sharetrader.co.nz/showthread.php?10716-Turners-(TNR)-bonds&p=684212&viewfull=1#post684212

[blackcap]

My forward vision best guess mate is that we are at the very least a decade away from EV's becoming mainstream to a major degree and probably at least 15 years away from EV's outselling cars that include an ICE engine. After that they will still be maintaining all the former ICE engine vehicles and newer hybrids and EV's that will need regular checks and WOF's and will need very expensive new battery replacements, (with huge dealer margins) every 8-9 years or they become disposable items so volumes of new sales could increase. Had an interesting discussion with a MB salesman the other day, they're trying to build cars now that don't last as long. Turn up the wick on small turbo petrol engines so they don't last as long as a traditional naturally aspirated engine and fit a hybrid system that will require a battery replacement after about 10 years that's so expensive the vehicle becomes a disposable item...all in the name of fuel efficiency...a remarkable admission from a Mercedes-Benz senior salesman. Having personally experienced the woes of finite hybrid battery life I have no qualms about the volume of car sales going through dealerships in the brave new electric world and honestly believe that durability will only deteriorate and hence the replacement cycle will he shortened and annual volume of new car sales increased :t_up:

Thanks for the reply Beagle. Fair points and point taken. I was starting to get twitchy fingers. The succession planning of the board still concerns me slightly so will be asking that question. Will you be down for the AGM? Its interesting.... like a family reunion with people like me stand out because I "don't belong" :) All in good fun though.

[percy]

Thanks for the reply Beagle. Fair points and point taken. I was starting to get twitchy fingers. The succession planning of the board still concerns me slightly so will be asking that question. Will you be down for the AGM? Its interesting.... like a family reunion with people like me stand out because I "don't belong" :) All in good fun though.

There are still plenty of Gibbons coming along,so no worries there.!!...lol.

[percy]

N.Z. Shareholders Association unhappy.
http://www.sharechat.co.nz/article/a2e31831/nz-shareholders-association-takes-aim-at-turners-placement.html?utm_medium=email&utm_campaign=NZ%20Shareholders%20Association%20tak es%20aim%20at%20Turners%20placement&utm_content=NZ%20Shareholders%20Association%20take s%20aim%20at%20Turners%20placement+CID_ac3be5c64ee 13b0c863bc6086904c814&utm_source=Email%20marketing%20software&utm_term=httpwwwsharechatconzarticlea2e31831nz-shareholders-association-takes-aim-at-turners-placementhtml

I agree with them.

[Jaa]

I agree with them.

Also unhappy.

No company should be choosing placements over accelerated rights issues.

[Snoopy]

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




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 = $5.426m



He forgot..!!!
Big difference between NPBT and NPAT....lol.
No wonder his eps figures were a lot higher than mine.
I note buyers are now at $3.20.

I have corrected the above mistake as noted by Winner and Percy. But the mistake was not made in the primary working of my past 'eps' projections: with maybe one caveat.

When I annualised my results for FY2017., note 18 from AR2017 on the subject of 'Buy Right' cars noted that.

"Group consolidated profit would have been $18.6m" (if Buy Right cars had been owned for 12 months).

I had assumed 'Group consolidated profit' meant NPAT. But further up on the page there is a comment

"The performance percentage is calculated by comparing the actual annual net profit before tax (NPBT) to the target annual NPBT included in the sale and purchase agreement."

If the metric is NPBT not NPAT, then the difference in consolidated group profit for the year, if "Buy Right Cars" had been owned for twelve months would have been.

$18.6m - $24.631m = -$6.031m

This means the profit from 'Buy Right Cars' would have been lower if that business unit had been owned for 12 months, not 8. At first glance this doesn't seem a likely interpretation. But is it possible that 'Buy Right cars' shelled out a lot of borrowed money pre-July to bring in cars from overseas that caused them to lose money in the April to July period? This explanation is plausible. But losing as much as $6m over 3 months doesn't sound likely to me. So I am backing my original judgement and annualised 'eps' projections. Nevertheless I think the wording of note 18 in the annual report is ambiguous on this matter.

SNOOPY

[Snoopy]

Forecast 'eps' based on the number of shares at the end of the financial year is therefore {B}/{A} which translates to a range of:

24.7c to 26.3c per share

The equivalent figure for FY2017 was:

$17.609m / 74,523,527 = 23.6cps

{Further adjustment from (my post 1478) to come.}


Annualising the 'Buy Right Cars' and 'Autosure' results into the FY2017 results, I get.

($17.609m + $1.026m + $5.426m)/ 74,523,527 = 32.3cps

Compare that figure to Turner's own forecast of the 24.7c to 26.3c per share figure for FY2018 and it looks like Turners are projected to be going backwards in underlying 'end of year shares on issue' eps terms. As a TRA shareholder, I will be very happy to be proved wrong on this point!

SNOOPY

[winner69]

Snoops - if you look at the cap raising presentation and the 4 months financials you can work out that buy Right and Autosure made $1.3m npbt, say $0.93m after tax

Annualised suggests only $2.8m NPAT in FY18 from these acquisitions

Seems at odds with the notes in the F17 accounts doesn't it

I do get the impression that they change presentation formats to sort of confuse punters. No wonder Jeremy wasn't that impressed after the riffing

[Snoopy]

Their insatiable requirement for new capital, ($25m last year with new convertible bond issue), $30m now and conversion of existing bonds next year, another $25m if everyone chooses shares on redemption but only quite mediocre EPS growth is starting to concern this hound, as did the depth of the discount to current SP of this issue and going to the market before the election and having to have it fully underwritten, (I presume at significant cost) at first sniff gives this hound cause to reflect. Also concerning is the way in which a major shareholder exited their shareholding and the way the shares have been in a downtrend for some time. The quite serious lack of liquidity in the shares is another area of concern as a bondholder and it is by no means a given that I will convert my bonds to shares at the end of their term next year as whilst a theoretical 5% discounted to VWAP sounds fine, it isn't if there's a woeful lack of liquidity when trying to sell down and that theoretical 5% discount could easily work out to be insufficient.

The low forecasted EPS growth leaves me pondering if this isn't just another mediocre company and certainly not capable of the 25% EPS growth some shareholders have been implying. Whilst headline profit growth looks good, EPS growth is hardly inspiring.


I think it is fair to categorize TRA as a 'confidence' share. They are clearly well versed is seeking out and buying out 'add on' businesses that bolt on nicely to the 'multiple ticket clip' model. While they continue to do this there is no problem rolling out some new shares or bonds to pay for the acquisitions. However, if management were to lose the confidence of the share market, then the growth strategy would ground to a halt. Why? Because overall TRA does not generate enough cash internally to drive the growth strategy. A truly great company is one that is adept at generating cash, and sadly this new 'Turners' doesn't tick this box.

In fact as Beagle has noted, Turners are taking a lot more cash out of the market than they put back in via dividends and interest payments to bondholders.

Turners, going back to the Dorchester days has had very supportive major shareholders. Turners would have joined the finance company post GFC graveyard without these people. So I think it is unfair to criticise these people when most of the job is done if they want to now take some money off the table. Hugh Green Investments took around a 10% discount to the then market price to quit their holding. I don't think it is out of line to offer new institutional shareholders a similar sort of discount when buying in. When liquidity is not the best, this is the kind of discount a big block of shares attracts.

I expect growth will come from acquisition synergies, but I haven't seen enough of those synergies flow through to the bottom line yet. I remain 'confident' in the Turners management team. But not confident enough for TRA to become more than my second smallest NZX holding.

SNOOPY

[winner69]

One if the weird / interesting things about the 4 month financials is that old businesses have a npbt margin over 10% while new businesses in Autosure / buy Right is only 4%

Must be a story in there somewhere

[winner69]

The Synergy Trap: How Companies Lose the Acquisition Game by Sirower is a good read

[percy]

I find thinking ahead helps me.
Think margins.
Develop a commercial property with Nationwide client.Big margin.
Sell a car/vehicle........good one off margin.
Auction car etc...........good one off margin.
Arrange Finance on either of the above.good ongoing margin.
Clip the ticket on MTF client's finance deal.Ongoing good margin.
Arrange Insurance on vehicle sold by either Turners or Buy Right Cars .Ongoing margin.
Arrange Insurance on vehicle sold by MTF clients.Ongoing margin.
So they make a good one off margin on vehicle sales,yet that sale generates finance/insurance profits for a number of years.
So we have to think is it best to make just a one off $1,000, or are you better to make the one off $1000 and the collect the interest and insurance on the same sale,ie another $200 a year for 3 or 4 years.Called clipping the ticket.
Each ticket TRA clips is getting growing,each vehicle sold generates ongoing profits for Turners.
Margins will vary, much like HBL make more on vehicle lending than reverse mortgages.

[Beagle]

https://www.nbr.co.nz/subscribe/207737
New Australian institutions given preference to loyal Kiwi shareholders many of whom plan to sell in disgust.
No reason given for disadvantaging retail shareholders in the rush to raise new capital.
New Zealand Shareholders Association extremely disappointed and investigating.
Disc: Very pleased I only have the bonds.

[percy]

Should be a lively agm on Wednesday...lol.

[JeremyALD]

https://www.nbr.co.nz/subscribe/207737
New Australian institutions given preference to loyal Kiwi shareholders many of whom plan to sell in disgust.
No reason given for disadvantaging retail shareholders in the rush to raise new capital.
New Zealand Shareholders Association extremely disappointed and investigating.
Disc: Very pleased I only have the bonds.

Selling at 3.02 is such a massive difference to the 180MA too. Most of the year the SP has been above $3.60 and looked like it was heading towards $4. Now after "good results and growth slightly above expectations" they are selling a heap at $3.02. Very disappointing and this has become another red arrow in my portfolio with MPG and TWR! Been a bloody awful run for me in the last 3 months after a very successful start to the year

[percy]

I think you need to stand back and look at why you brought into TRA,and ask yourself these questions.
Is the business in better shape than when I brought in.?
Is the business model stronger than when I brought in.?
Does the business still have strong growth prospects.?

A no answer to any of the above, and you should sell and move on.
If you are like me, and answered the above with yes,sit back, ignore the noise, and enjoy the divies.

[winner69]

Selling at 3.02 is such a massive difference to the 180MA too. Most of the year the SP has been above $3.60 and looked like it was heading towards $4. Now after "good results and growth slightly above expectations" they are selling a heap at $3.02. Very disappointing and this has become another red arrow in my portfolio with MPG and TWR! Been a bloody awful run for me in the last 3 months after a very successful start to the year

Jeez I hadn't realized the share price has collapsed 20% over the last 4 months

You'd think that it can't go much lower - Jeremy if you still believe the story hang in there

Sad looking chart at the moment - must be some obvious chart pattern to give an idea what might happen .....my guess a wavy line between 300 and 320 for several months mimicking what it was doing this time last year

Isn't the chart saying punters don't believe they are delivering on the promises

[percy]

Jeez I hadn't realized the share price has collapsed 20% over the last 4 months

You'd think that it can't go much lower - Jeremy if you still believe the story hang in there

Sad looking chart at the moment - must be some obvious chart pattern to give an idea what might happen .....my guess a wavy line between 300 and 320 for several months mimicking what it was doing this time last year

Isn't the chart saying punters don't believe they are delivering on the promises

For the record, their results show they are delivering on their promises.

[McGinty]

I have been away for a little over a week and imagine my surprise after reading Wednesdays announcement!

Well thank you for the lesson Mr Market :-)

When my Technical sell signal was triggered back in late June (price fell below $3.70), I wasn't listening.
When the death cross occurred in July, I wasn't watching.
When the share price failed to rally after crossing down through $3.50, I wasn't paying attention.
When there was relentless selling pressure in the 6 weeks leading up to this, I was in denial.

All these signals fell on deaf ears, as I believed that I knew better.

Well thank you Mr Market. You did your best to warn and educate me, but I didn't want to hear.

There is a positive out of this experience and that it is now a lesson (one which I will not forget).

Now I see the reason for all the continued selling and lack of buyers the last few months.
Now I see what the girl (management) I got friendly with and brought home at 3am last night, really looks like without makeup in the morning (how they really feel about retail investors).

Actions speak louder than words, and I read the TRA team's message loud and clear.

Will be an interesting AGM, as there are some good questions that should be put forward to management. This is the first real time I feel like they have dropped the ball (from a retail investor point of view).

No investment case left for me in this company. Solid downtrend and leaky boat for those in the club!
Will be price bound for ages IMHO between $3.02 and $3.35

[Beagle]

I have been away for a little over a week and imagine my surprise after reading Wednesdays announcement!

Well thank you for the lesson Mr Market :-)

When my Technical sell signal was triggered back in late June (price fell below $3.70), I wasn't listening.
When the death cross occurred in July, I wasn't watching.
When the share price failed to rally after crossing down through $3.50, I wasn't paying attention.
When there was relentless selling pressure in the 6 weeks leading up to this, I was in denial.

All these signals fell on deaf ears, as I believed that I knew better.

Well thank you Mr Market. You did your best to warn and educate me, but I didn't want to hear.

There is a positive out of this experience and that it is now a lesson (one which I will not forget).

Now I see the reason for all the continued selling and lack of buyers the last few months.
Now I see what the girl (management) I got friendly with and brought home at 3am last night, really looks like without makeup in the morning (how they really feel about retail investors).

Actions speak louder than words, and I read the TRA team's message loud and clear.

Will be an interesting AGM, as there are some good questions that should be put forward to management. This is the first real time I feel like they have dropped the ball (from a retail investor point of view).

No investment case left for me in this company. Solid downtrend and leaky boat for those in the club!
Will be price bound for ages IMHO between $3.02 and $3.35


A first rate honest post McGinty and SUM's it up well. Despite all the positivity from one or two on here the FACTS are this company's SP has been in a steady decline, there are hints of insider trading with the major shareholder selling out, directors were "too keen" ? to raise more capital in a real hurry, (the other hound suggested they were very close to breeching their covenant ratio's to bondholders and I am inclined to agree with him). I have read a very recent report suggesting used car stocks are at an all time high since the GFC, (apologies I cannot provide a link so you'll simply have to take me at my word) and I think things are not all as they seem at Turners. If I could get my theoretical $1.05 at maturity my bonds are worth I'd sell in a flash. If I was a shareholder I'd be selling.
As I posted earlier this week I DEFINITLY DO NOT not think these shares are a bargain at the current SP relative to CMO which I note has a vastly longer track record of steady growth and don't "stick it" to retail shareholders either with quick capital raises and I note that CMO shares trade at a significant PE discount to TNR, CMO FY18 PE 10.0 TNR FY18 PE 12.5.
I will definitely not be taking up any shares under the SPP plan as I have serious reservations the shares are even worth $3.02. I think in fact we may be right at the top of the cycle of immigration and they'll struggle to sell the volume of used cars, (and I think they are overstocked) if Labour get into power and cut immigration. I also think with the abundance of no deposit no interest deals on new cars which come with new car warranties and the latest technology as well as being more fuel efficient there could be a structural shift going on in the car market towards newer cars.
I think CMO are a far better bet than this company. If some headwinds become apparent I can see this going under $3.00, possibly into the mid $2 range which is why I won't be taking up any entitlement to shares under the SPP plan at $3.02 despite having a decent entitlement because of the size of my bond holding. The size of the discount to the VWAP that these new shares had to be issued at as well as the company choosing to underwrite them at significant cost suggests to me the company really needed the funds.
I note First N.Z. have issued a client note that was not complimentary to the manner in which these funds were raised and the New Zealand shareholders association are deeply unimpressed.
A company with very modest EPS growth prospects being run in a manner that could be considered in some respects to be counter intuitive to retail shareholders best interests ? Looking after the major shareholders perhaps ?
Beagles rating: SELL shares, hold bonds ( hold / accumulate CMO instead for quality exposure to this sector at more realistic PE).

[Snoopy]

No investment case left for me in this company. Solid downtrend and leaky boat for those in the club!
Will be price bound for ages IMHO between $3.02 and $3.35


Was there really a leaky boat here? TRA announced that they were listing in Australia to broaden their funding base. So why is anyone now surprised that they are offering shares to Australian institutions in a placement? Especially when you know that this 'funding diversification' could not have been achieved by going down the path of a conventional rights issue.

SNOOPY

[percy]

I have been away for a little over a week and imagine my surprise after reading Wednesdays announcement!

Well thank you for the lesson Mr Market :-)

When my Technical sell signal was triggered back in late June (price fell below $3.70), I wasn't listening.
When the death cross occurred in July, I wasn't watching.
When the share price failed to rally after crossing down through $3.50, I wasn't paying attention.
When there was relentless selling pressure in the 6 weeks leading up to this, I was in denial.

All these signals fell on deaf ears, as I believed that I knew better.

Well thank you Mr Market. You did your best to warn and educate me, but I didn't want to hear.

There is a positive out of this experience and that it is now a lesson (one which I will not forget).

Now I see the reason for all the continued selling and lack of buyers the last few months.
Now I see what the girl (management) I got friendly with and brought home at 3am last night, really looks like without makeup in the morning (how they really feel about retail investors).

Actions speak louder than words, and I read the TRA team's message loud and clear.

Will be an interesting AGM, as there are some good questions that should be put forward to management. This is the first real time I feel like they have dropped the ball (from a retail investor point of view).

No investment case left for me in this company. Solid downtrend and leaky boat for those in the club!
Will be price bound for ages IMHO between $3.02 and $3.35

All unfortunately so very correct.
Yet all the time the business model has been very much improved in all divisions,and the growth prospects still are excellent.and more achievable with the stronger capital base.
We remain living in interesting times.,

[winner69]

For the record, their results show they are delivering on their promises.

.....but not too market expectations .......and key financial metrics like declining margins, low EPS growth and declining ROE

But then great things take time eh



Wouldn't be buying business would they?

[percy]

.....but not too market expectations .......and key financial metrics like declining margins, low EPS growth and declining ROE

But then great things take time eh



Wouldn't be buying business would they?

Offcourse they will be buying further businesses.
When a business lays solid foundations,you can be certain all ratios will come.
I think I find it very easy to compare TRA with HBL.All the time doing the right things to develop their businesses.Knowing where they want to be in the market,and getting to those places very quickly.The results may take a little longer to come through,but they will.You were very dissappointed with HBL's REL acquisition, and wrote many posts saying what a dud it was.Turned into a great buy.Like HBL Turners have made no dud acquisitions.
Both HBL and TRA have directors who are savvy,and have plenty of skin on the line.I keep thinking where these businesses will be in three years time.Have you.?
I remain "well positioned" in both, and will be applying for more TRA via their SPP,again using our rainy day funds.

[winner69]

........You were very dissappointed with HBL's REL acquisition, and wrote many posts saying what a dud it was.

percy - you are wrong

[Leftfield]

McGinty's post #1674 is a great reminder to us all of the warning signs we ignore at our peril. GLH.

(Disc; non TRA holder and happy)

[winner69]

Been on the ASX since July - no transasctions yet

But with all these new Australian investors and the drive to improve liquidity no doubt this will change

But if these Austrlaian investors who bought the other day are really keen on their new investment why would they sell anyway - liquidity to improve?

Maybe just one of those phrases you use to sound like you know what you are doing

[Snoopy]

No. Shares on issue EOFY201774,523,527


No. Shares Sept 2017 Placement$25m / $3.02 = 8,278,146


No. Shares Sept 2017 SPP$5m / $3.02 = 1,655,629


Post capital raising total No. Shares84,457,302 {A}



Guidance for FY2018 is for NPBT of $29m - $31m
Guidance for FY2018 is for NPAT is NPBT x 0.72 = $20.9m - $22.2m {B}

Forecast 'eps' based on the number of shares at the end of the financial year is therefore {B}/{A} which translates to a range of:

24.7c to 26.3c per share

I know this doesn't take into account the 'weighted average number of shares' that Beagle asked for, but I have my reasons for not doing so.

The equivalent figure for FY2017 was:

$17.609m / 74,523,527 = 23.6cps






Surely at $3.02 though


At $3.02, TRA is on a projected PE ratio of between:

302/26.3 = 11.4

302/24.7 = 12.2

I don't think it is fair to categorize TRA as a dog. There is still a good business waiting to get out under the recent 'share'nanigans. But I think it is true that it is probably not a good idea to pay too much for the shares. The real question for investors must be 'what is fair value'?

$3.40, with the benefit of the capital raising hindsight, which to be fair was not transparent to the many who took shares at $3.40 for what appeared to be a 'generous discount', looks a bit rich to me. But $3.02? I am feeling a bit warmer towards that price. Yet there is a risk that $3.02 is not cheap enough.

SNOOPY

[winner69]

At $3.02, TRA is on a projected PE ratio of between:

302/26.3 = 11.4

302/24.7 = 12.2

I don't think it is fair to categorize TRA as a dog. There is still a good business waiting to get out under the recent 'share'nanigans. But I think it is true that it is probably not a good idea to pay too much for the shares. The real question for investors must be 'what is fair value'?

$3.40, with the benefit of the capital raising hindsight, which to be fair was not transparent to many to took shares at $3.40 for what appeared to be a 'generous discount', looks a bit rich to me. But $3.02? I am feeling a bit warmer towards that price. Yet there is a risk that $3.02 is not cheap enough.

SNOOPY

So $3.02 a fair price for a good company then?

[Snoopy]

Snoops - if you look at the cap raising presentation and the 4 months financials you can work out that buy Right and Autosure made $1.3m npbt, say $0.93m after tax


'Buy Right Cars' net profit margin

p18 of the Capital raising presentation says 'Buy Right cars' made a 4 month contribution of $1.4m to 'Operating Profit'. Annualise that and I get $4.2m NPBT. Take off tax at 28% and I get at NPAT contribution from 'Buy Right Cars' of $3.0m ($1m for 4 months {C}).

Now if we go back to p17 for the incremental revenue for 'Buy Right cars' I get:

$76.5m - $56m = $20.5m {D}

So I get a 'net profit margin' from 'Buy Right Cars', excluding corporate costs and intercompany revenue adjustments, of {C}/{D}:

$1.0m/$20.5m = 4.8%

'Autosure' net profit margin

p17 shows that the 'incremental increase' in insurance EBT profit (NPBT) from 'Autosure' was:

$2.3m - $0.5m = $1.8m

After tax:

$1.8m x 0.72 = $1.3m {A}

p17 shows that the 'incremental increase' in insurance revenue from 'Autosure' was:

$14.5m - $4m = $10.5m {B}

So I get a 'net profit margin' from 'Autosure', excluding corporate costs and intercompany revenue adjustments, of {A}/{B}:

$1.3m / $10.5m = 12.4%

Annualise the profit and I get an annual contribution from 'Autosure' to NPAT of:

($1.3m * 3) = $3.9m



Annualised suggests only $2.8m NPAT in FY18 from these acquisitions


I get $3.0m + $3.9m = $6.9m annualised NPAT combined contribution from 'Buy Right cars' and 'Autosure'.



Seems at odds with the notes in the F17 accounts doesn't it.


Actually my impression is a close agreement.

The notes in AR2017, which I used to compile my post 1478, show that the incremental gain in 'consolidated profit' was $1.026m (Buy Right Cars) and $5.440m (Autosure). However, 'Buy Right Cars' had been part of the group since the end of July (8 months of the financial year). Autosure was only added on the last day of the financial year (no profit contribution over FY2017) Annualising that 'Buy Right' figure raises the 'consolidated profit' from 'Buy Right Cars' to:

$1.026m x 12/8 = $1.539m

This means the change in annualised consolidated profit if both new business units had been owned for the full year was:

$1.539m + $5.440m = $6.979m

(Note that in my post 1661 I figured out that 'consolidated profit' means NPAT.)

That looks to be in very close agreement with the annualised FY2018 contribution from these business units in the Turners Capital raising presentation. Not much change between FY2017 and FY2018?

SNOOPY

[winner69]

Snoops - a few different meanings of 'profit' in Turners presentation

So take carevp what you assume to be npbt (esp at division level)

Prob thy do this on purpose to make life difficult for analysts like yourself.

[Snoopy]

So $3.02 a fair price for a good company then?

At $3.02, TRA is on a projected PE ratio of between:

302/26.3 = 11.4

302/24.7 = 12.2


A PE of 20 for TRA is ridiculous

Methinks 12/13 is about fair, maybe that is even a bit high

You have already answered your own question?

SNOOPY

[Snoopy]

Snoops - a few different meanings of 'profit' in Turners presentation

So take care what you assume to be npbt (esp at division level)

Prob they do this on purpose to make life difficult for analysts like yourself.


I always thought 'operating earnings' meant EBIT. It does with some companies. But Turners use 'operating earnings' to mean EBT. Following that, it becomes an open question of how to take into account 'eliminations' and how to allocate 'corporate costs' to get the real picture of how well all the divisions are doing. The process is such a minefield, you could say there is no one 'right' answer. So rather than pursue the 'right' answer, I instead make it my goal to give a 'consistent' answer. And as long as readers understand the assumptions I have had to make to gain that consistency, that is my best realistic goal.

The specific point you raised Winner, was about the acquisitions having a lower profit margin than the existing business. We can work out what the various profit margins were for the first four months of FY2018. Four months probably isn't enough time to bed in the acquisitions. So whatever answer I get doesn't really 'prove' anything. Nevertheless it is a 'window' into the performance of the acquisitions in relation to the rest of the business. Time to finish the exercise.

SNOOPY

[Snoopy]

The specific point you raised Winner, was about the acquisitions having a lower profit margin than the existing business. We can work out what the various profit margins were for the first four months of FY2018. Four months probably isn't enough time to bed in the acquisitions. So whatever answer I get doesn't really 'prove' anything. Nevertheless it is a 'window' into the performance of the acquisitions in relation to the rest of the business. Time to finish the exercise.


The information below is compiled from p17 of the capital raising presentation:

https://www.nzx.com/files/attachments/265725.pdf

Legacy Business: Net Profit Margin (First Four Months FY2018)

Note: excluded from the table below are the 'Buy Right Cars' and 'Autosure' acquisitions. Also no adjustment has been made for 'eliminations' and 'corporate costs'.



Operating Revenue {A}Operating Profit (NPAT) {B}Net Profit Margin {B}/{A}


Automotive$56.0m
$4.4m7.9%


Finance$11.3m$3.7m
32.7%


Insurance$4.0m$0.5m
12.5%


Debt Management$8.0m$2.0m25%


Total$79.3m$10.6m13.4%



From my post 1685, 'Autosure' has a profit margin of 12.4% and 'Buy Right Cars' has a profit margin of 4.8%. This is evidence that the net profit margin for the acquisitions is below that of the legacy business. So Winner's assertion looks correct.

Delve into the net profit margin a bit deeper and you can see that 'Autosure' has a 'net profit margin' very close to that of the existing insurance business. But 'Buy Right Cars' has a net profit margin rather less than existing automotive. Yet IMO, over just four months, it is probably too soon to draw a definitive conclusion.

SNOOPY

[winner69]

Tomorrow is the much looked forward to AGM

In view of the cap raise will be learn anything new about their future prospects?

[percy]

Tomorrow is the much looked forward to AGM

In view of the cap raise will be learn anything new about their future prospects?

Could be a fun and very interesting meeting.
Now wish I was going to it.

[Beagle]

Buy Right Cars Ltd profit margin of only 4.8% shows the vulnerability of this business to changing economic conditions. If sales slow and stock turn decreases and holding costs increase it doesn't take much of a change to wipe that margin out and remember this company is trading in benign trading conditions with good economic growth, a higher than average currency, generation low interest rates and record ever immigration level's. I've done more than a few sets of car dealers books over my 35 years of bean counting and can't recall off the top of my head seeing margins that slim before, (mind you these are privately owned companies with very statute owners). Its a VERY tough and competitive industry with multiple failures on a regular basis. To put this 4.8% margin in context this is considerably less than the margin AIR New Zealand operate on and we all know airlines are cyclical business's vulnerable to changing economic conditions which is why we stick with a PE of 10, (cyclical).

[winner69]

Buy Right Cars Ltd profit margin of only 4.8% shows the vulnerability of this business to changing economic conditions. If sales slow and stock turn decreases and holding costs increase it doesn't take much of a change to wipe that margin out and remember this company is trading in benign trading conditions with good economic growth, a higher than average currency, generation low interest rates and record ever immigration level's. I've done more than a few sets of car dealers books over my 35 years of bean counting and can't recall off the top of my head seeing margins that slim before, (mind you these are privately owned companies with very statute owners). Its a VERY tough and competitive industry with multiple failures on a regular basis. To put this 4.8% margin in context this is considerably less than the margin AIR New Zealand operate on and we all know airlines are cyclical business's vulnerable to changing economic conditions which is why we stick with a PE of 10, (cyclical).

Commentary on car loans / leases quickly becoming the next sub-prime in the US and UK along with words like securitisation sends shivers up my spine.

At least Turners aren't into new cars - maybe new car dealers and leasing companies are in the firing line.

[Beagle]

Commentary on car loans / leases quickly becoming the next sub-prime in the US and UK along with words like securitisation sends shivers up my spine.

At least Turners aren't into new cars - maybe new car dealers and leasing companies are in the firing line.

Worries me a bit that Heartland are financing various brands of new cars like new Holden's at the moment on 0% deposit 0% interest. Sure customers pay full retail and HBL get their kick out of it but the moment that brand new car is driven off the dealers yard it has depreciated by ~ 25% and the loan in underwater by a commensurate amount right from the outset. Guess one simply has to have faith in HBL's credit assessment processes and people's reluctance to have their shiny new car repossessed. Cheap and easy credit...always a concern...risk everywhere isn't there mate !

[percy]

My experience is very different,[no surprises there.!],good second hand car dealers enjoy fat profits,and those who joined together to form MTF,or started financing their own deals,went on to enjoy even fatter profits.
New car sales were a little different, as they were franchises,covered by the likes of Toyota and Ford, who were forever looking for market share.Meant slim profits on new cars,and dealers left trying to make money out of second hand car sales and parts.None ever seemed to make money in their service departments.Tractor sales also meant a lot of money tied up when farmers hid their wallets,which they often did.Being part of a franchise group, also meant opportunities for rolling out their business to other centres was limited.
The Turners model is the best I have ever seen,and easily scaled up.Property development,vehicle and equipment sales,finance and insurance.Total package.However I would not be surprised to see Turners try new cars too.They certainly have the channels to sell them.

[percy]

Worries me a bit that Heartland are financing various brands of new cars like new Holden's at the moment on 0% deposit 0% interest. Sure customers pay full retail and HBL get their kick out of it but the moment that brand new car is driven off the dealers yard it has depreciated by ~ 25% and the loan in underwater by a commensurate amount right from the outset. Guess one simply has to have faith in HBL's credit assessment processes and people's reluctance to have their shiny new car repossessed. Cheap and easy credit...always a concern...risk everywhere isn't there mate !

You went on about this two years ago on HBL thread and never took a bit of notice of my replies.
Do your research as I did.Contact HBL and find out the facts.,which show both BHL and TRA have very low bad debts on cars.Something under 1% of defaults.Safer than house mortgages.

ps.HBL divie coming just in time to be recycled via TRA's SPP.

[Beagle]

You went on about this two years ago on HBL thread and never took a bit of notice of my replies.
Do your research as I did.Contact HBL and find out the facts.,which show both BHL and TRA have very low bad debts on cars.Something under 1% of defaults.Safer than house mortgages.

ps.HBL divie coming just in time to be recycled via TRA's SPP.

Incorrect Percy I do recall your replies and you mentioning that very few cars are actually sold on no deposit. Happy to bring this up as a discussion point at the annual meeting to check and see how business performance is tracking now in regard to this sort of lending as well as bringing up the donation to National, (should make for a more interesting annual meeting) :)

[percy]

Incorrect Percy I do recall your replies and you mentioning that very few cars are actually sold on no deposit. Happy to bring this up as a discussion point at the annual meeting to check and see how business performance is tracking now in regard to this sort of lending as well as bringing up the donation to National, (should make for a more interesting annual meeting) :)

I look forward to the agm telecast...lol..
I know the answer to one question, and could not careless about the other....
If you are going to question directors over a matter,in this case a donation,under $100,000 ,in this case under $60,000 you really should question yourself whether you should be invested in the business or not.?
I like to question directors to get meaningful answers,ie how are their open for......products being received in Australia.? Will they open an Australian office, or keep running these open for.......products from NZ?.Are they receiving many applications for their higher rate mortgages?.Have they developed products for medical expenses loans via doctors or private hospitals.?
So don't waste your time on meaningless diversions,find out something useful, you can capitalise on.Unless you are like me and go to HBL presentations,and phone the CFO'CEO, you only get one chance to question directors,or speak to them a year at their agm.Don't waste it.

[Marilyn Munroe]

Worries me a bit that Heartland are financing various brands of new cars like new Holden's at the moment on 0% deposit 0% interest. Sure customers pay full retail and HBL get their kick out of it but the moment that brand new car is driven off the dealers yard it has depreciated by ~ 25% and the loan in underwater by a commensurate amount right from the outset. Guess one simply has to have faith in HBL's credit assessment processes and people's reluctance to have their shiny new car repossessed. Cheap and easy credit...always a concern...risk everywhere isn't there mate !

One of the things about life on the planet that puzzles me; Why do vehicle manufacturers and dealers cut their throats to do crazy financing deals rather than discount the sticker price for cash buyers?

One assumes that Heartland has recourse against Holden if a deal goes sour or are these deals are securitised with a discount to face value to compensate the bond holder for default risk?

Boop boop de do
Marilyn

PS. 0% down and 0% interest should attract ruthless defaulters like jackals to carrion.

[percy]

One of the things about life on the planet that puzzles me; Why do vehicle manufacturers and dealers cut their throats to do crazy financing deals rather than discount the sticker price for cash buyers?

One assumes that Heartland has recourse against Holden if a deal goes sour or are these deals are securitised with a discount to face value to compensate the bond holder for default risk?

Boop boop de do
Marilyn

PS. 0% down and 0% interest should attract ruthless defaulters like jackals to carrion.

No recourse.
Try going into a Holden dealer and walking out with a new car with no deposit.!
Then you will quickly learn the facts of life.
Good luck.!...lol.

ps.TRA do non recourse loans for MTF clients.
HBL do non recourse loans.
Problems? No.Why?Find this out and you can invest with confidence.
Both have under 1% debt problems.Most probably a lot lower than your old beloved CSB had.

[Snoopy]

Buy Right Cars Ltd profit margin of only 4.8% shows the vulnerability of this business to changing economic conditions.


That 4.8% margin I calculated is for the four months April to July Inclusive. It very likely includes cars paid for in Japan in July, to be shipped out to NZ for the peak September/October car buying season. Thus lots of stock on the books but the cars are not yet available for sale, with June and July being low sales months. That scenario would certainly depress the profit margin for a time. I am guessing that probably over 6 months and almost certainly over 12 months the net profit margin at 'Buy Right Cars' is significantly greater than 4.8%.

SNOOPY

[percy]

My experience is very different,[no surprises there.!],good second hand car dealers enjoy fat profits,and those who joined together to form MTF,or started financing their own deals,went on to enjoy even fatter profits.
New car sales were a little different, as they were franchises,covered by the likes of Toyota and Ford, who were forever looking for market share.Meant slim profits on new cars,and dealers left trying to make money out of second hand car sales and parts.None ever seemed to make money in their service departments.Tractor sales also meant a lot of money tied up when farmers hid their wallets,which they often did.Being part of a franchise group, also meant opportunities for rolling out their business to other centres was limited.
The Turners model is the best I have ever seen,and easily scaled up.Property development,vehicle and equipment sales,finance and insurance.Total package.However I would not be surprised to see Turners try new cars too.They certainly have the channels to sell them.

Interesting article in this morning's Share Trader A M Update.
ACCC [Australian consumer watchdog] tells car makers to lift their game.
"The watchdog has taken action against Ford over alleged unconscionable and misleading conduct in its response to customer complaints,"
That leaves dealerships selling Ford vehicles, as meat in the sandwich.Very expensive position to find themselves in.Having to replace,fix faulty vehicles, and then not being supported by Ford.
I would point out from what I know, Ford are not alone in not supporting their dealers fully.
Life is not easy for any new vehicle dealership.

[Under Surveillance]

No fireworks during the formal business at the AGM. The Beagle must have got caught up in traffic, or otherwise missed attending? Or maybe he's planning to plant a cream pie in someone's face during the scoff session?

I thought from the video stream that the meeting was well run. Can't blame the board for the poor quality of the questions from some of the geriatrics attending.

Was a minor problem with the sound on the video stream not synching with the sound at the venue when the video marking 50 years of Turners car auctions was played. I'll happily watch again next year.

[blackcap]

No fireworks during the formal business at the AGM. The Beagle must have got caught up in traffic, or otherwise missed attending? Or maybe he's planning to plant a cream pie in someone's face during the scoff session?

I thought from the video stream that the meeting was well run. Can't blame the board for the poor quality of the questions from some of the geriatrics attending.

Was a minor problem with the sound on the video stream not synching with the sound at the venue when the video marking 50 years of Turners car auctions was played. I'll happily watch again next year.

Yes the live stream was very good. Cannot complain about that. Saved a trip from Wellington to Auckland. Some of the questions were amusing yes.

[percy]

No fireworks during the formal business at the AGM. The Beagle must have got caught up in traffic, or otherwise missed attending? Or maybe he's planning to plant a cream pie in someone's face during the scoff session?

I thought from the video stream that the meeting was well run. Can't blame the board for the poor quality of the questions from some of the geriatrics attending.

Was a minor problem with the sound on the video stream not synching with the sound at the venue when the video marking 50 years of Turners car auctions was played. I'll happily watch again next year.
Excellent summary.
Saved an expensive trip to Auckland.
Easy to understand why directors and CEOs ,don't mind talking to you after the meetings, if you ask sensible questions.
I thought the meeting confirmed how strong the business foundations had been laid, and future growth prospects remain sound.

ps.Enjoyed the odd "well positioned."...lol

[Snoopy]

No fireworks during the formal business at the AGM. The Beagle must have got caught up in traffic, or otherwise missed attending?

The other Beagle is a bondholder only. Bondholders don't get an invite to the AGM.

SNOOPY

[horus1]

Many of the big shareholders did not take up new shares according to NBR. Not a good sign. holding

[blackcap]

Many of the big shareholders did not take up new shares according to NBR. Not a good sign. holding

Many of the big shareholders were excluded from taking up shares according to the Chairman. Or at least voluntarily excluded as they wanted to get an Australian and more diverse register. Not concerned at all.

[Beagle]

The other Beagle is a bondholder only. Bondholders don't get an invite to the AGM.

SNOOPY

Correct and too busy anyway. Apparently the Chairman told shareholders that the shares are undervalued.
https://www.nbr.co.nz/subscribe/207901
Gosh I wonder if that's an appropriate comment to make seeing as they're in the middle of a capital raise, vested interest anyone ?

[percy]

Many of the big shareholders were excluded from taking up shares according to the Chairman. Or at least voluntarily excluded as they wanted to get an Australian and more diverse register. Not concerned at all.

Neither am I.
The meeting confirmed they are on track to prove the shares are currently under valued. Well I certainly think so.
I also don't mind if the nervous nellies stay away from the SPP.More for me.!


ps.Nice to know Todd reads, and replies to his emails.
I sent him an email saying I thought the ASM webcast was excellent.

[Beagle]

Neither am I.
The meeting confirmed they are on track to prove the shares are currently under valued. Well I certainly think so.
I also don't mind if the nervous nellies stay away from the SPP.More for me.!


ps.Nice to know Todd reads, and replies to his emails.
I sent him an email saying I thought the ASM webcast was excellent.

Fill ya boots mate. From a TA perspective the chart is a shocker and from a FA perspective the stock still trades at a 25% forward PE premium to CML. Good luck.

[percy]

I do my own research.
I trust my own judgement.
I back myself.
It really works.

Last traded prices as at 20/9/2017;
CMO. $7.47
TRA. $3.18

[percy]

Would a kind poster please post the link to this article.
www.scoop.co.nz
business scoop
"Turners Automotive sees FY pre-tax profit rising."
Thank you in advance.

[blackcap]

like this?
http://www.scoop.co.nz/stories/BU1709/S00655/turners-automotive-sees-fy18-pre-tax-profit-rising.htm


Gotta love the question by the old guy at the AGM as to what they meant by "organic growth"? They he asked if it had something to do with farming. Classic.

[winner69]

http://www.scoop.co.nz/stories/BU1709/S00655.htm

For Percy

[winner69]

like this?
http://www.scoop.co.nz/stories/BU1709/S00655/turners-automotive-sees-fy18-pre-tax-profit-rising.htm


Gotta love the question by the old guy at the AGM as to what they meant by "organic growth"? They he asked if it had something to do with farming. Classic.

Buzz words do confuse many though

[percy]

like this?
http://www.scoop.co.nz/stories/BU1709/S00655/turners-automotive-sees-fy18-pre-tax-profit-rising.htm


Gotta love the question by the old guy at the AGM as to what they meant by "organic growth"? They he asked if it had something to do with farming. Classic.
Thank you,and W69..
Love the oldies..
Funniest was a few years ago, when an old girl went on about DNA.
The punch line was the Chairman Bruce Irvine, politely pointing out to her, she was at the wrong ASM.!!!..lol.

[LAC]

like this?
http://www.scoop.co.nz/stories/BU1709/S00655/turners-automotive-sees-fy18-pre-tax-profit-rising.htm


Gotta love the question by the old guy at the AGM as to what they meant by "organic growth"? They he asked if it had something to do with farming. Classic.

That was a classic lol

[winner69]

like this?
http://www.scoop.co.nz/stories/BU1709/S00655/turners-automotive-sees-fy18-pre-tax-profit-rising.htm


Gotta love the question by the old guy at the AGM as to what they meant by "organic growth"? They he asked if it had something to do with farming. Classic.

Maybe that punter was disappointed because Baker didn't intrinsically communicate mission-critical strategies that clearly....

...or was Baker really meaning that Turners are intrinsically conceptualizing long-term high-impact deliverables

[Beagle]

I do my own research.
I trust my own judgement.
I back myself.
It really works.

Last traded prices as at 20/9/2017;
CMO. $7.78
TRA. $3.18

If you're going to track this mate, kindly note that CMO presently trades cum a 31 cps fully imputed dividend so theoretical ex divvy price is $7.47. Goes ex very shortly.

[blackcap]

I see Milford participated in the $3.02 SPP and are now over 5%.

[percy]

If you're going to track this mate, kindly note that CMO presently trades cum a 31 cps fully imputed dividend so theoretical ex divvy price is $7.47. Goes ex very shortly.

Have done so.
I look forward to seeing which one out performs the other, over the next two or three years.
I should point out, I expect TRA's sp to double with in five years.

[winner69]

I see Milford participated in the $3.02 SPP and are now over 5%.

They were all on market purchases it says

Funny dates but average 302

[blackcap]

They were all on market purchases it says

Funny dates but average 302

That bit got me a bit confused too.. the dates, on market purchases, but averaging $3.02. Very very coincidental indeed.

[sb9]

That bit got me a bit confused too.. the dates, on market purchases, but averaging $3.02. Very very coincidental indeed.

Could be that they treat the SPP participation as on-market purchase :p

[LAC]

I should point out, I expect TRA's sp to double with in five years.

Bold call:) My spreadsheet isnt going to 5 years but I have it at $5.62 in 3 years (2021) so at current price of 3.18 I can also see similar (if there isnt anything drastic that takes place in the world)

[winner69]

That bit got me a bit confused too.. the dates, on market purchases, but averaging $3.02. Very very coincidental indeed.

..and not that volume in last few days either

[percy]

Bold call:) My spreadsheet isnt going to 5 years but I have it at $5.62 in 3 years (2021) so at current price of 3.18 I can also see similar (if there isnt anything drastic that takes place in the world)

Not as bold as you.
I prefer your figures to mine...
Near $8.00 in 5 years, if we extend your 3 year growth rate to 5 years.
Please keep me updated......lol.
We certainly are "well positioned."

[Beagle]

Have done so.
I look forward to seeing which one out performs the other, over the next two or three years.
I should point out, I expect TRA's sp to double with in five years.

As do I. I would be keener if they weren't issuing so many shares. Its one thing to grow profit by 26% forecast but quite another to only grow EPS by 9% and don't forget there will be a lot more shares issued in FY18 when a lot of the convertible note holders convert their $25m worth of notes to shares. I expect another convertible note issue for a further term of two years to roll on from the existing one and a further capital raise in the intervening year in FY19 similar to this one currently being done so I'm expecting ongoing capital raises annually of ~ $25m...Trust you're modelling that into your EPS growth expectations. I've noted these guys have a pretty intense hunger for new capital and I'm doubtful this pattern will change in the near future.

[percy]

As do I. I would be keener if they weren't issuing so many shares. Its one thing to grow profit by 26% forecast but quite another to only grow EPS by 9% and don't forget there will be a lot more shares issued in FY18 when a lot of the convertible note holders convert their $25m worth of notes to shares. I expect another convertible note issue for a further term of two years to roll on from the existing one and a further capital raise in the intervening year in FY19 similar to this one currently being done so I'm expecting ongoing capital raises annually of ~ $25m...Trust you're modelling that into your EPS growth expectations. I've noted these guys have a pretty intense hunger for new capital and I'm doubtful this pattern will change in the near future.

I admire the way TRA have developed the business.Each division scaled up.The model has moved from wholesaling vehicles to more higher margin retail sales.The addition of Buy Right cars gives the motor vehicle sales division scale.The ongoing arrangements with MTF give the fianance division scale.The Autosure acquisition gives the insurance division scale.The strengthened capital base gives TRA the capacity for property or vehicle sales acquisitions.So everything they have done over the past few years has greatly improved the business.This greatly improved business, now has the scale to produce eps growth,not as high as was expected this year,but in future years.And yes they will most probably need to raise further capital to fuel their huge growth in the not too distant future.This capital raise coming after the Hugh Green sell down,will focuss the directors' attention as they all have a great deal of their own skin on the line.No other business in the motor vehicle sector has the growth opportunities TRA has.And they are ready to take those opportunities.

[Beagle]

I admire the way TRA have developed the business.Each division scaled up.The model has moved from wholesaling vehicles to more higher margin retail sales.The addition of Buy Right cars gives the motor vehicle sales division scale.The ongoing arrangements with MTF give the fianance division scale.The Autosure acquisition gives the insurance division scale.The strengthened capital base gives TRA the capacity for property or vehicle sales acquisitions.So everything they have done over the past few years has greatly improved the business.This greatly improved business, now has the scale to produce eps growth,not as high as was expected this year,but in future years.And yes they will most probably need to raise further capital to fuel their huge growth in the not too distant future.This capital raise coming after the Hugh Green sell down,will focuss the directors' attention as they all have a great deal of their own skin on the line.No other business in the motor vehicle sector has the growth opportunities TRA has.And they are ready to take those opportunities.

Enjoying this good healthy debate. I don't disagree with you Percy and there's clearly cross selling opportunities between various divisions of the company and don't disagree that with increased size comes scale advantages and hopefully head office efficiencies BUT, (you knew there was a BUT coming eh mate :) ) I see FY18 as a year of big growth for them that may not necessarily be replicated to the same extent off a higher base for FY19. This is the first year they are fully integrating Autosure and cross selling that service to Turners and Buy Right cars customers, the first full years ownership of Buy Right cars and they are aiming for just 9% EPS growth with these two major acquisitions and the cross selling opportunities they provide. What I don't see is how they're going to generate the same EPS growth next year without the same growth synergy and cross selling opportunities presented as a brand new thing again ? Sure they can buy another dealership and gain scale and offer finance and insurance services but even if we assume they can grow EPS at 9% per annum for the next five years at the same rate as for FY18, (Clearly I have reservations they can), and if we assume they stay on the same forward PE of about 12.5 we get compounded EPS growth x 5 years at 9% totaling 53.9% which is a long way short of the SP doubling so you are appear to be expecting much, much stronger EPS growth in future years even on a materially expanded capital base than I am.
Well have to agree to disagree on that one...put me in the doubting Thomas category. They seem very proud of their projected 26% profit growth target this year but not a single mention of the real EPS profit growth of only 9%. It'll be interesting to see how this play's out. I have a pretty decent stake in this one through the bonds so am watching with quite a material pecuniary interest.

[percy]

I am expecting TRA's 2019 eps forecast to be revised upwards before the bonds convert,which together with TRA getting more runs on the board,will see their PE expand.
The product mix is being more focussed on retail, rather than wholesale.This will give lead to greater Cross-selling oportunities.The systems and overheads are there already,so it will be easier to add to the bottom line.The finance and insurance profits only start when you sell a vehicle and are ongoing.This year,next year and so on.A nice ongoing earner.
Keep in mind everything CMO can't do,TRA can.!
Todd Hunter clearly stated they were developing their own sites,which would suit their needs,and they could either retain ownership,or sell them and lease back.This way the development margin would be theirs.I remember WHS and SCY did this,Good earners,but no analysts has picked up on that potential,as far as I know.

[Beagle]

Thanks Percy I appreciate and respect your point of view. Be interesting to see how it plays out.

[sb9]

Wonder when we'll be notified of the allocation of SPP offer....

[blackcap]

Wonder when we'll be notified of the allocation of SPP offer....

Probably tomorrow.. allocation of new shares is on 11 October.

And soon thereafter probably an announcement of a quarterly dividend which I think they have delayed (last year it was in Sept) because of the SPP.

[sb9]

Probably tomorrow.. allocation of new shares is on 11 October.

And soon thereafter probably an announcement of a quarterly dividend which I think they have delayed (last year it was in Sept) because of the SPP.

Cool, thanks for the info.

[JeremyALD]

The chart for this is looking very bad. Not even much of a discount anymore in the SPP

[Beagle]

Above posted 09/09/2014
Always good to know the nose can still "smell the money."
DPC are forecasting a profit before tax of approx. $23mil for year ending 31/3/2016 while the balance sheet at 31/3/2015 should show shareholders' funds of approx. $120mil and total assets of $265mil.

Posted by Percy when shares were 25 cents. Shares have since consolidated 10:1. So in 3 years the shares have gone from $2.50 to $3.18 = 27% gain plus dividends.

[JeremyALD]

Posted by Percy when shares were 25 cents. Shares have since consolidated 10:1. So in 3 years the shares have gone from $2.50 to $3.18 = 27% gain plus dividends.

Not too bad I guess, but behind NZX50?

[Beagle]

NZX50 up 52% but is a gross index and includes divvies, maybe not all that much in it ?

[percy]

Posted by Percy when shares were 25 cents. Shares have since consolidated 10:1. So in 3 years the shares have gone from $2.50 to $3.18 = 27% gain plus dividends.

I was well not nearly as "well positioned" then, as I am now.!!


Each time TRA have added more runs to the board,so I have added more TRA shares to our portfolios.!
It really works.!

[Beagle]

I was well not nearly as "well positioned" then, as I am now.!!


Each time TRA have added more runs to the board,so I have added more TRA shares to our portfolios.!

HBL up 75% plus dividends over the same timeframe...just as well you've got "a few bob" on that horse too :)

[percy]

HBL up 75% plus dividends over the same timeframe...just as well you've got "a few bob" on that horse too :)

During the past four years or so,both have laid very solid foundations for truly great businesses .
I expect both to build on those foundations.
Both have good organic growth,and have made astute acquisitions.
Both have directors who have large shareholdings.
I expect the share price of both to double within four or five years,and the divies to keep on increasing in the meantime.

[sb9]

Anybody heard from computershare re the SPP allocation and other details.

Have rung them lil earlier and they couldn't give me any information, sucks....

[percy]

Anybody heard from computershare re the SPP allocation and other details.

Have rung them lil earlier and they couldn't give me any information, sucks....

I would expect we will get an announcement va NZX later this afternoon.

[percy]

$14,076,000 chasing $5mil of shares.??
I really do hate SPPs.

[JeremyALD]

$14,076,000 chasing $5mil of shares.??
I really do hate SPPs.

I'm going to get sweet f all after scaling. What a waste of 15k I could of put somewhere else.

[JayRiggs]

$14,076,000 chasing $5mil of shares.??
I really do hate SPPs.
Just checked my allotment on Computershare.
I applied for the full amount and got didly squat!

[winner69]

Just checked my allotment on Computershare.
I applied for the full amount and got didly squat!

Is didly squat more or less than sweet **** all?

[Fox]

Page 3 of the initial offer doc says "your application will be scaled on aproportionate basis with regard to the size of your application", however page 12 says "on a proportionate basis by reference to the size of existing shareholdings and noteholdings held at the time of allotments". Todays announcement conforms with the latter, however I thought it was based off the former?

Is it just me or are these different meanings:
1) Scaling based on application amount = two different holders whom apply for 15k each both get the same amount after scaling
2) Scaling based on existing holding amount = two different holders whom apply for 15k each get proportional amounts according to their holdings

Also this seems a bit unfair for the smaller holders, on top of already lacking funds to get to the 15k mark.

[JayRiggs]

Is didly squat more or less than sweet **** all?

Haha! I got something like 15% of the max amount.
I'm looking forward to getting my refund, so I can put the cash to work.