TUA - Turners Auctions. A Case Study. [Archive] - Page 2

Snoopy

15-02-2014, 02:40 PM

OK, so redoing the comparison along the lines that PT has suggested.

The return on revenue calculation.

($0.907m -$0.490m) / ($2.668m-$0.490m) = 19.1%

Here I have assumed the $0.490m insurance commission is included in the finance revenue, so have removed this from the denominator. I have also assumed the insurance commission flows straight to operating profit so have removed it from the numerator. What is left then should be the return on revenue, purely due to interest earned on the loan book.

Next we need to rework the other calculation, the return on assets to include the long term financial receivables as well as the current financial receivables.

($0.907m-$0.490m)x2 / $22.145m = 3.8%

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

Updating the above calculation for FY2013.

The return on revenue calculation.

($1.861m -$1.151m) / ($5.963m-$1.151m) = 14.7%

Here I have assumed the $1.151m insurance commission is included in the finance revenue, so have removed this from the denominator. I have also assumed the insurance commission flows straight to operating profit so have removed it from the numerator. What is left then should be the return on revenue, purely due to interest earned on the loan book.

Next we need to rework the other calculation, the return on assets. The assets include the long term financial receivables as well as the current financial receivables.

($1.861m-$1.151m) /($10.684m+$14.916m) = 2.8%

Once again I have removed the insurance commission from the finance division operating profit.

The interesting thing here is that although the finance division operating profit is up for the year, most of that underlying loan increase seems to have come in the first half of the year.

Underlying finance operating profit 1HY2013: $0.417m
Insurance Commission 1HY2013: $0.490m
Underlying finance operating profit 2HY2013: ($0.710m-$0.417m)= $0.293m
Insurance Commission 2HY2013: ($1.151m-$0.490m)= $0.661m

It is the increase in insurance commissions that is responsible for the improving performance of the finance division. The actual money made on the funding of vehicle purchases has gone backwards during the year. Who would have thought that!

SNOOPY

biker

27-02-2014, 12:35 PM

What are the chances of DPC making a bid for the rest of TUA at say 3.00? The balance sheet could handle it if it was coupled with a small cash issue and maybe some DPC shares?
Car financing seems to be going well and a combined book could give depth and efficiency?
Just a thought. DPC must be working on something.
Disc. Hold DPC so I'm biased

percy

27-02-2014, 08:03 PM

macduffy

18-03-2014, 08:41 AM

And a nice flow-on effect on TUA's SP yesterday on the news of Dorchester's purchase of Oxford Finance!

macduffy

18-03-2014, 02:49 PM

And a nice flow-on effect on TUA's SP yesterday on the news of Dorchester's purchase of Oxford Finance!

.... and today, the market giveth, the market taketh away!

:mellow:

Snoopy

02-04-2014, 04:28 PM

.... and today, the market giveth, the market taketh away!

Have taken the top off my shareholding over the last week or so. TUA is (or was) trading on a PE of 15. A PE range of 10-12 has been more the norm over the last few years. So time to take some capital off the table for higher dividend pastures elsewhere (Genesis). Two principal reasons for selling down TUA at this time:

1/ I am uncomfortable with letting my gross holding in a low liquidity share such as this get too high.
2/ The change of focus from an 'auction house' to a 'retailer' means that TUA is invading my 'retail share space'. Since I have a very good whack of my capital in RBD, my 'retail investment portfolio' going forwards was looking distinctly overweight.

No doubt I will be proved wrong and once the Turner's retail strategy gains real traction, profits will expand to reduce the PE premium and I will have sold out too cheaply. I certainly hope I will be proved wrong, as there is far more of my capital left in TUA than I have taken out!

But I also know it never pays to be too smart and try and pick exactly the top of the market. There has to be something left on the table for the buyer of my shares to see the positive story in buying in. And from bitter experience, I have always done better selling into market strength.

There is an alternative scenario going forwards too. Milk prices fall, the NZ dollar falls and suddenly imported cars look expensive again. Plus there is always the possibility of some executional 'speed bumps' as any new strategy beds in. With the capital taken I have just taken off the table my average holding price drops to just 84c. So I will hardly be worried by any market price wobbles at some $2 higher than that from now going forwards Good luck to all TUA shareholders that remain, including me!

SNOOPY

BIRMANBOY

02-04-2014, 09:05 PM

So you are getting rid of the old reliable car that's done a super job for you over the years and eying up the new, sparkly, plush leather (in the brochure) interior of the new model, The Genesis Electric hi performance vehicle. Unproven but promising superior performance and enhanced features have tempted you. Yet another investor suffering mid-life crisis of confidence. Excuses and justifications for abandonment are trotted out and expressions of fondness are expressed but ring hollow to those who understand. Cut the cord Snoopy...get rid of your remaining stash ...you'll sleep easier at night. I'll help by taking your remaining leftovers at 84..its the least I could do.
Have taken the top off my shareholding over the last week or so. TUA is (or was) trading on a PE of 15. A PE range of 10-12 has been more the norm over the last few years. So time to take some capital off the table for higher dividend pastures elsewhere (Genesis). Two principal reasons for selling down TUA at this time:

1/ I am uncomfortable with letting my gross holding in a low liquidity share such as this get too high.
2/ The change of focus from an 'auction house' to a 'retailer' means that TUA is invading my 'retail share space'. Since I have a very good whack of my capital in RBD, my 'retail investment portfoli'o going forwards was looking distinctly overweight.

No doubt I will be proved wrong and once the Turner's retail strategy gains real traction, profits will expand to reduce the PE premium and I will have sold out too cheaply. I certainly hope I will be proved wrong, as there is far more of my capital left in TUA than I have taken out!

But I also know it never pays to be too smart and try and pick exactly the top of the market. There has to be something left on the table for the buyer of my shares to see the positive story in buying in. And from bitter experience, I have always done better selling into market strength.

There is an alternative scenario going forwards too. Milk prices fall, the NZ dollar falls and suddenly imported cars look expensive again. Plus there is always the possibility of some executional 'speed bumps' as any new strategy beds in. With the capital taken I have just taken off the table my average holding price drops to just 84c. So I will hardly be worried by any market price wobbles at some $2 higher than that from now going forwards Good luck to all TUA shareholders that remain, including me!

SNOOPY

Snoopy

03-04-2014, 04:39 PM

So you are getting rid of the old reliable car that's done a super job for you over the years and eying up the new, sparkly, plush leather (in the brochure) interior of the new model, The Genesis Electric hi performance vehicle. Unproven but promising superior performance and enhanced features have tempted you. Yet another investor suffering mid-life crisis of confidence. Excuses and justifications for abandonment are trotted out and expressions of fondness are expressed but ring hollow to those who understand. Cut the cord Snoopy...get rid of your remaining stash ...you'll sleep easier at night. I'll help by taking your remaining leftovers at 84..its the least I could do.

Sadly Catman boy, I will be rejecting your most generous offer to relieve me of my investment pain! TUA is and will continue to be a core part of my investment portfolio going forwards. I can say that definitively becasue if something does go badly wrong, I still have too many TUA shares to get rid of easily ;-).

I do want to suggest though a way through your all or nothing way of thinking. Some might say that having sold down some of my TUA shares in recent months I should dump the lot. That would make sense if I was sure of the future path that TUA will take. I do have a crystal ball for share forecasting. But unfortunately I have several crystal balls and they are all telling me different futures for TUA, and I don't know which one is right! All I can do is make an educated guess as to the probability of each one being right. If the doom and gloom ball is right, and I would rate it a 1 in 5 chance of being that way, it makes sense to sell 1 in 5 of my shares, which is about what I did. As a result I sleep very comfortably at night now.

SNOOPY

Snoopy

17-04-2014, 05:12 PM

No doubt I will be proved wrong and once the Turner's retail strategy gains real traction, profits will expand to reduce the PE premium and I will have sold out too cheaply. I certainly hope I will be proved wrong, as there is far more of my capital left in TUA than I have taken out!

Looks like Todd Hunter and the team is starting to prove me wrong. He is forecasting a 10% profit growth for FY2014 and with Q1 on the board already TUA is on track. Not sure how long it will remain TUA by ticker though. Todd is reporting the company name will change to simply 'Turners' from June. And now they are selling cars via Facebook to boot!

Anyway the market liked it and the shares are up 6.2% to $2.76. Small volume though, as is always the case with this company.

SNOOPY

discl: still hold TUA, just not quite as many as before.

forest

17-04-2014, 08:47 PM

Continued market growth
• Strong platform in place
• Huge opportunity to grow market
share
• Focus on identifying new and
innovative ways to attract customers
and sell used vehicles and other
products
• Full year target is to exceed 2013 NPAT
by minimum of 10%.

Looks positive to me, Snoopy forecast is for a MINIMUM of 10% growth in NPAT. Todd seem to me,very confident when he added at the meeting that after the 1Q14 they are well on track. I would say its likely to be a bit more than 10% as its more common for forecast to have some qualifying statements attacked. This 10% growth sounded like a worst case.

noodles

17-04-2014, 09:08 PM

Todd seem to me,very confident when he added at the meeting that after the 1Q14 they are well on track. I would say its likely to be a bit more than 10% as its more common for forecast to have some qualifying statements attacked. This 10% growth sounded like a worst case.
In Todd's short tenure, he has delivered results ahead of expectations. I expect a half year forecast to be delivered in a couple of months that will indicate first half growth closer to 20%. Then the actual result will be at the higher end of the range.

Todd is obviously astute, but he also has industry tailwinds and most importantly, a disruptive product.

Snoopy

04-06-2014, 09:45 AM

OK, so redoing the comparison along the lines that PT has suggested.

The return on revenue calculation.

($0.907m -$0.490m) / ($2.668m-$0.490m) = 19.1%

Here I have assumed the $0.490m insurance commission is included in the finance revenue, so have removed this from the denominator. I have also assumed the insurance commission flows straight to operating profit so have removed it from the numerator. What is left then should be the return on revenue, purely due to interest earned on the loan book.

Next we need to rework the other calculation, the return on assets to include the long term financial receivables as well as the current financial receivables.

($0.907m-$0.490m)x2 / ($9.670m + $12.475m) = 3.8%

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

Time to look at how the Turners finance division went over the full year, 2014.

The return on revenue calculation.

($1.861m -$1.151m) / ($5.963m-$1.151m) = 14.8%

Here I have assumed the $1.151m insurance commission is included in the finance revenue, so have removed this from the denominator. I have also assumed the insurance commission flows straight to operating profit so have removed it from the numerator. What is left then should be the return on revenue, purely due to interest earned on the loan book. This figure has dropped significantly on just the half year result.

Next we need to rework the other calculation, the return on assets to include the long term financial receivables as well as the current financial receivables.

($1.861m-$1.151m) / ($10.684m + $14.916m) = 2.8%

Once again I have removed the insurance commission from the finance division operating profit. Again we see a big drop compared to just the half year.

The changes in return may not be significant, because a half year is a short time period and what we could be seeing here is natural volatility. But it could also be that competition in the sector is starting to bite.

SNOOPY

Snoopy

04-06-2014, 11:15 AM

As PT has pointed out, I should have used the total financial receivables, not just the current financial receivables to evaluate the loan book.

$9.670m + $12.475m = $22.145m (for HY2013)
$9.407m + $11.830m = $21.237m (for FY2012)

So the growth in the loan book over six months has averaged 4.2%, not 3%.

This is of course assuming that all financial receivables relate to the motor vehicle loan book. Given the aversion of TUA to debt and the relatively simple nature of their business, I think this is a fair assumption.

Picking the finance receivables out of the balance sheet the position at EOFY2013 was as follows:

$10.684m + $14.916m = $25.600m (for EOFY2013)

So growth of the loan portfolio was 20.5% over the full year - impressive. Most of that growth came over the last 6 months as if we compare six monthly balances, the total loan book has grown by 15.6% between June 30th 2013 and December 31st 2013.

SNOOPY

noodles

04-06-2014, 10:43 PM

Time to look at how the Turners finance division went over the full year, 2014.

The return on revenue calculation.

($1.861m -$1.151m) / ($5.963m-$1.151m) = 14.8%

Here I have assumed the $1.151m insurance commission is included in the finance revenue, so have removed this from the denominator. I have also assumed the insurance commission flows straight to operating profit so have removed it from the numerator. What is left then should be the return on revenue, purely due to interest earned on the loan book. This figure has dropped significantly on just the half year result.

Next we need to rework the other calculation, the return on assets to include the long term financial receivables as well as the current financial receivables.

($1.861m-$1.151m) / ($10.684m + $14.916m) = 2.8%

Once again I have removed the insurance commission from the finance division operating profit. Again we see a big drop compared to just the half year.

The changes in return may not be significant, because a half year is a short time period and what we could be seeing here is natural volatility. But it could also be that competition in the sector is starting to bite.

SNOOPY

ROR:
Yes, it appears second half profit in the finance(ex insurance) division dropped. This is probably relates to margin. Perhaps they have sacrificed margin to sell insurance. Insurance has had a big jump.

I agree that this is something to watch.

It is worth noting that the finance division as a whole had a slightly better 2nd half than the 1st half. 950Kvs907K.

ROA: Given you have said that the loan book has grown in the last six months, wouldn't you expect the revenue for that loan to be over the next couple of years? So you would expect the returns to drop as a % of loan book. I.e. They don't book the profit when the loan is written.

vin

05-06-2014, 02:56 PM

down 4.5% or there abouts. Whats the deal!

blackcap

05-06-2014, 03:43 PM

down 4.5% or there abouts. Whats the deal!

I think this is exactly what Snoopy was alluding to when mentioning the risks of low liquidity stocks.

Snoopy

06-06-2014, 02:53 PM

ROA: Given you have said that the loan book has grown in the last six months, wouldn't you expect the revenue for that loan to be over the next couple of years? So you would expect the returns to drop as a % of loan book. I.e. They don't book the profit when the loan is written.

Noodles, the TUA loan book is growing but has been frozen as at 31st December 2013 for my "Return on Asset" calculation. The numerator in my calculation (the return) is accumulated operating earnings over the entire year. For all of that year the loan book was probably smaller than it is now. So it would be more correct to use an 'average loan balance' over the year when doing the calculation for 'Return on Assets'.

Operating Earnings on Finance Book / Average Balance of Finance Book

would be a better way to go about the calculation.

But the 'Average balance of the Finance Book' is not a published figure, whereas the end of year balance of finance loans can be obtained easily from the balance sheet. So while my calculation will give an ROA figure on the low side, if I use my method consistently, from year to year, then it should be a good comparative measuring stick as long as the loan book is growing at a consistent rate. Of course if the loan book suddenly jumps in value when compared to the 'normal' loan book growth curve I will indeed underestimate any comparative ROA growth on the loan book. I think that was the point you were making?

However what you said was
"They don't book the profit when the loan is written."

I don't understand that comment in this context. Perhaps you meant to say "They don't book all the profit when the loan is written.", which is true. But neither I nor TUA are attempting to relate profits over the lifetime of a loan. We are only looking at profits made in the current year compared to the current year loan balance.

SNOOPY

noodles

06-06-2014, 10:24 PM

However what you said was
"They don't book the profit when the loan is written."

I don't understand that comment in this context. Perhaps you meant to say "They don't book all the profit when the loan is written.", which is true.
SNOOPY
I just mean that the finance book will increase when the loan in written, but the interest (and therefore profit) will be over the life of the loan.
from 1/7/2013-31/12/2013, the loan book increased over the first half of the year. Therefore, we would expect profit to rise (as a % of the loan book) in subsequent periods.

What is the point of doing the calculation if does not accurately reflect the current market conditions? I.e. A ramp up of lending lowers the %

noodles

noodles

06-06-2014, 11:05 PM

Snoopy

07-06-2014, 02:38 PM

I just mean that the finance book will increase when the loan in written, but the interest (and therefore profit) will be over the life of the loan.
from 1/7/2013-31/12/2013, the loan book increased over the first half of the year.

Yes but the loan book also increased over the first half of the year ( 1/1/2014- 30/6/2041 ) itself, albeit not by as much as in the second half.

Therefore, we would expect profit to rise (as a % of the loan book) in subsequent periods.

What is the point of doing the calculation if does not accurately reflect the current market conditions? I.e. A ramp up of lending lowers the %

The point is, I prefer to keep my company analysis calculations as simple as possible and use publically declared information for my data inputs.

If I can go to an annual report pull out a couple of numbers and create a ratio that is ideal. For example, I calculate ROE this way, even though if the equity has changed during the year, through issuing new shares as part of a DRP for example. The number I will get will be slightly lower than the correct answer. I know that the number will be slightly low (hence conservative - a good thing) but in most cases that is still close enough for my purposes.

For TUAF (The TUA finance loans) the Return on Revenue dropped from 3.8% in the first half (based on the 30th June half year balance date, not an accurate snapshot of the loan portfolio over the half year) to 2.8% for the full year (based on 31st December end of year balance date, not an accurate snapshot of the loan portfolio over the full year). Neither calculation is accurate because of the way the loan balance has grown during the year. The full year calculation is less accurate than the half year calculation, because the loan balance has varied a lot more over the full year than the half year. Until you mentioned this Noodles, I hadn't given it much thought so I am grateful to you for highlighting this possible inaccuracy. But to summarize what we do know...

1/The loan book has grown by 20%, 3/4 of that growth being in the second half.
2/ The ROR has dropped from 3.8% for the half year to 2.8% for the full year.
3/ 2.8% (down from 3.8%) is a drop of 25%.

'On average', without doing a more fancy calculation (which you are welcome to do if you like), it looks to me as though the ROR is dropping even allowing for the growth in the loan book. Of course I could be wrong about this. If most of the new loans were written in November and December then the income from these loans would not be sufficiently on stream by year end balance date, making the ROR result for year end artificially low. But Turners do not disclose their results to this level of detail, so I will stick to my 'on average' viewpoint. To some extent the ROR drop from 3.8% to 2.8% is a worst case scenario, and hence conservative (a good thing) from an investment analysis prespective.

Incidentally I am not surprised in the ROR dropping if the loan book is expanding rapidly,because I would expect TUA to have to sharpen their pencil to gain market share in a competitive market. If this is what TUA are doing I think it is the right approach.

SNOOPY

Snoopy

07-06-2014, 02:55 PM

Snoopy has been doing the comparison of DPC and TUA in their finance business. I thought I would cover of the insurance business.

DPC
Insurance Revenue = 4976
Insurance EBT = 1189
ROR=1189/4976=23.9%

TUA
Insurance Revenue=1151
Insurance EBT =1151
ROR=1151/1151=100%

Hmmm, some thing is wrong here. Surely there are some expenses associated with the insurance business of TUA?

Help me out Snoopy

It is a tricky situation when you are dealing with commissions Noodles, in particular how to analyze things. You can picture the situation:

The successful bidder in a car auction walks into the 'seal the deal' room. The paperwork is signed off and the TUA representative, points out the box on the bottom of the form :

"Do you want to take insurance? Put a tick in the box []"

The effort expended by the TUA representative would only be measured my micoranalysis of their time sheet. Obviously that would transfer to measurable desk time where the furniture is depreciated and measurable software time over which the software is amortized. But is it worth doing such a calculation? I would suggest not.

What we do know is this:

1/ The cheapest way to get work done outside of your own core competance is to get someone else to do that work for you. It makes sense for TUA to farm pout their insurance business to an insurance specialist.
2/ Dorchester have specialised insurance staff, while TUA do not.

So while insurance remains a fringe activity for TUA, it is immensely profitable because they are gaining business for very little effort. That 100% ROR calculation is obviously overestimating the true return. If I said the actual return was 98%, would that satisfy you?

Whatever the real number is I would expect it to be enormously higher than Dorchester, simply because of the nature of the commission business. That doesn't mean that TUA has a better insurance business than DPC though, because TUA isn't really in the insurance business

SNOOPY

hilskin

28-07-2014, 10:33 AM

TAKEOVER: DPC: Dorchester enters Lock Up Agreement ahead of Takeover Offer
DPC
28/07/2014 09:55
TAKEOVER

REL: 0955 HRS Dorchester Pacific Limited

TAKEOVER: DPC: Dorchester enters Lock Up Agreement ahead of Takeover Offer

28 July 2014
Company Announcement

DORCHESTER ENTERS LOCK UP AGREEMENT AHEAD OF TAKEOVER OFFER FOR TURNERS
AUCTIONS

Dorchester Pacific Limited (NZX:DPC) today announced it has entered into a
Lock Up Agreement with Bartel Holdings Limited (Bartel), a 20.8% shareholder
in Turners Auctions Limited (Turners). Bartel has agreed to accept, in
respect of its Turners ordinary shares, a takeover offer Dorchester intends
to make for all the ordinary shares in Turners it does not already hold.
Dorchester currently owns 19.85% of the ordinary shares in Turners.
Dorchester and Bartel between them hold 40.65%.

Dorchester advises that it intends to make a full takeover offer for 100% of
Turners' equity securities under Rule 8 of the Takeovers Code, under which
Dorchester will offer Turners' shareholders;

o cash consideration of $3.00 per Turners ordinary share; or
o 2 year 9% p.a. interest bearing Convertible Notes to be issued by
Dorchester with an option to convert to Dorchester ordinary shares; or
o Dorchester ordinary shares (with a guaranteed allocation of up to 60% of
the consideration due to accepting Turners shareholders, pro rata
thereafter); or
o any combination of cash, Convertible Notes or Dorchester ordinary shares,
subject to the limitations on Dorchester ordinary shares referred to above.

In addition, Dorchester will be seeking payment by Turners of a fully-imputed
special dividend of $0.15 per Turners share to existing shareholders, once
acceptances are received from Turners shareholders giving Dorchester an
aggregate holding in Turners in excess of 50%.

Bartel has agreed to accept a combination of 60% Dorchester ordinary shares
and 40% Convertible Notes as consideration for its Turners shares,
conditional on the takeover proceeding.

The takeover offer is not conditional on Dorchester achieving a particular
threshold of acceptances, other than achieving at least 50.1% control as
required by the Takeovers Code.

Dorchester CEO and Executive Director, Paul Byrnes, said funding for the
acquisition will be a combination of a share placement, the issue of
Convertible Notes and some bank funding.

"We anticipate raising between $25 million and $27.5 million at $0.25 per
share through the issue of Dorchester shares to Turners shareholders,
including Bartel, and a placement. We also expect to issue around $15
million of Convertible Notes including to Bartel. Final numbers will of
course depend on the level of acceptances and the combination of shares,
Convertible Notes and cash options taken up by Turners shareholders.

"Our major shareholders have indicated an interest in participating in both
the share placement and the Convertible Notes issue. We are also considering
how we can give all Dorchester shareholders the opportunity to participate in
the placement through a Share Purchase Plan. This may leave $5 million to
$7.5 million to be placed with qualifying investors in a market placement
although we will have bank funding in place to more than cover this in any
event."

It is expected that a formal Takeover Notice will be issued during the month
of August. At that time the date of Dorchester's Annual Meeting of
shareholders will be set. Resolutions in relation to the takeover offer will
be considered at that meeting.

Commenting on the rationale for the acquisition, Mr Byrnes said:

"There is a natural alignment and synergy between Dorchester and Turners
Auctions, which we talked about at the time of our investment in Turners,
last April. Seventy percent of our finance lending is for motor vehicles and
our insurance business has a focus on motor vehicle related insurance
products. We have also signaled our interest in participating in the
origination or 'front end' of an end-to-end financial services business.
And, at board level, we have been very supportive of Turners' multi-channel
strategy.

"With Dorchester's shareholder funds increasing to over $100 million
following the share placement - compared to Turners current shareholders
funds of around $18 million - we believe we can add significant 'horse power'
to grow the business in a much shorter time frame than might currently be
possible. We believe the takeover will be particularly positive for Turners'
existing customers and staff, as it will create many new opportunities.

"With respect to Turners shareholders, we think the effective consideration
of $3.15 per share (including the $0.15 Turners special dividend) is a pretty
good outcome given the market price of around $1.80 per share 15 months ago
when we joined the register. Of course we are hoping that Turners
shareholders will come to the same view as Bartel has, in not only assessing
the takeover price as attractive, but also seeing value in the opportunity to
participate in the growth and profit momentum of the enlarged business."

Last Month Dorchester advised the market of its profit guidance for its
existing businesses of $10 million - $11 million for the current financial
year, with this increasing to around $15 million for the year to 31 March
2016.

"If the takeover proceeds we would expect the Dorchester group profit before
tax in the 2016 year to be in the $20 million to $25 million range, depending
on our ultimate shareholding in Turners", said Mr Byrnes.

Dorchester Chairman, Grant Baker, said that while the takeover offer may
appear to be a bold move for Dorchester, the acquisition of a controlling
stake in Turners is entirely consistent with Dorchester's well signaled M&A
criteria and profit strategy.

"It perfectly fits our strategic plan in that it's an industry we understand
and offers scale and sustainable earnings. We believe additional synergies
will arise from a more significant investment position."

Mr Baker said the acquisition will be earnings per share accretive for
Dorchester and that funding is quite manageable.

"Dorchester's balance sheet will still remain relatively conservative, with
some headroom for pursuing further opportunities."

ENDS

For further information please contact:

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

Grant Baker
Chairman
Dorchester Pacific Limited
Mobile: 021 729 800

Karyn Arkell
Karyn Arkell & Associates
Mobile 027 475 3511

About Dorchester Pacific (Dorchester)

Dorchester is a financial services company with four operating entities,
Dorchester Finance, Oxford Finance, DPL Insurance and EC Credit. EC Credit
was acquired in November 2012 and Oxford Finance was acquired in April 2014.

Dorchester Finance provides secured lending to consumers (70%) and small and
medium businesses (SME's) (30%). The value of the loan book is approximately
$40 million with 70% of total lending on private and commercial motor
vehicles. The business operates out of Dorchester's offices in the Auckland
CBD with its customer strength in the Auckland, South Auckland and Hamilton
regions.

Oxford Finance provides secured lending mostly to consumers through a mix of
channels including motor vehicle dealers, finance brokers, smaller finance
companies and direct lending. The value of the book is approximately $50
million with 75% of loans being motor vehicle financing. The business is
based in Levin with a strong presence in the Wellington, Wairapapa, Taranaki,
Hawkes Bay, Waikato and Bay of Plenty areas. Oxford Finance was acquired by
Dorchester on 1 April 2014 for a (cash) purchase price of between $11.3
million and $12.3 million depending on earnings of the business for the 12
months to 31 March 2015. A profit contribution of $3 million earnings before
interest and tax is forecast for that period.

DPL Insurance is an underwriter and distributor of insurance products under
'Dorchester Life' and 'Mainstream' brands. Dorchester Life products include
Easylife and Funeral Plan. The major growth focus is on 'Mainstream' motor
vehicle related insurance products including private motor vehicle insurance,
motor vehicle breakdown insurance, loan repayment insurance and GAP
insurance. DPL Insurance has a financial strength rating of B+ from credit
rating agency A.M. Best.

EC Credit provides debt recovery and credit management services in New
Zealand and Australia. Debt recovery clients include banks, institutional
and corporate clients and SME businesses, with collections on a contingency
basis. EC Credit also sells terms of trade, credit reporting and legal
services to SME customers in New Zealand and Australia. The company is
headquartered in Napier with offices in Australian states, and employs
approximately 150 staff and agents.

EC Credit was acquired in November 2012 for a total consideration in cash and
shares of approximately $18 million and contributes an earnings before
interest or tax in excess of $4 million.

Dorchester acquired a stake of just under 20% in NZX listed Turners Auctions
Limited (Turners) in April 2013. Turners is a market leader in the second
hand car, truck and machinery market in New Zealand with three revenue
streams, Fleet (purchase and sale of used vehicles sourced from New Zealand
and Japan), Finance (lending on motor vehicles with insurance product
offerings) and Auctions (sales of vehicles and machinery on behalf of vendors
including lease companies, government, finance companies and motor vehicle
dealers).

The Dorchester Group reported a profit after tax of $8.2 million for the year
to 31 March 2014. In June 2014 the company provided profit guidance of $10
million - $11 million for the financial year to 31 March 2015 with this
increasing to around $15 million for the year to 31 March 2016. These
forecasts include a full contribution from Oxford Finance but no contribution
from further merger and acquisition activity.
End CA:00253161 For:DPC Type:TAKEOVER Time:2014-07-28 09:55:33

hilskin

28-07-2014, 10:39 AM

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

macduffy

28-07-2014, 11:19 AM

28-07-2014, 12:04 PM

What a strange article. The "wins support from chairman" bit refers to Dorchester's chairman, not TUA's. Wouldn't you expect an acquirer to "support" their bid?

I think it refers to TUA's Chairman

biker

28-07-2014, 02:03 PM

What a strange article. The "wins support from chairman" bit refers to Dorchester's chairman, not TUA's. Wouldn't you expect an acquirer to "support" their bid?

It refers to Michael Dossor, chairman of TUA

BIRMANBOY

28-07-2014, 03:08 PM

Buuggeer...why couldn't they leave it alone...TUA was giving out good dividends and doing good business and now who knows what will happen...don't trust anything with a "finance" in it.

noodles

28-07-2014, 09:41 PM

Buuggeer...why couldn't they leave it alone...TUA was giving out good dividends and doing good business and now who knows what will happen...don't trust anything with a "finance" in it.
I agree. I'm a little disappointed. I also own DPC, but I have a higher conviction with TUA.
I wonder if they will make the 90% threshold? If not, you may still get to keep your TUA shares.

Felonius

28-07-2014, 09:54 PM

Yes, Turners Auctions is in a good space and I don't wish to sell to this crowd.

waikare

29-07-2014, 07:22 AM

Yes, Turners Auctions is in a good space and I don't wish to sell to this crowd.

Like wise, TUA have always been a good dividend earner for me.

Harvey Specter

29-07-2014, 09:47 AM

Yes, Turners Auctions is in a good space and I don't wish to sell to this crowd.Is that why there is an arbitrage at the moment? YOu dont think they will make the 50%. Otherwise you could buy at $3.05, get a 15c dividend and sell at $3 - a 10c gain.

Take the NOtes and you even have an option over the Dorchester shares - is the strike price set or is it determined in the future?

These companies weren't even on my radar but it looks like an interesting situation.

macduffy

29-07-2014, 11:48 AM

The arbitrage probably arises because not all TUA holders want to end up with DPC notes. The risk is that if too many want the cash there will be a mix of cash and notes for all. May not be a satisfactory outcome, particularly for smaller TUA shareholders.

zigzag

29-07-2014, 12:00 PM

Is that why there is an arbitrage at the moment? YOu dont think they will make the 50%. Otherwise you could buy at $3.05, get a 15c dividend and sell at $3 - a 10c gain.

Take the NOtes and you even have an option over the Dorchester shares - is the strike price set or is it determined in the future?

These companies weren't even on my radar but it looks like an interesting situation.
I think those 9% notes look interesting, but need to know more details. I hold DPC only.

percy

29-07-2014, 01:26 PM

Yes, Turners Auctions is in a good space and I don't wish to sell to this crowd.

I think "this crowd" are the perfect people to have control of TUA.
Their interest is better aligned than an Ecuadorian banana business.

Snoopy

01-08-2014, 01:47 AM

It refers to Michael Dossor, chairman of TUA

Dosser is the appointed and approved board representative of Bartel Holdings IIRC. So there would be something wrong if he didn't support the takeover, if Bartel Holdings is already on board. I will be more interested in what the independent directors think.

http://www.turners.co.nz/Company/Investor-Centre/Announcements/Listing-Rule-333a-Independent-Directors/

SNOOPY

Snoopy

01-08-2014, 02:17 AM

Buuggeer...why couldn't they leave it alone...TUA was giving out good dividends and doing good business and now who knows what will happen...don't trust anything with a "finance" in it.

Birmanboy, Dorchester is an interesting company in that it is more than just a finance company. I quite like the recent debt recovery business acquisition. Seems a natural hedge if pressure comes on the 'conventional' finance business should interest rates rise. Also some heavy hitters have shown confidence in the company by putting in new capital at 25cps a couple of years back.

My previous analysis of like for like 'finance' divisions has shown that Turner's in house business is intrinsically slightly more profitable than Dorchester's when interest costs are backed out. The question is then, will Turner's finance division show increased returns as a result of them having to pay a virtually allocated part of Dorchester's core debt should a full takeover proceed? And do Dorchester's finance gurus have anything to add that will improve Turner's operational procedures? The past record would indicate the answer to both these questions is no. I am not ruling out that Turner's shareholders might still be better off if more economies of scale can drive costs down though.

The TUA share price rose from about $2.65 to $3.05 following DPCs intention of takeover, a rise of some 15%. However for those accepting the offer in the form of Dorchester shares, these shares will be priced at 25c. At the time of the offer announcement the DPC share price was 23.5c, a 5% discount to the 25c 'value' of the new DPC shares offered. So the real share offer takeover premium was only about 10% - not overly generous.

My feeling is that without Bartel on board, DPC might struggle to get their stake up to 50%. With Bartel on board, this seems a much more plausible outcome. Given DPC will go ahead with the takeover if they can reach 50.1%, and the fact that the offer doesn't seem that generous, given Turner's stand alone growth prospects, my gut feeling is that this is an offer that is designed to fail to get to that 90% compulsory acquisition threshold. 50.1% will be enough to consolidate TUAs balance sheet into the DPC balance sheet. Since TUA has no term debt, but DPC does, this is a backdoor way of shoring up the balance sheet of DPC - good for DPC shareholders.

As for whether existing TUA shareholders would be better off by holding onto their TUA shares or continuing their exposure to TUA through holding DPC shares, my gut feeling is that TUA share holders might do better by just holding onto their TUA shares and not accepting the offer. I will need to study the independent directors recommendations though, to see if my gut feeling is correct.

The other issue here is liquidity. The cash offer is a way for larger shareholders to release some TUA cash in a way that might not be possible on a thinly traded sharemarket. Getting DPC shares won't necessarily improve their ability to sell out in the future because in the past DPC shares have been thinly traded as well.

In summary Birmanboy, don't throw in the towel with your TUA shares just yet!

SNOOPY

waikare

01-08-2014, 07:43 AM

Snoopy

28-08-2014, 03:30 PM

Snoopy: As for whether existing TUA shareholders would be better off by holding onto their TUA shares or continuing their exposure to TUA through holding DPC shares, my gut feeling is that TUA share holders might do better by just holding onto their TUA shares and not accepting the offer. I will need to study the independent directors recommendations though, to see if my gut feeling is correct.

At this stage I intend to hang onto my small parcel of shares.

Details now posted to the net on the offer.

There are three options for TUA shareholders who choose to accept.

1/ Cash ($3 per share)
2/ Swapping each TUA share you hold for 12 DPC shares (may be scaled back depending on the number of acceptances)
3/ Acquiring new DPC bonds which have a nominal value of $1. Thus each TUA share converts to three new DPC bonds.

The cash price offered for TUA shares is $3 even, plus a 15c special dividend (all TUA shareholders get this, whether they accept the offer or not). Assuming the share price stays at $3 after the takeover offer and the TUA ordinary dividend (also 15cps) is steady into next year, the look forward net yield on TUA shares will be:

15/300 = 5% or a gross yield of 7.5%

If shareholders take up Dorchester's bond offer, then one share at $3 will convert to three $1 bonds. These bonds effectively have to be held to maturity (2 years) because Dorchester has indicated that will not be setting up a market for them. The bonds will offer an interest rate of 9% gross. This is better than holding onto your Turners shares, if you assume that the Turner's share price will stay at $3.

If you were to accept the $3 cash share offer for your TUA shares and the share price subsequently went down to:

$3 x (7.5/9) =$2.50

Then using your cash payout to rebuy shares at $2.50 would give you the same dividend/interest return as accepting DPC bonds in the takeover offer.

On maturity the bonds will convert to DPC fully paid shares at market price less a 5% discount to the average of the daily volume weighted price of the Shares in the 90 days prior to the Maturity Date as determined by an independent adviser appointed by Dorchester. There is a cap maximum conversion price you will pay for your Dorchester shares in two years time of 30c.

On the surface,
1/ if you want to accept the takeover offer and
2/if you are prepared to have your capital locked up for two years,

it looks more favourable to accept the DPC bonds IMO. Anyone agree or disagree with that view?

SNOOPY

noodles

28-08-2014, 04:26 PM

Details now posted to the net on the offer.

it looks more favourable to accept the DPC bonds IMO. Anyone agree or disagree with that view?

SNOOPY

There is also a 7.5c dividend declared as well as the special dividend.

I was disappointed that the TUA shares would convert to DPC shares at 25c. It should have been the price when the offer was make (circa 22c)

My current plan to take the cash. My rational is that I can beat the 9% on offer. I also don't like the idea of not having a market to transact my bonds.

I'd have preferred there was no takeover.

BIRMANBOY

28-08-2014, 05:18 PM

There does not appear ? to have been any comments from TUA management/directors as to what they think and their reactions. Only comment I have seen has been a suggestion for holders to wait...? for what? Maybe more to come? Sort of advanced fence sitting. I would have thought they would either support or reject it more vocally ....Too many unknowns for me to feel comfortable. Forget the bonds..thats returning me less than the dividends (15% plus minus). Take the shares in Dorchester? I think not. I would prefer for Turners to fight the takeover by harnessing shareholders but maybe the big holders want it? Phooked if I know.

biker

28-08-2014, 05:41 PM

Details now posted to the net on the offer.

There are three options for TUA shareholders who choose to accept.

1/ Cash ($3 per share)
2/ Swapping each TUA share you hold for 12 DPC shares (may be scaled back depending on the number of acceptances)
3/ Acquiring new DPC bonds which have a nominal value of $1. Thus each TUA share converts to three new DPC bonds.

The cash price offered for TUA shares is $3 even, plus a 15c special dividend (all TUA shareholders get this, whether they accept the offer or not). Assuming the share price stays at $3 after the takeover offer and the TUA ordinary dividend (also 15cps) is steady into next year, the look forward net yield on TUA shares will be:

15/300 = 5% or a gross yield of 7.5%

If shareholders take up Dorchester's bond offer, then one share at $3 will convert to three $1 bonds. These bonds effectively have to be held to maturity (2 years) because Dorchester has indicated that will not be setting up a market for them. The bonds will offer an interest rate of 9% gross. This is better than holding onto your Turners shares, if you assume that the Turner's share price will stay at $3.

If you were to accept the $3 cash share offer for your TUA shares and the share price subsequently went down to:

$3 x (7.5/9) =$2.50

Then using your cash payout to rebuy shares at $2.50 would give you the same dividend/interest return as accepting DPC bonds in the takeover offer.

On maturity the bonds will convert to DPC fully paid shares at market price less a 5% discount to the average of the daily volume weighted price of the Shares in the 90 days prior to the Maturity Date as determined by an independent adviser appointed by Dorchester. There is a cap maximum conversion price you will pay for your Dorchester shares in two years time of 30c.

On the surface,
1/ if you want to accept the takeover offer and
2/if you are prepared to have your capital locked up for two years,

it looks more favourable to accept the DPC bonds IMO. Anyone agree or disagree with that view?

SNOOPY

I agree, and in my view the DPC share price could be well north of 30c in two years time, making the 9% yield a by-product. Having spoken to Grant Baker recently, he is spending time and energy on DPC and I think it will continue to grow.

Disc. Hold quite a few DPC so I'm biased.

BIRMANBOY

28-08-2014, 05:47 PM

I have looked through the offer and announcements and still cannot see any comments as to relative merits of takeover from TUA. Apart from one sentence saying "don't sell yet" whatever that means. Anyone know how to set up a survey for holders as to what they are going to be doing?

The Board of the Company will be considering the Takeover Notice in

accordance with the Takeovers Code and will keep shareholders advised of

developments. In the meantime, the Board recommends that shareholders do not

sell any of their current holdings in the Company.

For and on behalf of the Board

Todd Hunter

CEO

noodles

28-08-2014, 06:06 PM

$3 cash share offer for your TUA shares and the share price subsequently went down to:

$3 x (7.5/9) =$2.50

SNOOPY
Can you explain the drop in share price? I'm not sure I understand the logic? What is "7.5" and "9"?

Snoopy

29-08-2014, 10:15 AM

Can you explain the drop in share price? I'm not sure I understand the logic? What is "7.5" and "9"?

The gross yield of TUA based on a 15c full year dividend at a share price of $3 is 7.5%.

The question is, what price would you pay for TUA shares if you wanted a gross yield of 9%? Obviously the answer is less than $3. More exactly, the price you pay can be worked out by multiplying by a reducing ratio of the two interest rates concerned.

$3 x (7.5%/9%) = $2.50

Now to run the check. The 15c dividend remains, so:

15c/250c = 6% net. 6%/0.67= 9% gross return

Make sense?

SNOOPY

Snoopy

29-08-2014, 10:21 AM

There is also a 7.5c dividend declared as well as the special dividend.

I was disappointed that the TUA shares would convert to DPC shares at 25c. It should have been the price when the offer was make (circa 22c)

I agree with you. But there are some big names who put money into Dorchester at 25c per share only a couple of years ago. The DPC board would not want to annoy them by offering shares to all and sundry at a lower price!

My current plan to take the cash. My rational is that I can beat the 9% on offer.

Yes the 9% upside may not be aggressive eenough for some. But there is also an implied performance guarantee with the bonds. If the DPC share price goes down over the next two years, then bondholders have the option of buying DPC at the lower price, less a 5% discount. That option has some value too. And of course if you don't want DPC at the lower price you can escape with your capital as cash after two years.

I also don't like the idea of not having a market to transact my bonds.

Fair enough. Not everyone wants their capital tied up for two years.

I'd have preferred there was no takeover.

You can still not accept the offer. That is a legitimate fourth choice. I don't think DPC expect to get to the 90% compulsory acquisition threshold.

SNOOPY

Snoopy

29-08-2014, 10:32 AM

Forget the bonds..thats returning me less than the dividends (15% plus minus).

The bonds are paying less than the historical TUA dividend yield. True Birman boy. But that 15c special dividend this year will not be repeated next year. The main purpose of the special dividend will be to clear out the imputation credit account before Dorchester assumes control. If TUA did not pay a special dividend those imputation credits would be lost under the new ownership structure.

The 'normal' annual TUA dividend is 15c per year. So that is all you can bank on going forwards. Looked at in that context, the cash return on the DPC bonds looks better than the forward looking TUA gross dividend yield (assuming TUA share price of $3) .

SNOOPY

noodles

29-08-2014, 11:01 AM

The gross yield of TUA based on a 15c full year dividend at a share price of $3 is 7.5%.

The question is, what price would you pay for TUA shares if you wanted a gross yield of 9%? Obviously the answer is less than $3. More exactly, the price you pay can be worked out by multiplying by a reducing ratio of the two interest rates concerned.

$3 x (7.5%/9%) = $2.50

Now to run the check. The 15c dividend remains, so:

15c/250c = 6% net. 6%/0.67= 9% gross return

Make sense?

SNOOPY
Sure. Although, I'm not sure we all think like you:)
I'm more concerned how DPC will treat the business when they control it. Will DPC reduce the insurance commission or increase the funding rate. This would allow the parent company(DPC) to make better profits at the expense of TUA.
That is my main concern about holding.

percy

29-08-2014, 12:37 PM

Sure. Although, I'm not sure we all think like you:)
I'm more concerned how DPC will treat the business when they control it. Will DPC reduce the insurance commission or increase the funding rate. This would allow the parent company(DPC) to make better profits at the expense of TUA.
That is my main concern about holding.

"He who pays the piper calls the tune".
DPC in this case calls the tune.Why bother otherwise?

Snoopy

29-08-2014, 03:56 PM

I'm more concerned how DPC will treat the business when they control it. Will DPC reduce the insurance commission or increase the funding rate. This would allow the parent company(DPC) to make better profits at the expense of TUA.
That is my main concern about holding.

Sure what you say is possible. But it is also possible that synergies will benefit TUA and DPC. Here is the DPC side of what they say they will bring to the table:

From p10 of

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

------

Finance Synergies

"There are opportunities for Dorchester’s business to:

Attach finance on non-standard and commercial vehicles (i.e. both currently not able to be financed under the criteria offered to Turners’ customers by the current financer)

Attach finance on plant and equipment and other general goods sold by Turners, for which Turners presently has no finance offering

Offer finance facilities to Turners’ dealer clients for vehicles sold outside Turners’ auction or
sale processes Further, Dorchester expects the demand for vehicles and general goods sold by Turners to increase as a result of greater breadth in its financing options to Turners’ customers."

Insurance Synergies

"Turners currently distributes mechanical breakdown insurance policies, payment waiver insurance
policies and private motor vehicle insurance policies, with a distributor commission paid to Turners.

The opportunities for Dorchester, therefore include:

Replacing Turners’ current underwriter with Dorchester Insurance Group (which provide similar products) and offer more tailored insurance products

Leveraging Turners database to distribute other Dorchester Insurance Group products and motor vehicle related insurance policies to past clients of Turners

Increasing the penetration rate of motor vehicles sold with an insurance package attached (leverage Dorchester Insurance Group expertise)"

-----

Maybe the way out of this dilemma is just to own both TUA and DPC? That way you capture the synergy benefits whereever they end up accruing.

SNOOPY

Snoopy

29-08-2014, 04:16 PM

I agree, and in my view the DPC share price could be well north of 30c in two years time, making the 9% yield a by-product. Having spoken to Grant Baker recently, he is spending time and energy on DPC and I think it will continue to grow.

Disc. Hold quite a few DPC so I'm biased.

Biker if you believe that DPC will grow fast, your best bet would be to swap all your Turner's shares for Dorchester shares now. The option is there to exchange each your Turners shares at $3 for 12 Dorchester shares valued at 25c.

If you are correct and say the Dorchester share price is say, 31.5c in two years time, then bondholders will get their new Dorchester shares at 30c each. IOW you only get 10 DPC shares for every maturing bond, not the 12 you would get if you swapped your TUA shares for DPC shares right away. That is not quite the full story. DPC shareholders might get dividends in the interim. DPC bondholders would definitely get 9% interest.

9% interest on 3 $1 bonds (note 1 TUA share coverts to three bonds) equates to 3 x 9c = 27c interest per year or 54c over two years. After tax that reduces to:

54c x 0.67 = 36.2c

36.2c would only buy you one extra DPC share at 31.5c.

So bondholders would end up with the equivalent of 10+1= 11 DPC for every bond plus 36.2-31.5= 4.7c. And that means they are worse off than those accepting the DPC shares at 25c today.

SNOOPY

BIRMANBOY

29-08-2014, 05:27 PM

blackcap

29-08-2014, 06:29 PM

BIRMANBOY

30-08-2014, 12:17 PM

So if they pay 1 cent per share that equates to a 8.78% return (exc imput crd) on my capital invested. At the moment and for the last previous 3 years my dividend % return has averaged at 14.20 % (exc input crd). And this is assuming they continue dividends and assuming 1 cent per year..neither of which is certain in my mind. This is why I am against this endeavour..regardless of a very substantial capital gain (non taxed of course), which would occur if it goes through. I would much rather have the ongoing TUA dividends rather than a one off windfall or an uncertain DPC dividend.
Dorchester's aim is to pay about 40-50% (from memory) of profits as dividends. Hope that helps. I predict/think, DPC will pay a 1 cent dividend in the FY2015 year.

percy

30-08-2014, 01:11 PM

I expect the very reasons why you are against the TUA takeover are the very reasons that are attractive to DPC.

Snoopy

30-08-2014, 01:56 PM

As dividend hound I cannot see any good in this in any way ,shape or form. Dorchester has a dividend of 2% at moment and no stated policy of continuing TUA dividend policy. If we exchange for DPC shares, as a registered cynic I see them retaining all or most of the dividends and using them to fund themselves and growth...in other words ...bugger the shareholders, but thanks for not forcing us to pay you out in cash they will be thinking.

As a fellow dividend hound Birmanboy, I share your doubts about the future of DPC and the income stream we might expect from that source. You and I are not the only two dividend hounds on the share register. This is, I believe, why the Dorchester bond offer is there as an option. As a pro, you get an immediate boost in normalised after tax income if you take the bonds. As a con, you lose any prospect of a 'dividend' increase for the next two years.

DPC is in a growth phase, and there could very well be speed bumps over the next two years. But two years should be enough for any potential shareholders (via ultimate conversion of the bonds) to see if they really do want to be part of the DPC family. The bonds preserve the income stream and buy we investors some time. If I do accept the offer, I will be going for the bonds.

TUA 's history of giving good healthy dividends will be but a memory.

If TUA remains listed, then DPC cannot pull money out of TUA without TUA minority shareholders receiving the same money in proportion to their shareholdings. Your post seems to imply that DPC management will syphon off funds from TUA for their own benefit, while simultaneously turning off the dividend tap to small shareholders. That scenario simply can't happen, as long as TUA remains listed.

TUA is good at what it does, it should resist this takeover..I don't see any benefits accruing to TUA at all. its been seen as a cash producing cow unfortunately.

I think in fairness that the independent TUA directors have advised shareholders to take no action until the independent report comes out.

I don't see an independent director blessing of the takeover as a done deal (forget the views of Chairman Michael Dosser - he is a Bartel holding stooge and is not independent).

A gross yield of 7.5% based on a $3 share price is attractive enough to me for there to be real doubts as to whether I will accept the DPC takeover offer. And of course Todd Hunter has real and credible growth plans that should see this yield figure incrementally improve in future years.

SNOOPY

percy

30-08-2014, 02:12 PM

The Bartel holding is the key to who controls TUA,always has been.
DPC have that in the bag,so it is a done deal.

Snoopy

30-08-2014, 02:25 PM

The Bartel holding is the key to who controls TUA,always has been.
DPC have that in the bag,so it is a done deal.

Bartel in the bag gives DPC around 40% of the TUA shares. So control is not a done deal in the mathematical sense. There is also something in the small print about existing large shareholders being asked to reach into their pockets and put in more capital into DPC. Given these same people have already bought DPC shares at 25c a few years ago and have seen next to no return, there might be some arm twisting to do there as well.

But I do agree Percy, that grabbing another 10% of the shares and control does look likely, whereas if Bartel was not on board it would be questionable.. I wonder what those Turner family shareholders will do?

SNOOPY

percy

30-08-2014, 02:31 PM

We can argue until the cows come home.Control is 20% 25% or 30%??????????????????
Bartel controlled TUA with 20%.
DPC have 40%.Done deal in "actual" sense!!! lol.

BIRMANBOY

30-08-2014, 02:40 PM

You're confusing "influence" with "control"...40% influence loses if 60% gets enough consolidated position together to outvote it. Depends on circumstances.
We can argue until the cows come home.Control is 20% 25% or 30%??????????????????
Bartel controlled TUA with 20%.
DPC have 40%.Done deal in "actual" sense!!! lol.

percy

30-08-2014, 03:42 PM

You're confusing "influence" with "control"...40% influence loses if 60% gets enough consolidated position together to outvote it. Depends on circumstances.

The 60% never gets a consolidated position.
Sounds good,but as I already pointed out 20% to 30% gives control.
DPC with 40% tied up means it is a done deal.
I was just thinking about the HLG Hallenstein Glasson director, who came up for reappointment at their agm a few years ago.Tim Glasson [also a director] voted his 20.03% holding against reappointment.Caused a bit of a stir as the director was not reappointed.
So influence may be well under 20% ??

Okebw

30-08-2014, 09:42 PM

Dorchester's aim is to pay about 40-50% (from memory) of profits as dividends. Hope that helps. I predict/think, DPC will pay a 1 cent dividend in the FY2015 year.

It's bit sketchy how its worded:

"a dividend policy guideline of paying out around 40% of profits in dividends, subject to capital requirements prevailing at the time".

So effectively if they want to keep making acquisitions they can just not pay out anything.

blackcap

31-08-2014, 08:02 AM

It's bit sketchy how its worded:

"a dividend policy guideline of paying out around 40% of profits in dividends, subject to capital requirements prevailing at the time".

So effectively if they want to keep making acquisitions they can just not pay out anything.

Fair point Okebw, but I have no problem with that policy and with acquisitions as long as they are EPS accreditive and to date Paul Byrnes' judgement has shown to be very astute in what DPC have acquired.

percy

31-08-2014, 08:38 AM

Snoopy

31-08-2014, 01:22 PM

Very astute.I have also looked at DPT,[unlisted market] and what Byrnes has achieved with Dorchester Property Trust is astonishing.
DPC was a cot case as well,yet Byrnes has sorted it out.Two or three years ago, had anyone said DPC would be in a position to takeover TUA they would have been laughed at.A fantastic acquisition.Dividends may be small at present,but this acquisition guarantees increasing dividends in future.TUA pumps cash,and requires very little retained capital to grow.A cash cow [large] for DPC.
I brought into DPC at 23.5 cents not long ago as it all makes very good sense to me,as it also gives DPC a fantastic distribution channel for its financial and insurance produscts.

I also liked Byrnes reverse mortgage acquisition, and the fact that DPC seems much more conservatively geared than the likes of Heartland (although I will have to reevaluate that statement when the TUA acquisition is complete). Great work for someone who is on record as saying he is a 'reluctant CEO'. I do wonder what will happen if Byrnes goes (retires) though. Has he built enough of a good management team around him to continue the good work?

SNOOPY

percy

31-08-2014, 01:44 PM

I also liked Byrnes reverse mortgage acquisition, and the fact that DPC seems much more conservatively geared than the likes of Heartland (although I will have to reevaluate that statement when the TUA acquisition is complete). Great work for someone who is on record as saying he is a 'reluctant CEO'. I do wonder what will happen if Byrnes goes (retires) though. Has he built enough of a good management team around him to continue the good work?

SNOOPY
Don't think he will be going anywhere soon while holding 6.69% of the company.
I am comfortable with Heartland's improving credit rating and banking licence.I have 6.4% invested in DPC as I do in HNZ.I think I have the balance about right.

noodles

31-08-2014, 02:16 PM

Don't think he will be going anywhere soon while holding 6.69% of the company.
I am comfortable with Heartland's improving credit rating and banking licence.I have 6.4% invested in DPC as I do in HNZ.I think I have the balance about right.
Percy, do you have a new love in your life? I thought it was HNZ forever. No it appears you are seeing other stocks. No only that, they are arch rivals. Wait till they find out!

percy

31-08-2014, 02:44 PM

Percy, do you have a new love in your life? I thought it was HNZ forever. No it appears you are seeing other stocks. No only that, they are arch rivals. Wait till they find out!

Caught out yet again.!!!
Was thinking if I took Heartland's upcoming dividend in cash, I would have enough funds to increase my holding in DPC by 56%.Would that be ethical ?
No, I have done well out of banks/finance companies over the years.They seem to have the capacity to both grow steadily and pay increasing dividends.
Still very much in love with EBO.Has been an ongoing affair for over 23 years.!!

noodles

31-08-2014, 03:20 PM

Still very much in love with EBO.Has been an ongoing affair for over 23 years.!!
Love in blind. Mistress EBO is getting old. She has had a heart transplant and now behaves like an Australian. Apparently she won't be producing much more milk next year.

percy

31-08-2014, 04:53 PM

Love in blind. Mistress EBO is getting old. She has had a heart transplant and now behaves like an Australian. Apparently she won't be producing much more milk next year.

Mistress EBO's hot young Australian daughter and her sister are now in charge of "the tricks" dept.Expect fun,as ex CEO Mark Waller will spend the next year looking into more "tricks",before taking over as chairman. With about $350 mil petty cash on hand,fantastic cash flow,supporting shareholders, I think it would be fair to say."you aint seen anything yet"!!
Never, that I can remember, have they ever been rated a buy by any broker!!! Ron Brierley famously told Mark Waller he thought $40mil turnover would be their limit!!!! Mark Waller had other ideas.$7billion!!????
We have now moved from "well positioned" to "poised."

noodles

31-08-2014, 05:32 PM

Mistress EBO's hot young Australian daughter and her sister are now in charge of "the tricks" dept.Expect fun,as ex CEO Mark Waller will spend the next year looking into more "tricks",before taking over as chairman. With about $350 mil petty cash on hand,fantastic cash flow,supporting shareholders, I think it would be fair to say."you aint seen anything yet"!!
Never, that I can remember, have they ever been rated a buy by any broker!!! Ron Brierley famously told Mark Waller he thought $40mil turnover would be their limit!!!! Mark Waller had other ideas.$7billion!!????
We have now moved from "well positioned" to "poised."
clearly you know your mistresses better than i do.

Back to Tua. Pity about the arranged marriage. Tua is the young beautiful bride. Dpc is the ugly 40 something with a dodgy past that needs to buy love. Whats worse, dpc will make tua change her long term friends in the insurance and finance business. It seems tua won't be producing as much milk next year.

percy

31-08-2014, 05:51 PM

clearly you know your mistresses better than i do.

Back to Tua. Pity about the arranged marriage. Tua is the young beautiful bride. Dpc is the ugly 40 something with a dodgy past that needs to buy love. Whats worse, dpc will make tua change her long term friends in the insurance and finance business. It seems tua won't be producing as much milk next year.

Disagree.I think TUA will be producing not only more milk,but low fat and coloured milk,and full bodied cream for DPC.!!!.

BIRMANBOY

12-09-2014, 05:22 PM

percy

12-09-2014, 05:43 PM

tim23

12-09-2014, 07:11 PM

Bigger volume of late, suggests buyers see as cheaper way to buy DPC?

noodles

12-09-2014, 07:28 PM

Bigger volume of late, suggests buyers see as cheaper way to buy DPC?
sshhh! lol

percy

12-09-2014, 07:57 PM

And to think I thought it was BIRMANBOY starting to build a blocking stake? lol.

blackcap

12-09-2014, 09:13 PM

you lot are incorrigible :) lol

On a more serious note, anyone going to the DPC AGM next week?

noodles

12-09-2014, 09:31 PM

you lot are incorrigible :) lol

On a more serious note, anyone going to the DPC AGM next week?
yes. I'll be the one asking the hard questions:)

blackcap

13-09-2014, 08:24 AM

yes. I'll be the one asking the hard questions:)

Well I shall look out for you noodles. I must admit to being a DPC shareholder and have no stake in TUA so I guess its in my favour for the deal to go through. But I will be interested in the answers they do provide. Looking forward to a bit of argy bargy at the AGM.

Snoopy

26-09-2014, 11:03 AM

So the group of independent directors are due to evaluate and present their findings /opinions of the relative merits (or otherwise) of the takeover towards the end of month. One potential outcome is of course that the takeover is potentially designated as being "predatory" and undervaluing the value of TUA group. Oh my my tell me it aint so ...surely that's the major reason for a takeover!!!. What outfit would pay full value for anything without trying out the "lets give them the low ball offer and see if we get lucky" ploy. I am looking for some steel and responsibility in the directors...if nothing else at least force them to up the offer...considerably.

You may yet get your wish Birmanboy. Here is the Turner's company outlook as written up in the just released interim report:

-----

Looking Forward

Market conditions are moving in favour of customers purchasing used vehicles with a strong New Zealand dollar, heavy discounting on new cars and an influx of imports from Japan leading to a surge in supply. This has resulted in used car prices going through a downward adjustment. We are continuing to rollout our multi-channel sales model and are continually seeking new and better ways to transact with our customers. We are trialling innovative opportunities on social media and have recently launched an online tender channel for our wholesale customers. Our expertise and understanding of which channels generate the best returns is building and we are working smarter to drive better returns for our business.

Changes to the Consumer Guarantees Act came into effect on 17 June 2014, giving consumers who buy through auction, either on-site or online, the same protection as any other business to consumer sales transactions. This is great news for consumers as it reduces the risk associated with buying any product, not just a vehicle, at auction. Trade Me is one of Turners fastest growing sales channels and we believe that the increased protection and reduction in risk provided under the new Consumer Guarantees Act will encourage even more consumers to buy a used vehicle through our online auction channels.

To meet the increasing demand from customers, in the second half we will be expanding our operations in Christchurch and Auckland by establishing separate sites for our damaged vehicle storage, trucks and machinery sales. This is an exciting time for our company with our blueprint for growth continuing to drive pleasing improvements.

We are pleased with Turners’ performance in the first half of our financial year, and in line with previous experience, we expect to see sales increase in the second half. The outlook for FY14 NPAT is growth in the range of 5% - 10% over FY13 full year profit

-----

Keep in mind that this profit growth is despite new lease commitments in Auckland and Christchurch. Once these two new bases are established, I would predict that TUA will grow even faster over FY2015.

SNOOPY

percy

29-09-2014, 12:21 PM

With the independent committe on behalf of the Turners board recommending that shareholders accept the DTL [DPC] offer, things should move along nicely for DPC.

Snoopy

29-09-2014, 05:02 PM

With the independent committe on behalf of the Turners board recommending that shareholders accept the DTL [DPC] offer, things should move along nicely for DPC.

From section 4.1 of the Grant Samuel report, the value of TUA is rated as being between $2.97 and $3.27 per share. So the $3 offer (post special dividend) DPC offer is not particularly generous.

The method of valuation used is industry multiples.

The auction and fleet businesses are valued at EBITDA multiples between 8.7 and 9.7 (FY2013 historical) and 9.1 to 10.1 (FY2014 projected).
The auction and fleet businesses are valued at EBIT multiples between 12.4 and 13.7 (FY2013 historical) and 12.8 to 14.2 (FY2014 projected).

So Grant Samuel is predicting a decline in the underlying core business this year. Not sure I would agree with that.

Meanwhile the finance side of the business is measured using PE ratio (section 4.4 of report).

The finance business is valued at a PE ratio of 14.8 to 16.4 (FY2013 historical) and 11.0 to 12.3 (FY2014 projected).

Hang on. Wasn't the involvement of Dorchester meant to boost finance earnings, by spreading the finance net wider than just private car purchases? That would imply significant finance sector growth, yet the PE ratio used in the valuation going forwards is quite low.

I am afraid I am not very excited by this offer from DPC on the table. I may yet elect to keep all my TUA shares.

SNOOPY

BIRMANBOY

29-09-2014, 05:33 PM

So now DPC is up to 46.051% so it certainly looks like they will get over the line. I cannot see anywhere whether one has the option of NOT selling out and not exchanging and simply holding shares. If TUA is left as is and simply becomes a subsidiary of DPC surely it shouldn't matter. All the options listed are variations on bonds/shares in DPC/or cash..I cannot see any mention of "doing nothing". However I don't like the idea of DPC..I don't like what they do and I don't like how they are doing it. They seem to be funding this by simply issuing more shares and bonds. There is no guarantee of any continuation of dividends and there is no track record of any significance.

vin

29-09-2014, 05:37 PM

I bought into TUA at around 2.60, I've got no idea which option to choose. As stated above, doesn't seem to be a 'do nothing' option. I'm happy to sit on my shares I guess..?

percy

29-09-2014, 05:46 PM

BIRMANBOY

29-09-2014, 05:50 PM

Having it make sense to you is the least of my problems.
You seem to forget a great part of DPC's business going forward will be TUA,so your comments make no sense to me,as you are already a TUA shareholder.?

percy

29-09-2014, 05:56 PM

Having it make sense to you is the least of my problems.

Sorry to hear you have problems.
Being a DPC shareholder I do not appear to have any problems.!! lol.

noodles

29-09-2014, 09:10 PM

I am afraid I am not very excited by this offer from DPC on the table. I may yet elect to keep all my TUA shares.

SNOOPY

Your opinion (or mine) on valuation doesn't really matter now. What matters is that DPC will get over the line. I think punters should be considering what it will be like being a minority shareholder. What will future returns look like? Grant Samual discusses it on pg.38. #wealth_preservation

noodles

30-09-2014, 04:29 AM

It looks as if a few TUA directors are taking up the offer. Interesting is that a lot are taking DPC shares...

"The following of the parties listed in clause 5.1 (above) intend to accept the Offer on the following terms:(a) Bartel, an associate of Michael Robert Dossor and Substantial Security Holder, has entered into the Lock-up
Agreement under which Bartel has agreed to accept the offer. The key terms of the Lock-up Agreement are set
out in paragraph 2.1(g) of this target company statement.
(b) Michael Robert Dossor, Director intends to accept the Offer and to take 132,276 Bonds and 793,668 DPL shares as
consideration for his Shares.
(c) Denham Shale, Director intends to accept the Offer and to take 50,400 DPL shares and $86,400 in cash as
consideration for his Shares.
(d) Norman Carter, associate of Victoria Carter, Director, intends to accept the Offer and to take 60,000 DPL shares
and $15,000 in cash as consideration for his Shares.
(e) Craig Harris, Director and his associated shareholder Ollerton Trust, intend to accept the Offer and to take 150,000
Bonds, 252,000 DPL shares and $222,000 in cash as consideration for their combined holdings.
(f) Shane Prince, General Manager Operations North Island, intends to accept the Offer and to take 60,000 DPL
shares and $15,000 in cash as consideration for his Shares.
(g) Aaron Saunders, Chief Financial Officer, intends to accept the Offer and to take 36,000 DPL shares as consideration
for his Shares."

BIRMANBOY

30-09-2014, 11:00 AM

Out of curiosity...what are you doing up at 4.29 AM and where did you get that information? You're not a
"midnight hacker" are you? :cool: Are they hoping that the great unwashed will follow the examples set by "people in the know"? If I was convinced that they would continue with the same dividends I would be more sympathetic. The last(only) dividend from DPC was 1/2 cent.
It looks as if a few TUA directors are taking up the offer. Interesting is that a lot are taking DPC shares...

"The following of the parties listed in clause 5.1 (above) intend to accept the Offer on the following terms:(a) Bartel, an associate of Michael Robert Dossor and Substantial Security Holder, has entered into the Lock-up
Agreement under which Bartel has agreed to accept the offer. The key terms of the Lock-up Agreement are set
out in paragraph 2.1(g) of this target company statement.
(b) Michael Robert Dossor, Director intends to accept the Offer and to take 132,276 Bonds and 793,668 DPL shares as
consideration for his Shares.
(c) Denham Shale, Director intends to accept the Offer and to take 50,400 DPL shares and $86,400 in cash as
consideration for his Shares.
(d) Norman Carter, associate of Victoria Carter, Director, intends to accept the Offer and to take 60,000 DPL shares
and $15,000 in cash as consideration for his Shares.
(e) Craig Harris, Director and his associated shareholder Ollerton Trust, intend to accept the Offer and to take 150,000
Bonds, 252,000 DPL shares and $222,000 in cash as consideration for their combined holdings.
(f) Shane Prince, General Manager Operations North Island, intends to accept the Offer and to take 60,000 DPL
shares and $15,000 in cash as consideration for his Shares.
(g) Aaron Saunders, Chief Financial Officer, intends to accept the Offer and to take 36,000 DPL shares as consideration
for his Shares."

noodles

30-09-2014, 11:21 AM

percy

30-09-2014, 11:47 AM

I think you need to look at were Turners/DPC will be in a year's time.
The Turners business with DPC ownership will enable Turners to tailor DPC finance and insurance products to best suit the customers.This will give Turners an advantage over other car sellers.The financial strength of DPC will enable Turners to take advantage of any opportunities for growth.For DPC it gives DPC direct access to customers for their products.The Turners business achieves great ROE so the cash flow will be great for DPC.It will give DPC the capacity to pay increasing dividends.
For you shafted sharehoders DPC are giving you plenty of options,including the high yielding convertible bonds.
DPC is a well managed fast growing business I am proud to be a shareholder of.

Snoopy

30-09-2014, 02:21 PM

I bought into TUA at around 2.60, I've got no idea which option to choose. As stated above, doesn't seem to be a 'do nothing' option. I'm happy to sit on my shares I guess..?

An acceptance form is for those accepting the offer. It is no surprise that there is not an "I wish to keep holding my TUA shares" box to tick on that form. If you don't wish to accept the offer, then don't fill in the form and don't send it away. Truly, it's that simple.

SNOOPY

Snoopy

30-09-2014, 02:31 PM

So I cannot see anywhere whether one has the option of NOT selling out and not exchanging and simply holding shares. If TUA is left as is and simply becomes a subsidiary of DPC surely it shouldn't matter. All the options listed are variations on bonds/shares in DPC/or cash..I cannot see any mention of "doing nothing". However I don't like the idea of DPC..I don't like what they do and I don't like how they are doing it. They seem to be funding this by simply issuing more shares and bonds. There is no guarantee of any continuation of dividends and there is no track record of any significance.

Birmanboy, the first box on the acceptance form you are asked to write in the number of Turner's shares you wish to sell. The shares you wish to sell and the number of shares you own are not the same thing. If you do not wish to sell any of your shares then do not fill in the form. Or if you want to annoy Dorchester write 'zero' in that box, send it back, and Dorchester will pay for your postage. This offer is optional. If you want to keep your TUA shares you can do just that!

There is one caveat to what I have stated above. If Dorchester get 90% acceptance, then you will be forced to sell your TUA shares at $3. Note this will be exactly the same price as if you had accepted the $3 offer. In your position there is nothing to be gained by filling in the acceptance form, and nothing to lose if you don't fill it in. If DPC do not get to 90% then you will keep your TUA shares and the strong dividend flow will likely continue, because Dorchester needs those dividends even more than you do.

SNOOPY

Snoopy

30-09-2014, 02:50 PM

Your opinion (or mine) on valuation doesn't really matter now. What matters is that DPC will get over the line.

It was always likely that DPC would get to 50.1%. The question is, will they get to 90%? There is a big difference in what happens to small shareholders with those two possible outcomes.

I think punters should be considering what it will be like being a minority shareholder. What will future returns look like? Grant Samual discusses it on pg.38. #wealth_preservation

I can't see any discussion on 'wealth preservation' on page 38 in the Grant Samuel Report. There is this comment:

"Turner's shares are relatively thinly traded. This may suppress the Turners share price. The closer the Dorchester shareholding gets to 90%, the lower the liquidity of the shares will be. Turner's free float could reduce from 59% (potentially substantially)."

Low liquidity works both ways. It is equally true to say that if someone wants the shares the price can jump quickly as well. Don't be scared by Grant Samuel telling you the share price might go down. The share price won't go down very far because if it does I personally will be buying them. And I am currently more cashed up than I have been for a very long time.....

SNOOPY

Snoopy

30-09-2014, 02:58 PM

I think you need to look at were Turners/DPC will be in a year's time.
The Turners business with DPC ownership will enable Turners to tailor DPC finance and insurance products to best suit the customers.This will give Turners an advantage over other car sellers.The financial strength of DPC will enable Turners to take advantage of any opportunities for growth.For DPC it gives DPC direct access to customers for their products.The Turners business achieves great ROE so the cash flow will be great for DPC. It will give DPC the capacity to pay increasing dividends.

I agree with everything you say above Percy. But if TUA remains listed, then the remaining shareholders will share the growth you describe and retain their high dividends. I personally believe that TUA will be a better investment that DPC over the next two years, which is why I will be retaining most (if not all) of my TUA shares.

SNOOPY

noodles

30-09-2014, 03:09 PM

I agree with everything you say above Percy. But if TUA remains listed, then the remaining shareholders will share the growth you describe and retain their high dividends. I personally believe that TUA will be a better investment that DPC over the next two years, which is why I will be retaining most (if not all) of my TUA shares.

SNOOPY

Put yourself is Paul Byrnes shoes. Lets say TUA makes a margin of 10% on their insurance and finance products. A third party (who provides the insurance underwriting and capital for finance) makes 10%. Firstly, Paul wants to make sure DPC is now the provider for insurance and finance. Secondly, Paul wants to make sure DPC get a better margin on the DPC products that TUA use. So maybe now the split will be 5% TUA/15% DPC. More cashflow for DPC. Higher profits for DPC, but lower profits (and dividends for TUA).

DPC have all the power. TUA shareholders have none.

Snoopy

30-09-2014, 03:56 PM

Put yourself is Paul Byrnes shoes. Lets say TUA makes a margin of 10% on their insurance and finance products. A third party (who provides the insurance underwriting and capital for finance) makes 10%. Firstly, Paul wants to make sure DPC is now the provider for insurance and finance. Secondly, Paul wants to make sure DPC get a better margin on the DPC products that TUA use. So maybe now the split will be 5% TUA/15% DPC. More cashflow for DPC. Higher profits for DPC, but lower profits (and dividends for TUA).

DPC have all the power. TUA shareholders have none.

Yes the above scenario is possible noodles. This is the reason I am still considering accepting a DPC presence for some of my TUA shares. That way I still get my money whichever way the cake is cut.

I guess it comes down to which area of the business is growing the fastest in profitability. Finance is growing fast, albeit from a small base. But fleet is growing fast too. And DPC has no easy way to fully internalise that part of the business.

SNOOPY

bunter

30-09-2014, 04:55 PM

Majority shareholders often 'disadvantage' minorities.

Will be interesting to see what happens to the TUA share price after the takeover. My guess is it will fall.

BIRMANBOY

30-09-2014, 05:47 PM

For it (SP), to fall would require remaining holders to sell and this would be unlikely initially, at least until some information emerges down the track as to results and intentions re dividends etc. However I cannot see any reason for the SP going up that's for sure. If DPC does "disadvantage" holdouts then will be a rush for the exits in all probability. They (DPC) would then be able to pick up remaining leftovers on market at steadily dropping prices one would surmise. Buying in would be extremely risky in that environment. Not an attractive outlook in that position. If one believed in fairies at the bottom of the garden and the inherent "niceness" of finance business's then I suppose one could hope for the best but looking a bit bleak to me. Essential information as to the "hidden agenda" is unfortunately not available to us common folk. Still time to ponder yet but the vultures are circling.
Majority shareholders often 'disadvantage' minorities.

Will be interesting to see what happens to the TUA share price after the takeover. My guess is it will fall.

BIRMANBOY

30-09-2014, 05:55 PM

Thanks Snoopy..is there any info on if/when the $3 offer is/can be retracted? I agree that Dorchester needs the dividend too but my expectation is that they will use their position to screw down the "desirability" factor of share retention until they get their 90%. There would be little reason for them to want to continue rewarding holdouts.
Birmanboy, the first box on the acceptance form you are asked to write in the number of Turner's shares you wish to sell. The shares you wish to sell and the number of shares you own are not the same thing. If you do not wish to sell any of your shares then do not fill in the form. Or if you want to annoy Dorchester write 'zero' in that box, send it back, and Dorchester will pay for your postage. This offer is optional. If you want to keep your TUA shares you can do just that!

There is one caveat to what I have stated above. If Dorchester get 90% acceptance, then you will be forced to sell your TUA shares at $3. Note this will be exactly the same price as if you had accepted the $3 offer. In your position there is nothing to be gained by filling in the acceptance form, and nothing to lose if you don't fill it in. If DPC do not get to 90% then you will keep your TUA shares and the strong dividend flow will likely continue, because Dorchester needs those dividends even more than you do.

SNOOPY

blackcap

30-09-2014, 06:25 PM

Hey you "holdouts"

Go check section 110-117 of the companies act. If you vote ALL you shares against the takeover bid you can use this interesting piece of law which is to protect minority shareholders. Can even go to arbitration. Have used it a few times myself and normally come out at the better end. But as always DYOR.

BIRMANBOY

30-09-2014, 06:45 PM

Thanks BC..not sure if this is applicable. In some of the paperwork it is stated that the offer price $3 is judged to be a fair and reasonable price based on its its previous SP history etc. My beef is not so much with the offer price but is with the fact that they are disrupting my future dividend flow....now up to 16% per annum on my capital invested. If Dorchester would continue the dividends I would be content....I just don't see them doing that. Also in my opinion Finance companies rank in between nuclear bomb manufacturers and developers of more efficient land mines in the "companies I want to invest in".
Hey you "holdouts"

Go check section 110-117 of the companies act. If you vote ALL you shares against the takeover bid you can use this interesting piece of law which is to protect minority shareholders. Can even go to arbitration. Have used it a few times myself and normally come out at the better end. But as always DYOR.

blackcap

30-09-2014, 07:34 PM

My beef is not so much with the offer price but is with the fact that they are disrupting my future dividend flow....now up to 16% per annum on my capital invested. .

Re-invest funds in STU, RBD, NPX, CMO and other "high" dividend yielding companies. Plenty out there on the NZX but I am sure you are well aware of that :)

BIRMANBOY

30-09-2014, 09:47 PM

blackcap

30-09-2014, 09:52 PM

I wish....none of those will match 16%..5.26% for STU, RBD 4.76%...maybe if I had bought in 15 years ago. It takes a combination of luck, good growth, strong dividends and sharp buying at the bottom to get high yields and I'm P****d to lose it. in 10 years that 16% current yield would have probably ballooned out to 30% gross per year on my original capital. Try getting that return. It takes a long time to build up a strong dividend portfolio and that was my cornerstone stock.

Im sorry Birmanboy, but I think your logic there is seriously deluded. TUA does not deliver 16% yield on a sp of $3.00. You can invest that $3.00 in another stock yielding the same as TUA does now and you would still be getting that "magical 16%" on your original capital. I really do not see what the problem is.

I understand that TUA was a good cornerstone stock but things change, things move and there are plenty of other stocks yielding just as much as TUA at $3 was with just as good growth prospects.

noodles

30-09-2014, 10:01 PM

Also in my opinion Finance companies rank in between nuclear bomb manufacturers and developers of more efficient land mines in the "companies I want to invest in".
BirmanBoy. Hate to blow your bubble, but TUA is part finance company:)
DPC is part Finance company/Part Insurance/Part Credit Collector

BIRMANBOY

01-10-2014, 02:35 PM

Obviously I didn't make my strategy clear so I can understand why you don't get it. Its not really the place to explain and give examples on the TUA thread..would take too long and bore everyone to a stupor so I'll leave it. I do disagree that there are "plenty of other stocks" that will be just as good. My specialty interest is in dividend producers and the list of good producers that fit my criteria is not very large at all.
Im sorry Birmanboy, but I think your logic there is seriously deluded. TUA does not deliver 16% yield on a sp of $3.00. You can invest that $3.00 in another stock yielding the same as TUA does now and you would still be getting that "magical 16%" on your original capital. I really do not see what the problem is.

I understand that TUA was a good cornerstone stock but things change, things move and there are plenty of other stocks yielding just as much as TUA at $3 was with just as good growth prospects.

BIRMANBOY

01-10-2014, 02:42 PM

"part" is not the whole. Financing what you sell is an "add on" to the main business to make it easier for vehicle buyers/bidders complete the transaction. If you cannot see the differences so be it but for me the similarity is very small.
BirmanBoy. Hate to blow your bubble, but TUA is part finance company:)
DPC is part Finance company/Part Insurance/Part Credit Collector

Snow Leopard

01-10-2014, 02:55 PM

.... My specialty interest is in dividend producers and the list of good producers that fit my criteria is not very large at all.

Excellent! Too much choice makes the decision harder.

The local shop in Yogyakarta offered two choices of toothpaste and I was in and out in minutes.
Now going on the same mission in KL and the afternoon is taken up.

Best Wishes
Paper Tiger

BIRMANBOY

01-10-2014, 03:35 PM

LOL you know you are enjoying life when you can spin out these simple pleasures over a few days. My partner refuses to go to the supermarket with me since I like to 'browse between the brassicas".:)
Excellent! Too much choice makes the decision harder.

The local shop in Yogyakarta offered two choices of toothpaste and I was in and out in minutes.
Now going on the same mission in KL and the afternoon is taken up.

Best Wishes
Paper Tiger

noodles

01-10-2014, 04:14 PM

"part" is not the whole. Financing what you sell is an "add on" to the main business to make it easier for vehicle buyers/bidders complete the transaction. If you cannot see the differences so be it but for me the similarity is very small.

Tua - Finance contributes 40% of profit and is the highest growing part of the business. Selling cars is just a conduit to selling finance and insurance. I would argue that TUA business plan is all about financial services.
DPC operating profit (finance 3,360 insurance 1,189 credit collection 3,501). So finance about 40% also.

percy

03-10-2014, 08:55 AM

This morning's announcement DPC now have 48.435% of TUA.
Not far to 50% .In fact it is only another 1.565%.
Done deal.
Be interesting to see if and how long it takes DPC to get to 90%?

percy

03-10-2014, 01:03 PM

This morning's announcement DPC now have 48.435% of TUA.
Not far to 50% .In fact it is only another 1.565%.
Done deal.
Be interesting to see if and how long it takes DPC to get to 90%?

Just announced DPC have more than50%.

Snoopy

03-10-2014, 05:02 PM

Be interesting to see if and how long it takes DPC to get to 90%?

Do you want DPC to get to 90%? It means a lot more debt and little more control. Yet since they are now above 50%, DPC can already consolidate TUA in their own results.

SNOOPY

percy

03-10-2014, 05:14 PM

Do you want DPC to get to 90%? It means a lot more debt and little more control. Yet since they are now above 50%, DPC can already consolidate TUA in their own results.

SNOOPY

I want DPC to get to 100%.

percy

06-10-2014, 06:24 PM

DPC now have 56.035%.

percy

09-10-2014, 11:26 AM

Today DPC now have 60.34%

percy

09-10-2014, 12:23 PM

What do you reckon they will get to Percy? Still 10 days to go.

Sorry black knat I have no idea.
What I do know is they want to go to 100%.
Full ownership would work best for them,so as a DPC shareholder I am keen for that.
I sold my TUA some time ago,and brought into DPC on the take over anouncement,so my views are bias.

noodles

09-10-2014, 12:35 PM

Sorry black knat I have no idea.
What I do know is they want to go to 100%.
Full ownership would work best for them,so as a DPC shareholder I am keen for that.
I sold my TUA some time ago,and brought into DPC on the take over anouncement,so my views are bias.

What is surprising is that only 28% are taking cash.

"Of total acceptances to date, including Bartel Holdings, the consideration has been taken up in the following mix;Cash 28%
Dorchester Shares 34%
Bonds 38%"

percy

09-10-2014, 01:31 PM

What is surprising is that only 28% are taking cash.

"Of total acceptances to date, including Bartel Holdings, the consideration has been taken up in the following mix;Cash 28%
Dorchester Shares 34%
Bonds 38%"

Thanks noodles.Interesting that 72% are prepared to take either DPC shares or bonds.
I take it they like the TUA business and want to retain an interest in it via DPC.

percy

13-10-2014, 05:23 PM

DPC are now at 72.371%.of TUA.

percy

13-10-2014, 05:54 PM

Encouraging... if there is a rush at the end they might get well into the 80s.... at least.

Excuse me not knowing the facts,but I saw in this morning's paper that TUA shares go ex the special dividend ,I think Wednesday,so I would expect acceptances will speed up after a lot of TUA shareholders make sure they get that divie???
So 75% to 85% will focus everybody's attention.I expect DPC are happy,but will be happier at 100%.

noodles

13-10-2014, 06:55 PM

Yes it is Wednesday, could well be a late rush. Very much hoping for above 90%.

Disc: I hold held a s*** load of these.
Well I posted my acceptance today. So by Wednesday, we should see a big jump in acceptances.:p

Snoopy

14-10-2014, 04:09 PM

Thanks noodles.Interesting that 72% are prepared to take either DPC shares or bonds.
I take it they like the TUA business and want to retain an interest in it via DPC.

I posted my application away on Monday and asked for DPC bonds for half my shares. The other half of my TUA shares I hope to retain.

I truly believe that the TUA shares I have retained will perform better than DPC shares going forwards from here. TUA are right at the start of the growth curve for their new business model. I don't believe the Grant Samual earnings multiple valuations take account of that.

Yet I do admire what Paul Byrnes has done with DPC too. I am not yet convinced I want to become a shareholder though. But taking the DPC bonds means I have a choice in two years to take the cash out, or reinvest that capital by converting the balance to DPC shares.

Also

1/ the more people take bonds the more interest payments the big shareholders, the likes of Percy, have to pay out in interest.
2/ The more DPC shareholders pay out in interest the less they have to invest back in DPC.
3/ The less that is reinvested in DPC, the slower that business will grow.
4/ The slower the business grows going forwards the lower the share price is likely to be in two years.
5/ The lower the share price is in two years time, the more DPC shares I get for my maturing bonds!

SNOOPY

Snoopy

14-10-2014, 04:29 PM

Well I posted my acceptance today. So by Wednesday, we should see a big jump in acceptances.:p

I hope you went for the bonds noodles. So many DPC shares are being created these days, I expect to find a few in the bottom of my next Weetbix packet.

Did you see the embedded option value of the bonds is estimated to be 4c to 7c per bond? (p31 Grant Samuel report)

Also notice that the other listed bonds that are not rated trade are at a yield of 6.75% (highest figure). The DPC bonds are at a yield of 9.5%. So let's say that if they were listed they would trade at a yield of 7.5% (still lower quality than all those other bonds listed in the Grant Samuel report. That means the bonds as issued will carry a hidden capital premium of 27c, as worked out below:

9.5/7.5 x $1.00 = $1.27

That has to be added to the option premium above. So the real value of those bonds which you could get for $1 is actually north of $1.30. That makes it a substantially better deal than accepting cash or DPC shares.

DPC are discouraging you to accept the bonds by claiming there will not be a secondary market for them. But do you believe DPC? I don't.

SNOOPY

Snoopy

14-10-2014, 04:33 PM

Interesting.... not sure whether you are serious or not.. surely you are not going into the bonds hoping that DPC does badly so that you will be able to exchange the bonds for more, cheaper shares in two years time? I would have thought it was in everyone's interests for DPC to do well.

I am being quite serious. There is nothing wrong with a period of consolidation after making a substantial expansion in your business. If I can aid that process by putting a bit more debt stress on the DPC managers, so much the better! As a bondholder it is to my advantage for the DPC business to take a breather.

I just want to clip DPCs wings for two years, that's all. If things look good after that, then I will happily convert to DPC shares. The large interest bill of payable bond interest will be gone, and everything can grow from there.

SNOOPY

percy

14-10-2014, 05:10 PM

vin

14-10-2014, 05:32 PM

took 2/3 cash & 1/3 shares. Some what interested in what DPC can do, will have a small piece

Snoopy

15-10-2014, 05:46 PM

Did you see the embedded option value of the bonds is estimated to be 4c to 7c per bond? (p31 Grant Samuel report)

Also notice that the other listed bonds that are not rated trade are at a yield of 6.75% (highest figure). The DPC bonds are at a yield of 9.5%. So let's say that if they were listed they would trade at a yield of 7.5% (still lower quality than all those other bonds listed in the Grant Samuel report. That means the bonds as issued will carry a hidden capital premium of 27c, as worked out below:

9.5/7.5 x $1.00 = $1.27

That has to be added to the option premium above. So the real value of those bonds which you could get for $1 is actually north of $1.30. That makes it a substantially better deal than accepting cash or DPC shares.

A correction to my above DPC bond valuation. My $1.27 as a bond would be correct if what we were being offered was a perpetual bond. But the bond only runs for two years (a little less if you want to be pedantic.) But I will go with two years for ease of calculation.

For one $1,000 bond we bondholders will get gross interest of $95 (interest rate at 9.5%) annually, or $190 over two years.

A 7.5% $1,000 bond would generate $75 gross interest per year or $150 over two years.

The 'extra' interest (between the two scenarios) amounts to $40, or $40 x 0.7 = $28 net of tax.

So
1/ if you believe that 7.5% is a fair rate for these bonds THEN
2/ you should be prepared to pay $1028 for each $1000 bond you could buy on the open market.

That is equivalent to 2.8c in every dollar. Technically I should discount that to reflect the time value of money. But over two years it won't make much difference. So for simplification purposes I won't do it.

Add the 2.8c 'interest premium' to the 4c value (lower value attributed to the option component of the bond), and each $1 bond has a market worth of about $1.068.

That is a big come down from the $1.30+ I claimed before. But it doesn't change the overall story. You are much better to take the bond instead of cash or more of those Weetbix packet Dorchester shares (IMO).

SNOOPY

percy

15-10-2014, 05:52 PM

Amazing,getting half of Snoopy's, and all of Noodles' shares has taken DPC over 74.506.
But wait !!!!!!!!!!!!!!!!!!!!!! I don't think they would have received them yet.!!!!!!!!
It is therefore with a sense of excited anticipation that we await tomorrow nights shareholding notice.
What have we learnt form this?
Paul Byrnes does what he says he will do.
TUA was always in the too hard basket because of the Bartel holding.Byrnes unlocked that, and is already in control with 74.506%, and it is not all over yet.
Had I been a TUA shareholder what would I have done? Sorry I do n't know.

Well I feel rather let down.After a whole day of suspended anticipation,how come DPC only picked up another 1.774% taking them to 76.280% .?
As has happened on INA thread on Australian Forum, I am left in no doubt NZ Post is to blame>>>....!!
Fast Post,ordinary post does not make a lot of difference.Should just say all, jolly old very slow post.!!!
Snail post!

Snoopy

15-10-2014, 06:06 PM

Well I feel rather let down.After a whole day of suspended anticipation,how come DPC only picked up another 1.774% taking them to 76.280% .?
As has happened on INA thread on Australian Forum, I am left in no doubt NZ Post is to blame>>>....!!
Fast Post,ordinary post does not make a lot of difference.Should just say all, jolly old very slow post.!!!
Snail post!

Two possible reasons:

1/ Maybe Noodles and I are only significant holders of TUA shares in terms of our own lunchtimes?
2/ As long as DPC don't gouge out the TUA finance division as their own, maybe many TUA shareholders have figured out holding onto their TUA shares will generate a superior return than swapping them for DPC shares, or cash? I certainly believe that.

SNOOPY

percy

15-10-2014, 06:24 PM

Two possible reasons:

1/ Maybe Noodles and I are only significant holders of TUA shares in terms of our own lunchtimes?
2/ As long as DPC don't gouge out the TUA finance division as their own, maybe many TUA shareholders have figured out holding onto their TUA shares will generate a superior return than swapping them for DPC shares, or cash? I certainly believe that.

SNOOPY

Not my day.Visit to Timaru and did not find time to visit the port!!
No your lunchtimes I think are large.It is not just you and Noodles,there is black knat's overweight position too.
I stick with NZ Sail Post!!!
Yes TUA is a great investment.Future looks very positive.I can't see you being disadvantaged by holding onto some of your TUA shares.
The figures going forward will be interesting.DPC borrowing money at 9% to lend at 15% [net I think] means the more they borrow the more 6%s net they make.Like all finance/banks it is margin and making sure the borrows can repay you with interest.I have said it before and is worth repeating;people need their car to get to work,no work no money,so car repayments are made before mortgage repayments.!!

Snoopy

15-10-2014, 11:07 PM

No your lunchtimes I think are large.It is not just you and Noodles,there is black knat's overweight position too.

Look at Black Knat's post 963 on the DPC thread. I think Black Knat is overweight in DPC, not TUA.

Yes TUA is a great investment.Future looks very positive. I can't see you being disadvantaged by holding onto some of your TUA shares.
The figures going forward will be interesting.DPC borrowing money at 9% to lend at 15% [net I think] means the more they borrow the more 6%s net they make.Like all finance/banks it is margin and making sure the borrows can repay you with interest.I have said it before and is worth repeating;people need their car to get to work,no work no money,so car repayments are made before mortgage repayments.!!

9.5% for me and my bonds from a 15% loan leaves 5.5% for Paul Byrnes and the team. DPC take their operational margin off that 5.5% which leaves, maybe not much for DPC shareholders. But Paul and his guys and gals are hard working: I am sure they will pull through, even if the Percy's on the share register have to thin the jam on their toast until we greedy bondholders are fully repaid!

SNOOPY

percy

16-10-2014, 07:34 AM

Lets take 15% and corrected 9.5%.May appear to be 5.5%, yet it works out;;;.........................
DPC gross margin is 57.89% ie 15 divided by 9.5.
Retains "the smell of money."
Plenty of "money for Jam"

percy

16-10-2014, 06:26 PM

Todays the day I reckon - will be well over 80%.... he says hopefully..

Good call black knat,81.158%.

noodles

16-10-2014, 06:44 PM

Good call black knat,81.158%.

It is still touch and go if they will make 90%.

I reckon they will extend the acceptance date and scaremonger holders into accepting.

They just need to reference the pg.38 of the Grant Samuel report.

Snoopy

16-10-2014, 11:05 PM

One thing is for sure ... if there are any TUA shares are left over they will be hopelessly illiquid... Not a position I would like to be in as a holder.

A lack of liquidity probably would mean a much more volatile share price. That fact is neither good nor bad. If you play things right as a TUA 'hold out', your eventual returns are likely to be much greater than those selling their TUA holding now. In the meantime you will enjoy a vastly superior dividend flow than those accepting Dorchester shares in exchange today, and IMO better capital growth as well.

I am presently more cashed up than I have been for a long time. I wouldn't hesitate to restore my shareholding level should the TUA share price show any sign of weakness post offer. With almost no downside likely, I would argue that those holding onto their TUA shares just as TUA embark on their new business direction are getting in on something big on the ground floor at a more than reasonable price. A rare and, almost worry free, privilege indeed.

SNOOPY

discl: Have retained half my TUA shareholding, and accepted DPC bonds for the other half.

blackcap

16-10-2014, 11:18 PM

A lack of liquidity probably would mean a much more volatile share price. That fact is neither good nor bad. If you play things right as a TUA 'hold out', your eventual returns are likely to be much greater than those selling their TUA holding now. In the meantime you will enjoy a vastly superior dividend flow than those accepting Dorchester shares in exchange today, and IMO better capital growth as well.

I am presently more cashed up than I have been for a long time. I wouldn't hesitate to restore my shareholding level should the TUA share price show any sign of weakness post offer. With almost no downside likely, I would argue that those holding onto their TUA shares just as TUA embark on their new business direction are getting in on something big on the ground floor at a more than reasonable price. A rare and, almost worry free, privilege indeed.

SNOOPY

discl: Have retained half my TUA shareholding, and accepted DPC bonds for the other half.

Who is to say that TUA will remain listed? Or is that a requirement of the takeover? I am a bit fuzzy on my Company Law at present....

Snoopy

16-10-2014, 11:28 PM

Who is to say that TUA will remain listed? Or is that a requirement of the takeover? I am a bit fuzzy on my Company Law at present....

If the owners of 10% or more of the shares on issue say no, then TUA will stay listed. If more than 90% of shares are accepted into the offer, then any 'hold out' shareholders can expect to have their shares compulsorily acquired by DPC.

My acceptance with 50% of my shares turning into DPC bonds was a hedge just in case TUA ends up being delisted. If I had not accepted for any of my shares and DPC had got to 90%, then I would have lost all interest in the company (TUA) because I would have been paid out in cash. The bonds are a much better deal than cash IMO.

SNOOPY

blackcap

16-10-2014, 11:42 PM

If the owners of 10% or more of the shares on issue say no, then TUA will stay listed. If more than 90% of shares are accepted into the offer, then any 'hold out' shareholders can expect to have their shares compulsorily acquired by DPC.

My acceptance with 50% of my shares turning into DPC bonds was a hedge just in case TUA ends up being delisted. If I had not accepted for any of my shares and DPC had got to 90%, then I would have lost all interest in the company (TUA) because I would have been paid out in cash. The bonds are a much better deal than cash IMO.

SNOOPY

Thanks Snoopy, was no sure on the mechanics. I know what you mean about the 90% compulsory acquisition rules and subsequently sections 110-111 of the companies Act that you can also rely on as a minority shareholder. Agree with you too that the bonds are a much better deal than cash. But.... what guarantee do TUA shareholders have (lets say DPC get 85%) that the board of TUA will not at some stage in the future "de-list" TUA to cut costs... (at the behest of DPC off course who will then dominate the board) Ie you 15% are still TUA shareholders with the dividend stream accruing to TUA but your shares are not trade-able, or mabye on some secondary market.... That would be my concern.

Snoopy

17-10-2014, 08:50 AM

But.... what guarantee do TUA shareholders have (lets say DPC get 85%) that the board of TUA will not at some stage in the future "de-list" TUA to cut costs... (at the behest of DPC of course who will then dominate the board) Ie you 15% are still TUA shareholders with the dividend stream accruing to TUA but your shares are not trade-able, or maybe on some secondary market.... That would be my concern.

The subsequent way to delist TUA, if DPC wanted to do that, would be to mount another takeover offer on more favourable terms. The new takeover terms would have to be more favourable to dislodge minority shareholders who considered the current offer was not good enough. This is what has just happened with another share with a small minority shareholder base, Lyttelton, Port of Christchurch.

I would say, eventually, a higher bid and subsequent delisting of TUA is likely. Another possibility is that DPC sells down some of their holding of TUA shares, still maintaining 51% control. That would be another way for DPC to raise cash for the rest of its business empire, without endlessly creating more DPC shares. IMO this is less likely, but still possible.

As for some behind the scene deals to treat some TUA shareholders (DPC) more favourably than others, I don't believe this is possible under NZX main board rules. Dorchester, I believe, would not be able to vote on a resolution to move TUA to the Unlisted board for example. And it would be likely than remaining minority shareholders would vote down such a motion.

SNOOPY

Snoopy

17-10-2014, 09:00 AM

Maybe .... if fundamentals remain positive, if not and you choose to exit, you may have to accept a significant discount. I always like to have a clear way out.

Your concern about a deterioration in business conditions and the lack of an easy way to exit is legitimate Black Knat. To some extent I have been facing this situation with TUA for the last few years already. If your own shareholding would add say, 10% to the volume of shares traded on an average trading day when you sold it, it is likely your shares could 'move the market' if you sold them, relegating any quoted market price you might have got to the theoretical.

Every share has its own characteristics. But I rationalised holding TUA under such circumstances myself like this:

1/ TUA is a clear market leader, the dominant player in vehicle auctions in NZ, and outside of Auckland, really the only game in town. It is highly unlikely a competitor will be able to gain market share quickly.
2/ TUA has an historical record of being a high return on equity, conservatively geared business who have learned to 'stick to their knitting'.
2/ TUA is possibly on course to become the clear market leader in second hand vehicle sales in general. The market is still fragmented. But there is a big growth opportunity out there for the Turner's Fleet side of the business.
3/ The high dividend policy of TUA of the last few years means that over the last few years shareholders have been recovering some 10% of their investment capital every year just via dividends. So the problem in reality is keeping up your stake in the business, not selling out.

In summary the business fundamentals are so strong, and the returns so high that, IMO the risk of not being able to sell out quickly is well outweighed by the risk of not being able to invest in the business in the first place due to lack of liquidity. Furthermore, unlike some highly successful NZX listed business, TUA is IMO not in any way overpriced in terms of fundamentals, even at the takeover price of $3. I do expect some dip in the share price once the takeover offer closes. But I would expect it to be up to $3 again within a year if CEO Todd Hunter's business plan execution is successful.

SNOOPY

bunter

17-10-2014, 02:50 PM

What if DPC start charging TUA steep management fees?

noodles

17-10-2014, 02:52 PM

I reckon they will extend the acceptance date and scaremonger holders into accepting.

As I predicted...
"In order to enable further Turners’ shareholders to accept the offer, Dorchester has varied the offer by extending the closing date for the offer until 11:59pm on 7 November 2014. Dorchester has elected not to vary the date by which the offer is to become unconditional of 3 November 2014, and intends to declare the offer unconditional before 30 October."

https://www.nzx.com/companies/TUA/announcements/256554

No scaremongering yet.

Snoopy

17-10-2014, 07:40 PM

What if DPC start charging TUA steep management fees?

TUA are fully self contained. They won't need any management from Dorchester. However, in the unlikely case of DPC pulling a management fee trick, I will recover my cash via the Dorchester bonds I swapped for half my TUA shares. It's called hedging for all eventualities.

SNOOPY

noodles

17-10-2014, 09:36 PM

TUA are fully self contained. They won't need any management from Dorchester. However, in the unlikely case of DPC pulling a management fee trick, I will recover my cash via the Dorchester bonds I swapped for half my TUA shares. It's called hedging for all eventualities.

SNOOPY
I'm not sure you have quite thought that one through. DPC is much bigger than TUA (from a profit perspective). If DPC strip the profit out of the finance and insurance part of the TUA business, all that is left is the auction and retail.You will see profit halve.

But for DPC, their profit will only increase by about 15%

So I would argue if TUA profits fall by half, their share price will fall by half.
If DPC profit increase by 15%, their share price will increase by 15%

So what are you left with? A net loss of 35%?

noodles

17-10-2014, 09:38 PM

tim23

17-10-2014, 10:39 PM

Quite right they will have 90% in next few days I reckon.

waikare

18-10-2014, 04:43 PM

Quite right they will have 90% in next few days I reckon.

Have just returned yesterday from 4 week trip overseas I see the takeover offer expired last night (Fri), in the NZ Herald said they have 86.8% which is just under the threshold of 90%.
As I have missed the close off time, where does this leave the like of myself, will I be disadvantaged when DTL exercise their right to compulsory acquire the outstanding shares.

percy

18-10-2014, 05:06 PM

Have just returned yesterday from 4 week trip overseas I see the takeover offer expired last night (Fri), in the NZ Herald said they have 86.8% which is just under the threshold of 90%.
As I have missed the close off time, where does this leave the like of myself, will I be disadvantaged when DTL exercise their right to compulsory acquire the outstanding shares.

go to www.nzx.com put TUA in search then click onto announcements.17th October is the one you want.
They have extend the closing date to 11.59pm 7th November.
Do you own more than 3.2%?? lol.

tim23

18-10-2014, 08:36 PM

Waikere they can only enquire compulsory when they get to 90% so rest easy although it looks likely but given extension you can select your options of cash, shares, bonds etc

waikare

19-10-2014, 09:43 AM

Thanks for the feedback guys, looks most likely they will reach their 90% by Monday probably, don’t think my 3000 will make any difference if I hold back, a reluctant seller as I was receiving a good return from Turners.
I know very little about DCP, and they appear to be making money, but only have a 2% dividend return and their share price seems very static, so I guess it’s take the money and run.

blackcap

19-10-2014, 12:15 PM

I know very little about DCP, and they appear to be making money, but only have a 2% dividend return and their share price seems very static, so I guess it’s take the money and run.

What makes you say they only have a 2% dividend return?

Under Surveillance

19-10-2014, 03:03 PM

What makes you say they only have a 2% dividend return?
In respect of FY 2014 the dividend paid was 0.5 cents per share (unimputed).
Divided by the current share price of 25 cents, the historical gross yield is 2%.
DPC has a policy of returning around 40% of profit as dividends; if DPC profit forecasts are achieved dividend returns will improve.

percy

19-10-2014, 04:08 PM

In respect of FY 2014 the dividend paid was 0.5 cents per share (unimputed).
Divided by the current share price of 25 cents, the historical gross yield is 2%.
DPC has a policy of returning around 40% of profit as dividends; if DPC profit forecasts are achieved dividend returns will improve.

I expect they will achieve profit forecasts.

noodles

19-10-2014, 04:49 PM

I expect they will achieve profit forecasts.

dpc recent history has been one of exceeding forecasts. I expect the forecast Npbt of $25 will be conservative

Snoopy

20-10-2014, 12:27 AM

I'm not sure you have quite thought that one through. DPC is much bigger than TUA (from a profit perspective). If DPC strip the profit out of the finance and insurance part of the TUA business, all that is left is the auction and retail. You will see profit halve.

The bold bit I have highlighted above, is IMO a scaremongering fabrication. Of course it is possible. But Dorchester have never openly stated they would replace Turner's Finance division with their own Dorchester people.

It is possible that DPC may rebrand some of their existing vehicle financing presently sold as 'Dorchester' under the 'Turners' umbrella. IOW, Turners Finance would expand. If you look at the actual performance of the Turners finance division, I would argue it has performed more strongly than Dorchester vehicle finance anyway, although both have performed well. So why would Dorchester management replace a higher performing finance subsidiary with a lower performing one?

Dorchester will get to fully consolidate Turners into their own financial statements anyway. So why rock the boat and immediately dismiss all those in Turner's Finance if they are performing better than their own in house staff?

Traditionally Auction and Fleet have made up rather more than 50% of profit, even if this was not the case over the last six months.

SNOOPY

Snoopy

20-10-2014, 12:44 AM

Thanks for the feedback guys, looks most likely they will reach their 90% by Monday probably, don’t think my 3000 will make any difference if I hold back, a reluctant seller as I was receiving a good return from Turners.

TUA shareholders do need to remember the takeover is optional. You do not have to accept any of the three alternatives put up by Dorchester. If you are happy with holding TUA shares, you don't have to sell.

I know very little about DPC, and they appear to be making money, but only have a 2% dividend return and their share price seems very static, so I guess it’s take the money and run.

If you do want to sell and enjoyed the TUA income stream, I would seriously consider accepting DPC bonds and carrying on with a 9.5% gross yield. IMO this is the most generous of the three payout options (including the cash option). The bonds are a loan. So signing up to receive Dorchester bonds is not signing up to Dorchester. The option to turn your Dorchester bonds back into plain cash is there at bond expiry date.

IMO the covenants that DPC has signed up to will ensure they are conservatively managed to the extent that bondholders have a low risk of losing capital. It is possible you will be 'stuck' with those bonds for two years. But few should complain about a forced diet of ice cream and chocolate cake, which is reality what you would be signing up to. Personally I believe you will be able to sell those bonds at a premium before that two year expiry date should you need to.

SNOOPY

Snoopy

20-10-2014, 12:54 AM

But lets face it, it is a bit of a pointless debate. They are going to make 90%

The takeover offer has been public knowledge for two months. The extension has been public knowledge for just two days. Those who have wanted to accept have had plenty of time. It is not clear why those who have taken two months to decide not to accept the offer, would suddenly change their mind over the weekend.

SNOOPY

noodles

20-10-2014, 07:34 AM

The bold bit I have highlighted above, is IMO a scaremongering fabrication. Of course it is possible. But Dorchester have never openly stated they would replace Turner's Finance division with their own Dorchester people.

SNOOPY
not suggesting the turners team would be sacked. Just suggesting that the margins on products would be favoured towards dorchester.

Snoopy

20-10-2014, 07:52 AM

not suggesting the turners team would be sacked. Just suggesting that the margins on products would be favoured towards Dorchester.

The nearest equivalent situation I can think of is when PGW sold their finance division to their 'future finance partner' Heartland. PGW Finance staff stayed on as Heartland employees, and kept the same 'PGW Finance' shirts and logos and desks and office space at PGW.

A cash consideration was paid by Heartland to take over the existing loans. A finance commission was agreed to be paid to PGW for all future business loans obtained. This was in the wash up from the financial crisis when PGW was cash strapped. But it was all done as arms length business transactions.

My point is that the finance division was not taken away with no financial consideration for the original owner of the assets. Your scenario Noodles, of all TUA finance profits suddenly disappearing, is IMO an unrealistically extreme version of the future of the finance division at Turners.

SNOOPY

percy

20-10-2014, 08:20 AM

When we look back it was very exciting when DPC passes the 50% mark.
I think the fact they now have nearly 87% has surprised a good deal of people.
This fact has only been known for a couple of days and I am sure it will influence people.

noodles

20-10-2014, 09:33 AM

The nearest equivalent situation I can think of is when PGW sold their finance division to their 'future finance partner' Heartland. PGW Finance staff stayed on as Heartland employees, and kept the same 'PGW Finance' shirts and logos and desks and office space at PGW.

A cash consideration was paid by Heartland to take over the existing loans. A finance commission was agreed to be paid to PGW for all future business loans obtained. This was in the wash up from the financial crisis when PGW was cash strapped. But it was all done as arms length business transactions.

My point is that the finance division was not taken away with no financial consideration for the original owner of the assets. Your scenario Noodles, of all TUA finance profits suddenly disappearing, is IMO an unrealistically extreme version of the future of the finance division at Turners.

SNOOPY

Yes. Now that DPC are at 87%, I think it is now unrealistic. But when it was back at 50%, perhaps my theory had more legs. DPC will enjoy a profitable TUA as they have fully inputated dividends (unlike themselves).

blackcap

20-10-2014, 09:37 AM

Yes. Now that DPC are at 87%, I think it is now unrealistic. But when it was back at 50%, perhaps my theory had more legs. DPC will enjoy a profitable TUA as they have fully inputated dividends (unlike themselves).

They (DPC) will have fully imputed divs once their tax losses are used up. So no real biggy there.

waikare

20-10-2014, 05:54 PM

As at 3.20pm today DPC now hold 88.12%, still holding out………..

percy

23-10-2014, 05:46 PM

Last shareholder notice on 21/10/2014 they had 89.457%.Great news.
Thought they would have announced last night they had over 90%,but no.
Again I have spent all day waiting for the announcement they are over 90%.Yet again I wait with renewed anticipation.Again no update.
Please Paul announce it tomorrow,as I don't think I could last the long weekend not knowing.!!! lol.
DPC sp strength tells us DPC are there.!

waikare

23-10-2014, 06:53 PM

noodles

23-10-2014, 07:11 PM

Today 60,803 were sold the price ranging from $3.00 to $3.03, do I assume that DPC were the buyer..................

No. DPC are not allowed to under the takeovers code.

My guess is that it someone who wants to convert TUA shares to DPC bonds or shares.

TUA shares are now worth $3.12 if converted to 25c DPC shares as DPC are now at 26c.

5000 DPC shares are the best offer at 27.5c.

No one wants to sell DPC now. FY16 pe <10.

Under Surveillance

23-10-2014, 08:47 PM

Again I have spent all day waiting for the announcement they are over 90%.Yet again I wait with renewed anticipation.Again no update.
Please Paul announce it tomorrow,as I don't think I could last the long weekend not knowing.!!! lol.
DPC sp strength tells us DPC are there.!
Another announcement is due from DPC as to the take up of the $30M capital raising, for which applications from existing DPC shareholders closed at 5.00pm on Tuesday 21 October.
DPC might be in a pickle in sorting out whether (and if so to what extent) applications from DPC shareholders are to be scaled, as the $30M limit also covers acceptances for shares under the TUA takeover, now held open until 7 November. However, DPC has to make any refunds to DPC shareholders within 5 business days of 21 October.

Snoopy

23-10-2014, 10:44 PM

No. DPC are not allowed to under the takeovers code.

My guess is that it someone who wants to convert TUA shares to DPC bonds or shares.

Seems a complicated way of going about things. Just buy some Weetbix like I will be doing next week. Shake the box and a couple of DPC shares should fall out.

TUA shares are now worth $3.12 if converted to 25c DPC shares as DPC are now at 26c.

5000 DPC shares are the best offer at 27.5c.

This needs to be watched. It might be TUA shareholder 'hold outs', should they choose to do so are better selling on market than accepting the DPC cash at $3.

No one wants to sell DPC now. FY16 pe <10.

PE of 10 sounds about right. No bargain here.

SNOOPY

Snoopy

23-10-2014, 11:24 PM

As at 3.20pm today DPC now hold 88.12%, still holding out………..

Keep up the heroic stand Waikare. But if we go down (DPC gets to 90%), watch that TUA share price on the market. You may yet get the last laugh by selling your shares on market at a price greater than the early acceptors that folded their position to DPC!

SNOOPY

percy

24-10-2014, 07:37 AM

Another announcement is due from DPC as to the take up of the $30M capital raising, for which applications from existing DPC shareholders closed at 5.00pm on Tuesday 21 October.
DPC might be in a pickle in sorting out whether (and if so to what extent) applications from DPC shareholders are to be scaled, as the $30M limit also covers acceptances for shares under the TUA takeover, now held open until 7 November. However, DPC has to make any refunds to DPC shareholders within 5 business days of 21 October.

Thanks for your post.
Certainly a huge challenge sorting all that out.

percy

24-10-2014, 07:46 AM

Keep up the heroic stand Waikare. But if we go down (DPC gets to 90%), watch that TUA share price on the market. You may yet get the last laugh by selling your shares on market at a price greater than the early acceptors that folded their position to DPC!

SNOOPY

Wish you both all the best,however some how I feel DPC are there,but have not announced it yet.They only had 0.543% to get to achieve 90%.[under 150,000 shares].

noodles

24-10-2014, 09:50 AM

PE of 10 sounds about right. No bargain here.

SNOOPY

How times have changed. It was only a few months ago, we were debating the merits of TUA vs DPC. You said DPC had a better finance business and you were selling TUA in the mid-2's. On the other hand, I was defending the TUA business.

Now you are saying TUA is cheap with the 3 in front of it .

lol

noodles

24-10-2014, 09:57 AM

Seems a complicated way of going about things. Just buy some Weetbix like I will be doing next week. Shake the box and a couple of DPC shares should fall out.

SNOOPY
How else will you get DPC bonds or DPC shares at 25c?

bunter

24-10-2014, 10:52 AM

My guess is DPC will make more acquisitions, get hyped, get momentum, and become popular with the type of 'investor' who buys XRO etc.

Equiticorp for 2014.

Having sold TUA at 2.98 (equivalent) a month ago, I bought some for trading purposes at 3.03 this morning. For the reason Noodles said.
DPC is a bigger company post-TUA, with more shares, a higher share price and higher market capitalisation.
Maybe it will make the NZSE 50 - that would make a difference.

DPC is a little undervalued IMO - fair value 29c.
If the price gets frothy, I'm planning to trade it cynically, on a 'greater fool' basis - and get out when the charts say to.

Snoopy

24-10-2014, 02:01 PM

How times have changed. It was only a few months ago, we were debating the merits of TUA vs DPC. You said DPC had a better finance business and you were selling TUA in the mid-2's. On the other hand, I was defending the TUA business.

Found my post 198 on this thread where I declared that TUA was NZ's best finance company.
Can't find anywhere that I said DPC was better.

Yes I did sell down some TUA in the mid 2s. But that was only because the investment had been so spectacularly successful for me that I was getting overweight. It was no reflection on what was happening inside TUA.

Now you are saying TUA is cheap with the 3 in front of it .

I think based on current dividend yield TUA is worth hanging onto at $3. I expect no trades for a while after the offer closes. Following that I expect the share price to drift down a bit to $2.80ish. I expect TUA to have recovered to $3 in a years time and go onwards and upwards from there. This is all assuming the business plan executes according to plan, of course.

Nevertheless I wouldn't advocate selling at $3 and buying in again at $2.80. Liquidity is liable to be very tight. The chances are if you sold, you wouldn't be able to buy your shares back until the price was well north of $3.

SNOOPY

percy

24-10-2014, 04:01 PM

Under 110,000 shares to go."Piece of cake,"!!!!

noodles

24-10-2014, 04:25 PM

Found my post 198 on this thread where I declared that TUA was NZ's best finance company.
Can't find anywhere that I said DPC was better.

SNOOPY

I was referring to our debate on the DPC thread
http://www.sharetrader.co.nz/showthread.php?4371-Dorchester-Pacific-Limited-(DPC)&p=485182&viewfull=1#post485182

Snoopy

24-10-2014, 11:58 PM

I was referring to our debate on the DPC thread
http://www.sharetrader.co.nz/showthread.php?4371-Dorchester-Pacific-Limited-(DPC)&p=485182&viewfull=1#post485182

Ah, OK thanks for that. So I did and Apples vs Oranges calculation and you corrected me.

-------

Noodles has pointed out that for TUA I used EBT and for DPC I used EBIT, so the above comparison is not fair. To fix this I will add back the interest paid into the TUA result.

So the FY2014 EBIT for the DPC finance division is $3.360m - $0.01014m = $3.350m

We also are told the segment assets for the finance division total $37,953m at years end.

So EBIT /Segment Assets = $3.35m / $37,953m = 8.83%

Now compare this with the equivalent TUA finance division result:

TUAF FY2013 ($1.861m-$1.151m+$1.926m) / ($10.684m + $14.916m) = 10.3%

and you can see that TUA makes an 'operating profit' which is one and a half basis points above the earnings of DPC for doing essentially the same job on a similar sized loan book.

------

The end result, with my screw up taken out, was that TUA had the better finance business. That was the bit I remembered.

SNOOPY

Snoopy

25-10-2014, 12:03 AM

You don't think they will get the last .4%?

Waikare's 'hold out' is looking more important than ever. I imagine they will send all TUA shareholders another letter stating the takeover offer has been extended and hope that will shake the tree enough. Failing that, they will ring up some older shareholders and bully them with fear.

If they do jump the 90% hurdle in the next few days, I will take cash for the balance of my holding. Like Birmanboy, I feel DPC have yet to earn my trust.

I feel there will be an occasion over the next couple of years when I can buy DPC shares on market for less than 25c.

SNOOPY

percy

25-10-2014, 07:18 AM

With only 110,000 shares required I do not think DPC will have to shake the tree very hard.
Once they have the 100% of TUA, I think you will find DPC's share price will move up to over 30 cents.
You will then not see the sp drop below 30 cents again.
You and Birmanboy will look back in a couple of years, and see in hindsight, your lack of foresight has cost you dearly.

biker

25-10-2014, 09:24 AM

blackcap

25-10-2014, 09:49 AM

noodles

25-10-2014, 10:28 PM

Back of envelop stuff... please critique.

DPC shares outstanding 494 million
extra shares $30m/.25 = 120 million.

Shares issued 614 million.

Profit forecast $25 million if 100% takeover of Turners.

EPS = 25/614 is 4.07cps

Seems cheap to me at 26 cents?

Ahha but then there are still those pesky bonds that need to be converted (and will probably be converted to equity) Now I do not know how many have been issued as of yet but that will have to be included in the above calculation. I do not have the info here at present but if the bond take up was about 25%, DPC seems cheap at this stage....

While DPC may not pay much tax in FY16, I think it is worth normalising the NPAT figure to include full tax as they will pay tax in subsequent years. So I would use 25*.72 to get normalised NPAT $18mill. eps=2.93

Bonds:
It is difficult to know the impact on eps.
If everyone takes cash, then DPC may have to do a capital raising to ensure they are well capitalised. Thus more shares on issue.
If everyone takes shares, then there will be dilution as well.

But the important thing to remember is that they won't be payment 9% to bond holders after 2 years. This will increase earnings and the dilution should not be material form an eps perpective.

The tax credits they have also helps the balance sheet.

noodles

25-10-2014, 10:36 PM

Ah, OK thanks for that. So I did and Apples vs Oranges calculation and you corrected me.

-------

Noodles has pointed out that for TUA I used EBT and for DPC I used EBIT, so the above comparison is not fair. To fix this I will add back the interest paid into the TUA result.

So the FY2014 EBIT for the DPC finance division is $3.360m - $0.01014m = $3.350m

We also are told the segment assets for the finance division total $37,953m at years end.

So EBIT /Segment Assets = $3.35m / $37,953m = 8.83%

Now compare this with the equivalent TUA finance division result:

TUAF FY2013 ($1.861m-$1.151m+$1.926m) / ($10.684m + $14.916m) = 10.3%

and you can see that TUA makes an 'operating profit' which is one and a half basis points above the earnings of DPC for doing essentially the same job on a similar sized loan book.

------

The end result, with my screw up taken out, was that TUA had the better finance business. That was the bit I remembered.

SNOOPY

Paul Byrnes has stated that the finance division is "sub-scale". So I think we need to monitor "EBIT /Segment Assets" going forward to see if DPC can get some operational leverage. This is key to DPC FY16 forecasts.

Snoopy

26-10-2014, 10:58 AM

While DPC may not pay much tax in FY16, I think it is worth normalising the NPAT figure to include full tax as they will pay tax in subsequent years. So I would use 25*.72 to get normalised NPAT $18mill. eps=2.93

<snip>

The tax credits they have also helps the balance sheet.

Not sure who 'they' are. But DPC currently doesn't pay tax because they are using up tax losses. TUA has just paid a special dividend to wipe out their tax credits. So AFAICT any tax credits going forwards will have to be earned. Currently Dorchester/Turners have none.

SNOOPY

noodles

26-10-2014, 03:05 PM

Not sure who 'they' are. But DPC currently doesn't pay tax because they are using up tax losses. TUA has just paid a special dividend to wipe out their tax credits. So AFAICT any tax credits going forwards will have to be earned. Currently Dorchester/Turners have none.

SNOOPY
I was referring to DPC.
I meant tax losses.

Snoopy

26-10-2014, 03:16 PM

Back of envelop stuff... please critique.

DPC shares outstanding 494 million
extra shares $30m/.25 = 120 million.

Shares issued 614 million.

Close enough. Paul Byrnes has declared the $30m capital raising closed early (stock exchange announcement 24th October).

But he has also said.

"We will still be able to accommodate remaining takeover acceptances, arising from the extended offer and any compulsory acquisition, by issuing additional shares”.

So there may end up being a few more shares on iisue than that.

Profit forecast $25 million if 100% takeover of Turners.

Don't know where that $25m profit figure comes from. p24 of the Independent Valuation document sent out to TUA shareholders states:

"Dorchester estimates net profit before tax <snip> rising to $15m, for the year ended 31 March 2016 (excluding the impact of the takeover offer for Turners)."

31-03-2016 seems a long way away. But Turner's FY2014 report covers the period up to 31-12-2014. So the 31-03-2016 yearis only a one year (actually 15 month) increment on this December's TUA result. I am assuming that TUA will grow their NPAT result by 5% over that 15 months. I will normalize the Dorchester operating result for tax because they should be paying it by about then.

NPAT = ($15m x 0.72) + ($2.269m + $2.647m)(1.05) = $16.0m

But that figure does not include the extra interest bill due to:
1/ Issuing the Dorchester Bonds
2/ Interest needed on the net borrowed capital needed to pay out TUA shareholders in cash.

I am assuming a full takeover of TUA and that cash bonds and shares are issued in the proportions declared on the 17th October press release: Cash 49%, DPC shares 24%, DPC bonds 27%. So we can have a good stab at what this incremental interest bill might be:

Takeover Price = $3 x 27.375m shares x (1-0.198) = $65.864m to pay out in some form.

Using the percentage numbers above I get the breakdown in payout as follows:

Cash: $32.273m
DPC shares: $15.807m
DPC bonds: $17.783m

The DPC bonds will generate an annual interest liability for DPC of:

0.09 x $17.783m = $1.6m

The net cash payout (offset against the new equity) is:

$32.273m - $15.807m = $16.466m

Assuming a bank interest rate of 8%, this increase in debt will generate an annual interest bill of :

0.08 x $16.466m = $1.3m

So adjusting the combined group NPAT for their new incermental interest bill:

$16.0m - 0.72($1.6m+$1.3m) = $13.9m

Now work out the earnings per share:

$13.9m/614m = 2.27cps.

At a share price of 25c, that means DPC is trading on a projected PE for FY2016 of:

25c/2.27c = 11.0

On a PE of 12 we might expect a share price of:

2.27c x 12 = 27.2c

To me the 25c share price today looks fair, assuming the TUA integration goes to plan and earnings growth forecasts are accurate. Considering there is still some water to go under the bridge by 31st March 2016, DPC at 25c hardly looks a bargain though.

I still believe I will get a better overall return holding Dorchester bonds rather than Dorchester shares over the next two years.

SNOOPY

noodles

26-10-2014, 03:27 PM

Don't know where that $25m profit figure comes from.

https://www.nzx.com/companies/DPC/announcements/253161

"If the takeover proceeds we would expect the Dorchester group profit before tax in the 2016 year to be in the $20 million to $25 million range, depending on our ultimate shareholding in Turners”, said Mr Byrnes."

noodles

26-10-2014, 03:33 PM

31-03-2016 seems a long way away. But Turner's FY2014 report covers the period up to 31-12-2014. So the 31-03-2016 yearis only a one year (actually 15 month) increment on this December's TUA result. I am assuming that TUA willgrow their NPAT result by 5% over that 15 months. I will normalize the Dorchester operating result for tax because they shoudl be paying it by about then.

NPAT = ($15m x 0.72) + ($2.269m + $2.647m)(1.05) = $16.0m

But that figure does not include the extra interest bill due to:
1/ Issuing the Dorchester Bonds
2/ Interest needed on the net borrowed capital needed to pay out TUA shareholders in cash.

Assuming a full takeover of TUA and that cash bonds and shares are issued in the proportions declared on the 17th October press release: Cash 49%, DPC shares 24%, DPC bonds 27%. We can have a good stab at what this incremental interest bill might be:

SNOOPY
You have missed 2 major items that will positively impact on profit as a result of the takeover:
1.insurance and finance margins won't go to a third party like MTF
2. Listing and back office costs for TUA.

Paul Bynes said he has found 12 different cost savings initiatives at the recent AGM

This is how he gets to NPBT of $25mill

Snoopy

26-10-2014, 03:51 PM

You have missed 2 major items that will positively impact on profit as a result of the takeover:
1.insurance and finance margins won't go to a third party like MTF
2. Listing and back office costs for TUA.

Paul Bynes said he has found 12 different cost savings initiatives at the recent AGM

This is how he gets to NPBT of $25mill

Accepting your quote of NPBT of $20m-$25m that equates to NPAT of $14.4m to $18m. The lower figure is not too different to my $13.9m.

I am not sure how many back office costs can be saved as the finance division at TUA is already a lean operation. I take your point about not giving upmargins to MTA for finance and insurance. I hope DPC can improve things. But that $25m figure being posted around is at the outer level of optimism.

SNOOPY

noodles

26-10-2014, 04:12 PM

But that $25m figure being posted around is at the outer level of optimism.
SNOOPY
Or perhaps conservatism. On the face of it, the $25mill seems aggessive. But it is rare for a forecast to be made so far out in the future. Perhaps they have enough visibility now to make such a call.

Since Paul Byrnes and the Business Bakery took over, we have seen stella growth and they have exceeded forecasts.

Time will tell.

Note:The lower level ($20mill) assumes only 50% ownership of TUA. The upper level $25mill assumes 100%.

Snoopy

26-10-2014, 04:43 PM

Or perhaps conservatism. On the face of it, the $25mill seems aggessive. But it is rare for a forecast to be made so far out in the future. Perhaps they have enough visibility now to make such a call.

I see the forecast goes all the way back to 28th July 2014, if it was genuinely made in that press release.

Since Paul Byrnes and the Business Bakery took over, we have seen stella growth and they have exceeded forecasts.

Time will tell.

Note:The lower level ($20mill) assumes only 50% ownership of TUA. The upper level $25mill assumes 100%.

I see the $20m and $25m NPBT figures in the press release. I don't see that $20m refers to a 50.1% holding and $25m refers to a 100% holding though. Given the cost of borrowings, it might be that $20m refers to a 100% TUA holding and $25m refers to a 50% holding.

back further in the same press release Byrnes says:

--------

Dorchester CEO and Executive Director, Paul Byrnes, said funding for the acquisition will be a combination of a share placement, the issue of Convertible Notes and some bank funding.

“We anticipate raising between $25 million and $27.5 million at $0.25 per share through the issue of Dorchester shares to Turners shareholders, including Bartel, and a placement. We also expect to issue around $15 million of Convertible Notes including to Bartel. Final numbers will of course depend on the level of acceptances and the combination of shares, Convertible Notes and cash options taken up by Turners shareholders."

------

It doesn't seem credible that Byrnes was forecasting almost the same amount of fund raising depending on whether DPC gets to 50.1% or 100%. The takeover offer was mean to TUA shareholders IMO. I don't think Byrnes expected it to get to 90% back on 28th July.

Byrnes is issuing more DPC shares ($30m worth) and DPC bonds ($18m worth) than forecast. He must also be taking on a lot more bank debt than forecast to make up the whole price difference too. Because of this, I doubt that $20m to $25m FY2016 NPBT forecast made back in July 2014 for FY2016 is up to date.

SNOOPY

blackcap

26-10-2014, 05:17 PM

------

It doesn't seem credible that Byrnes was forecasting almost the same amount of fund raising depending on whether DPC gets to 50.1% or 100%. The takeover offer was mean to TUA shareholders IMO. I don't think Byrnes expected it to get to 90% back on 28th July.

Byres is issuing more DPC shares ($30m worth) and DPC bonds ($18m worth) than forecast. He must also be taking on a lot more bank debt than forecast to make up the whole price difference too. Because of this, I doubt that $20m to $25m FY2016 NPBT forecast made back in July 2014 for FY2016 is up to date.

SNOOPY

Snoopy, I happened to speak with both Paul and Grant Baker at the AGM where Grant stated they would prefer 100% of TUA and Paul re-iterated that the $25m profit was for a 100% acquisition of TUA. I also questioned Grant on the disparity of the two following statements... (you would think that if FY 15 was ahead by $.5-$1.5m then so would FY 16)

(i) Net Profit Before Tax for the year to 31 March 2015 is forecast at $11.5
million, ahead of the previous guidance of $10 - $11 million

(ii) Net profit Before Tax for the year to 31 March 2016 is forecast at $15
million, in line with previous guidance

He suggested that the profit for FY16 would be higher as well but that they did not announce that to market as they were being conservative.

He seemed to indicate that the flow on from FY 15 would follow through to FY 16. This mainly excludes TUA as the FY15 forecast is assuming 18 odd % of TUA. I think they may surprise on the upside all other things being equal.

noodles

26-10-2014, 05:54 PM

I doubt that $20m to $25m FY2016 NPBT forecast made back in July 2014 for FY2016 is up to date.

SNOOPY
If it is not up to date, management should have updated the market. Given they have just raised $30Mil from retail and institutional investors, they are legally obliged to ensure continuous disclosure.

Snoopy

28-10-2014, 04:07 PM

Snoopy, I happened to speak with both Paul and Grant Baker at the AGM where Grant stated they would prefer 100% of TUA and Paul re-iterated that the $25m profit was for a 100% acquisition of TUA. I also questioned Grant on the disparity of the two following statements... (you would think that if FY 15 was ahead by $.5-$1.5m then so would FY 16)

(i) Net Profit Before Tax for the year to 31 March 2015 is forecast at $11.5
million, ahead of the previous guidance of $10 - $11 million

(ii) Net profit Before Tax for the year to 31 March 2016 is forecast at $15
million, in line with previous guidance

He suggested that the profit for FY16 would be higher as well but that they did not announce that to market as they were being conservative.

He seemed to indicate that the flow on from FY 15 would follow through to FY 16. This mainly excludes TUA as the FY15 forecast is assuming 18 odd % of TUA. I think they may surprise on the upside all other things being equal.

Thanks for this clarification from management Blackcap. The thing that bothers me about this forecast is this.

Based on the two latest half year results for TUA, the annualised profit is:

$2.269m + $2.647m= $4.916m (NPAT)

So annualised NPBT for TUA = $4.916m/0.72 = $6.827m

80% of that figure is: 0.8 x $6.827m= $5.462m.

That 80% is the incremental gain in profit, once the 80% of TUA that DPC didn't own before the takeover is brought in house.

Add this to the $15m for FY2016 that is the DPC forecast for all other parts of Dorchester ("excluding the impact of the takeover offer of Turners" from p24 of the Grant Samuel Evaluation) and I get a forecast NPBT for FY2016 of:

$15m + $5.462m = $20.462m

To make the NPBT $25m upper profit forecast figure post merger, the Turner's profit would have to increase by:

$25m -$20.462m = $4.538m in just 18 months. That would mean the contribution from the Turners profit for the DPC year ended 31st March 2016 would be:

$6.827m + $4.538m = $11.365m

That is an increase in TUA NPBT of: $4.538m/$11.365= 40% (!)

I would be seriously hacked off if TUA directors were projecting that kind of profit increase so soon, yet agreed to sell out to DPC so cheaply.

SNOOPY

Snoopy

28-10-2014, 04:43 PM

If it is not up to date, management should have updated the market. Given they have just raised $30Mil from retail and institutional investors, they are legally obliged to ensure continuous disclosure.

“If the takeover proceeds we would expect the Dorchester group profit before tax in the 2016 year to be in the $20 million to $25 million range, depending on our ultimate shareholding in Turners”, said Mr Byrnes.

I think you need to look at this quote more closely.

Basic annualised earnings of TUA are $4.916m (NPAT)
Number of shares in TUA are 27.375m
So eps = $4.916m/ 27.375m = 18.0cps

At a cash share price of $3 (The acquisition price), the net yield is: 18/300= 6%

TUA is issuing bonds to help fund the takeover, and is paying 9.0% interest on those bonds. Therefore the more shares that DPC buys that are financed by bonds (or bank borrowing for that matter), the more money DPC is losing. The maths is undeniable. For all TUA shares taken out by bank borrowings or bonds, DPC is cashflow and profit negative. Granted, none of this takes into account savings from business integration or future business growth. Over time I am sure that TUA will prove an excellent cash positive investment for DPC. But right at this moment, at the point of takeover, the more shares that DPC buys with debt, the worse the profit outlook for DPC in the short term.

This calculation does not apply if TUA shareholders are paid out in DPC shares. The point is that back on 28th July, Paul Byrnes could not possibly know what proportion of shareholders overall would take DPC shares/DPC Bonds/Cash in what combination. Byrnes has good business sense and no doubt could make an educated guess. But his forecast can't be precise, because Byrnes doesn't know the proportion of TUA shares acquired funded by debt in advance.

The other thing about Byrnes forecast that is odd is that he says the $20m to $25m profit range depends on the ultimate shareholding in Turners. This is odd because if DPC only had a minimal level of acceptance albeit enough to bget them over the line and paid out mostly in shares they would have a higher profit than if DPC acquired 100% of DPC entirely funded by debt. IOW you can't guarantee a higher profit by acquiring more shares.

IMO Byrnes profit forecast of $20-$25m is an educated guess. You shareholders can't hold him to it because there are too many unknowns in how the acquisition ends up being funded.

SNOOPY

blackcap

28-10-2014, 05:19 PM

Thanks for this clarification from management Blackcap. The thing that bothers me about this forecast is this.

Based on the two latest half year results for TUA, the annualised profit is:

$2.269m + $2.647m= $4.916m (NPAT)

So annualised NPBT for TUA = $4.916m/0.72 = $6.827m

80% of that figure is: 0.8 x $6.827m= $5.462m.

That 80% is the incremental gain in profit, once the 80% of TUA that DPC didn't own before the takeover is brought in house.

Add this to the $15m for FY2016 that is the DPC forecast for all other parts of Dorchester ("excluding the impact of the takeover offer of Turners" from p24 of the Grant Samuel Evaluation) and I get a forecast NPBT for FY2016 of:

$15m + $5.462m = $20.462m

To make the NPBT $25m upper profit forecast figure post merger, the Turner's profit would have to increase by:

$25m -$20.462m = $4.538m in just 18 months. That would mean the contribution from the Turners profit for the DPC year ended 31st March 2016 would be:

$6.827m + $4.538m = $11.365m

That is an increase in TUA NPBT of: $4.538m/$11.365= 40% (!)

I would be seriously hacked off if TUA directors were projecting that kind of profit increase so soon, yet agreed to sell out to DPC so cheaply.

SNOOPY

One word.. synergies

noodles

28-10-2014, 10:29 PM

Basic annualised earnings of TUA are $4.916m (NPAT)
Number of shares in TUA are 27.375m
So eps = $4.916m/ 27.375m = 18.0cps

At a cash share price of $3 (The acquisition price), the net yield is: 18/300= 6%

TUA is issuing bonds to help fund the takeover, and is paying 9.5% interest on those bonds. Therefore the more shares that DPC buys that are financed by bonds (or bank borrowing for that matter), the more money DPC is losing. The maths is undeniable. For all TUA shares taken out by bank borrowings or bonds, DPC is cashflow and profit negative. Granted, none of this takes into account savings from business integration or future business growth. Over time I am sure that TUA will prove an excellent cash positive investment for DPC. But right at this moment, at the point of takeover, the more shares that DPC buys with debt, the worse the profit outlook for DPC in the short term.

This calculation does not apply if TUA shareholders are paid out in DPC shares. The point is that back on 28th July, Paul Byrnes could not possibly know what proportion of shareholders overall would take DPC shares/DPC Bonds/Cash in what combination. Byrnes has good business sense and no doubt could make an educated guess. But his forecast can't be precise, because Byrnes doesn't know the proportion of TUA shares acquired funded by debt in advance.

SNOOPY
Nice try Snoopy. The maths is deniable.

You are comparing pre-tax interest (blend of bank rate and 9%) with post-tax TUA profit.

Of course you are also failing to recognize that TUA will make DPC a lot more than 4.916m (NPAT). (third party costs gone and 11 other cost saving initiatives, new product initiatives, and the 5-10% growth already forecasted by TUA)

Byrnes has also stated that he is pleased with the uptake of holders who want DPC shares and it has exceeded their expectations. So therefore $25mill could be exceeded!

The bonds are simply a mechanism for DPC to keep their tax losses intact and sweeten the deal for TUA income investors.

Snoopy

29-10-2014, 02:42 PM

One word.. synergies

Your one word answer will eventually be correct blackcap. But I am surprised these synergies will be so great in just over a year's time. I would expect it to take longer than that to filter out any duplication in the business hierachy. Having said this I see that TUA had 'subcontracted service expense' of $4.627m last financial year. I wonder what that is, or more to the point whether they can save money by bringing the majority of it under the DPC umbrella?

SNOOPY

noodles

29-10-2014, 02:42 PM

Takeover complete: 90% reached

Let's move onto the DPC thread:)

Snoopy

29-10-2014, 02:44 PM

----

NOTIFICATION OF DOMINANT OWNERSHIP

Dorchester Turners Limited (Dorchester) made a full takeover offer for all of the issued share capital in Turners Group NZ Limited (Turners) dated 18 September 2014 (the Offer).

As at the date of this notice, and as a result of acceptances of the Offer, Dorchester holds or controls 90% or more of the total voting rights in Turners. Accordingly, pursuant to rule 51 of the Takeovers Code, Dorchester gives notice that it has become the dominant owner of Turners.

For and on behalf of
Dorchester Turners Limited

Paul Byrnes
Director

------

SNOOPY

Snoopy

29-10-2014, 03:03 PM

Nice try Snoopy. The maths is deniable.

You are comparing pre-tax interest (blend of bank rate and 9%) with post-tax TUA profit.

Noodles, in the general case your comment would be correct. However, in this instance TUA have cleaned out their imputation credit account with the special dividend paid. Even if there was anything left in there it would be wipe dout by the DPC change of control of ownership.

You are no doubt also aware that as at the 31st March 2014 balance date (note 19 in the annual report), DPC had $6.761m in deferred tax assets accumulated from previous losses. DPC expects to recover $3.360m of that over the ensuing 12 months and $3.317m of this in the twelve months after that. This means that DPC will not be paying any (cashflow) tax in FY2015. The tax 'paid' by DPC for FY2015 will be a non cash transaction that reduces the deferred tax asset.

Consequently, I believe my highlighting the cashflow that must be paid out on the 9% (pre tax interest) bonds as money that cannot be offset against new tax deducted from future TUA subsidiary profit (post tax profit) was appropriate. All of that 9% interest is a net loss of cash to DPC. For a finance company that always relies on cashflow, the DPC bonds will cause a real net loss of cash that will crimp the growth of DPC over the next year or two.

SNOOPY

Snoopy

29-10-2014, 03:42 PM

Nice try Snoopy. The maths is deniable.

You are comparing pre-tax interest (blend of bank rate and 9%) with post-tax TUA profit.

I want to go back to this because over the last few months of the life of the bonds, the DPC tax credits should run out. So what will happen in this situation? The last documented twelve months for TUA produced the following profit (NPAT):

$2.269m + $2.647m= $4.916m
Number of shares in TUA are 27.375m
So eps = $4.916m/ 27.375m = 18.0cps

Given the $3 per share price that DPC will pay for the remainder of those TUA shares, this means a net yield of:

18/300 = 6%

The interest on the DPC bonds is 9% (9% gross from a bondholder point of view), or 9% x 0.72 = 6.48% (assuming a 28% tax rate) if you use the DPC perspective and adjust for tax deductability.

Borrowing at 6.48% to access an income stream of 6% is a very obvious way to lose money. Of course if the net income at TUA were to grow by (6.48/6=) 8% over the next two years, then the net interest paid would just cover the net income received and the whole thing becomes 'cash neutral' from a DPC perspective. But will the TUA profits grow by that much in two years? I would guess yes (I like the prospects of TUA), but it is certainly not a given.

SNOOPY

blackcap

29-10-2014, 03:55 PM

But will the TUA profits grow by that much in two years? I would guess yes (I like the prospects of TUA), but it is certainly not a given.

SNOOPY

Does not matter Snoopy. They are not interested in the "growth" of TUA's profit or at least not paying for it. They are paying for the synergies which will be much more than 2 years interest at 9%. At the AGM I also gleaned that the bonds were a "sweetener" to get Barthel on board. And that in itself was integral in the takeover working.

Snoopy

29-10-2014, 03:56 PM

Byrnes has also stated that he is pleased with the uptake of holders who want DPC shares and it has[/COLOR][/COLOR] exceeded their expectations[COLOR=#333333][COLOR=#333333]. So therefore $25mill could be exceeded!

I would guess the effect of having 'more shareholders accept DPC shares than expected' will be largely cancelled out by more bonds being issued to what DPC term their 'committed sharehodlers' and who I term 'the big boys'.

From p31 of the Independent advisers report:

"The number of shares issued to Dorchester's committed shareholders may be impacted by the number of shares issued to Turner's shareholders who accept the Dorchester Offer and the number of Turner's shareholders that elect to direct the special dividend paid by them to Turns to subscribe for shares in the share placemnent (i.e if $25m of shares are issued to Turner's shareholders), Dorchesters committed shareholders would be issued $5m of shares (to make the total up to $30m of new capital) and $5m in Dorchester bonds."

By implication if $30m of new shares are issued to DPC small shareholders, the 'big boys' will get $10m worth of Dorchester 9% bonds!

SNOOPY

Snoopy

29-10-2014, 04:04 PM

Does not matter Snoopy. They are not interested in the "growth" of TUA's profit or at least not paying for it. They are paying for the synergies which will be much more than 2 years interest at 9%. At the AGM I also gleaned that the bonds were a "sweetener" to get Bartel on board. And that in itself was integral in the takeover working.

I was using 'growth' in the most general sense, not meaning that it had to imply top line growth only. Saving money on the bottom line, the synergies you talk about blackcap, is an equally valid way to obtain profit growth.

Very interesting that the bonds were a sweetener to get Bartel Holdings behind the deal. It confirms my view that accepting the bonds was a better option than taking shares or cash, even if DPC tried to talk the bonds down by claiming lack of bond liquidity!

SNOOPY

PS If you are still holding out, make sure you accept the offer by choosing the bonds! It effectively locks in your core TUA dividend at current levels for a couple of years.

bunter

30-10-2014, 11:08 AM

make sure you accept the offer by choosing the bonds! It effectively locks in your core TUA dividend at current levels for a couple of years.

Seems to me taking bonds is only better than taking shares if the DPC price goes down - and even then, bonds are probably still a bad idea.
Are my calculations right?

Example:
Assume DPC price at conversion is 50c

Bond option:
$1,000 of DPC bonds converts at a rate of 30c to 3333 ordinary shares worth $1,667 (plus approx $100 being the NPV of the difference between the bonds and the share div)

Share option:
4,000 DPC shares at bond conversion date are worth $2,000.

Two more factors:
1) If the DPC share price has fallen (say to 15c) - we're looking at a *finance company in bad shape*. In which case DPC might be unable to repay in cash AND, any bondholders swapping bonds for shares will flood the market and depress the weak share price further.

2) During this time of weakness, bondholders will be unable to get out.

blackcap

30-10-2014, 11:11 AM

Two more factors:
1) If the DPC share price has fallen (say to 15c) - we're looking at a *finance company in bad shape*. In which case DPC might be unable to repay in cash AND, any bondholders swapping bonds for shares will flood the market and depress the weak share price further.

2) During this time of weakness, bondholders will be unable to get out.

You forget that under this scenario if you took shares you would be a LOT worse off. You got the shares at 25 cents. If you took the bonds you get the shares at 15*.95 which means you get a lot more shares :)
Bonds are still a superior option.

bunter

30-10-2014, 11:20 AM

You forget that under this scenario if you took shares you would be a LOT worse off. You got the shares at 25 cents. If you took the bonds you get the shares at 15*.95 which means you get a lot more shares :)
Bonds are still a superior option.

"Seems to me taking bonds is only better than taking shares if the DPC price goes down - and even then, bonds are probably still a bad idea."
I didn't forget.
But...shareholders have the option of selling - say at 24c - bondholders don't.
Plus - as above - if the DPC share price is so weak at conversion time, the ability of DPC to repay cash AND the marketability of DPC share will both be in question.

Snoopy

30-10-2014, 03:17 PM

But...shareholders have the option of selling - say at 24c - bondholders don't.

I always find it useful in these situations to look at what the big boys actually do, not what they tell you to do.

The 'committed shareholders' (love that term) have been lined up to take up $30m worth of new DPC shares if required. If not required these 'committed shareholders' will instead put their new capital into Dorchester Bonds. The option to take bonds is the sweetener, a pay off if their underwriting of $30m worth of new DPC shares is no longer required. The fact that these 'committed shareholders' are lining up for bonds, not extra shares, tells me all I need to know about how desirable the bonds are relative to yet more DPC shares.

The documentation doesn't actually say that there will be no ready market for the bonds. It says there are no plans to list the bonds on the NZX debt market, so holders should be prepared to stick with them for two years. But, if these 'committed shareholders' decide they need a mechansim to sell their bonds, I am sure a quiet word in Paul Byrnes ear will see the bonds listed pronto.

Put simply, I don't believe the bonds will be as illiquid as suggested in the prospectus. I am even considering having a quiet word with my broker to let me buy any bonds that come up for sale off market, and I am sure others are thinking the same. The reason Dorchester is making noises about illiquidity is that they don't want everyone to choose the bonds.

SNOOPY

Snoopy

30-10-2014, 03:43 PM

Seems to me taking bonds is only better than taking shares if the DPC price goes down - and even then, bonds are probably still a bad idea.
Are my calculations right?

Example:
Assume DPC price at conversion is 50c

Bond option:
$1,000 of DPC bonds converts at a rate of 30c to 3333 ordinary shares worth $1,667 (plus approx $100 being the NPV of the difference between the bonds and the share div)

Share option:
4,000 DPC shares at bond conversion date are worth $2,000.

The bond interest rate is 9% (gross). In terms of each 25c shares that equates to:

0.09 x 25c = 2.25cps annual interest or 0.7 x 2.25c = 1.575c net after tax (assuming a 30% tax rate). For 23 months the net after tax bond return per share is;

(23/12)*1.575 = 3.0cps.

So for every 25c you put into bonds you will receive over the next 23 months 3c, making a total of 28c at bond maturity date.

Now looking at the 25c 'capital component of the bond' only, you can convert to shares at a 5% discount to market price. If the DPC share price is 30c in 23 months time, then your conversion price is 0.95 x 30c = 28.5c, a discount of 1.5cps.

So incorporating your discount, the actual value you receive from your bond in 23 months time is:

25c +3c +1.5c = 29.5c

Now consider if you chose shares at 25c today that were worth 30c in 23 months time. Factor in a couple of 0.5c per share dividends along the way (unimputed) and I get

30c +0.7(0.5+0.5)= 30.7c.

This means you are slightly better off taking the shares, but 30c is really the sweet spot for shares.

If the share price is only 29c in 23 months time you are better off taking bonds.

If the share price rises to 50c then the option value of the bonds will rise too, assuming you can trade the bonds which you will be able to because I personally will buy them off you!

The killer for me is that the bonds have almost no downside risk, unless the whole of DPC implodes which I don't believe is likely.

Two more factors:
1) If the DPC share price has fallen (say to 15c) - we're looking at a *finance company in bad shape*. In which case DPC might be unable to repay in cash AND, any bondholders swapping bonds for shares will flood the market and depress the weak share price further.

Yes but bondholders will get their 'swapped shares' cheaply, so having to sell those shares cheaply will still allow them to get their capital back. It is the shareholders that will suffer under this scenario.

2) During this time of weakness, bondholders will be unable to get out.

IMO bondholders will be issued cheap shares that they can then

1/ sell at a cheap price to recover their capital immediately OR
2/ hold onto their cheap shares and wait for the DPC share price to recover and get a nice capital gain.

SNOOPY

Snoopy

30-10-2014, 04:06 PM

Plus - as above - if the DPC share price is so weak at conversion time, the ability of DPC to repay cash AND the marketability of DPC share will both be in question.

If you really are worried that DPC will look bad at conversion time, then take the third option. $3 cash in the hand now will rid you of any future DPC anxiety.

SNOOPY

bunter

30-10-2014, 04:12 PM

Snoopy

30-10-2014, 04:24 PM

Thanks Snoopy - re: "If the share price rises to 50c then the option value of the bonds will rise too"

According to my calcs, the higher the share price goes above 30c, the worse off bond holders will be compared to those who took shares.

This is because for every $1,000 of TUA shares converted, the share-choosers will have 4,000 DPC shares, and the bond-choosers will only have 3,333 shares.

Do you agree?

Nope. The maximum bondholders will pay for shares is 30c, no matter what the DPC share price climbs to.

So if the market price for DPC shares is 50c then bondholders will be in for a huge windfall, if those bonds truly are untradeable and are only 'worth' 30c. Of course I would assume in practice in this situation that Mr Market (in whatever form) will see the arbitrage opportunity and be prepared to pay a big premium to the face value of the bonds. Buying into a DPC option for the equivalent of 30c when the market price is 50c would be an impossibly good deal, too good to resist. Liquidity would find a way!

I think with a DPC share price of 50c, it would be bonds all the way as a better investment. But I do think that 50c in 23 months time is an impossibly optimistic projection, even for a high performing Paul Byrnes and his managment team. IOW getting DPC shares today at 25c and looking to double your money in just 23 months is not going to happen.

SNOOPY

blackcap

30-10-2014, 04:40 PM

Nope. The maximum bondholders will pay for shares is 30c, no matter what the DPC share price climbs to.

So if the market price for DPC shares is 50c then bondholders will be in for a huge windfall, if those bonds truly are untradeable and are only 'worth' 30c. Of course I would assume in practice in this situation that Mr Market (in whatever form) will see the arbitrage opportunity and be prepared to pay a big premium to the face value of the bonds. Buying into a DPC option for the equivalent of 30c when the market price is 50c would be an impossibly good deal, too good to resist. Liquidity would find a way!

I think with a DPC share price of 50c, it would be bonds all the way as a better investment. But I do think that 50c in 23 months time is an impossibly optimistic projection, even for a high performing Paul Byrnes and his managment team. IOW getting DPC shares today at 25c and looking to double your money in just 23 months is not going to happen.

SNOOPY

Snoopy, Bunter happens to be correct. For every $,1000 worth of TUA now you can either get

4000 DPC shares or $1,000 worth of bonds.

In 2 years time if the DPC share price is 50 cents... you either have

4000 DPC shares or 1000/(.30*.95) = 3,509 shares. So under this scenario equity converters are better off.

Remembering that the bond holders will have also received two lots of $90, so $180 on top of their share holding. Quick and dirty $180/.50=360 so that gives 3869 shares.

However the bonds give so much more downside protection that I would favour bonds over shares any day if I could choose.

bunter

30-10-2014, 04:43 PM

Still don't understand your reasoning Snoopy. Will leave it at that.

bunter

30-10-2014, 04:58 PM

In 2 years time if the DPC share price is 50 cents... you either have

4000 DPC shares or 1000/(.30*.95) = 3,509 shares. So under this scenario equity converters are better off.

Remembering that the bond holders will have also received two lots of $90, so $180 on top of their share holding. Quick and dirty $180/.50=360 so that gives 3869 shares. .

1) Conversion's at 30c in this case, not 95% of 30c - so 3,333 shares.
2) Take tax off that interest - so $126 or 252 shares only
So 3585 shares for the bond people.

3) Don't forget the DPC divs which I reckon might be 1cps pa - 2c over 2 years - less tax = 1.4c = $56 - or 112 shares.

So 4112 for the share people.

blackcap

30-10-2014, 05:01 PM

1) Conversion's at 30c in this case, not 95% of 30c - so 3,333 shares.
2) Take tax off that interest - so $126 or 252 shares only
So 3585 shares for the bond people.

3) Don't forget the DPC divs which I reckon might be 1cps pa - 2c over 2 years - less tax = 1.4c = $56 - or 112 shares.

So 4112 for the share people.

Fair points Bunter. But I would still take the bond for the downside protection. You are pretty much guaranteed the $1,000 (capital guarantee) with all the upside potential in the world. With equity there is no capital protection whatsoever. But lets agree to disagree as it is a moot point and everyone has different risk profiles.

percy

30-10-2014, 05:17 PM

I think the biggest losers could be the TUA shareholders who accepted cash.
Holding either DPC bonds or shares would make better sense to me.

bunter

31-10-2014, 02:02 PM

Some final thoughts...
1) 'losers' - That would be me Percy - sold at approx 2.97 - then thought some more, noticed the DPC share price had gone up to 27c, and bought back in at approx 3.05.
More proof that sitting is better than thinking.

2) Found this interesting "Dorchester had received acceptances which, together with the shares Dorchester already holds, represents more than 86.8% of Turners shares, and is unconditional as to the minimum acceptance required. Of the acceptances to date, including Bartel Holdings, the consideration has been taken up as cash 49.1%, Dorchester shares 23.5%, and Dorchester Bonds 27.4%."

Bearing in mind a large shareholder took 60% shares 40% bonds - the rest have been mainly taking cash, some bonds, and not many shares.

DPC won't issue more than 60% of the consideration as shares, but this figure isn't going to be reached.

Snoopy, BP - we all get what we want.

3) "getting DPC shares today at 25c and looking to double your money in just 23 months is not going to happen"
Wish I knew so much about the future.
More divs, more acquisitions, some hype and momentum and I reckon 50c is possible.

Snoopy

31-10-2014, 03:09 PM

Snoopy, Bunter happens to be correct. For every $,1000 worth of TUA now you can either get

4000 DPC shares or $1,000 worth of bonds.

In 2 years time if the DPC share price is 50 cents... you either have

4000 DPC shares or 1000/(.30*.95) = 3,509 shares. So under this scenario equity converters are better off.

Remembering that the bond holders will have also received two lots of $90, so $180 on top of their share holding. Quick and dirty $180/.50=360 so that gives 3869 shares.

Blackcap, I don't dispute the result of your maths, nor your and Bunter's assertion that if you believe that the DPC share price will be 50c in 23 months time you would be better off accepting DPC shares now, and not getting bonds and converting them to DPC shares later.

However, this leaves aside the inherent value of the 'option' nature of the bonds. In racehorse terms this is the comparative difference between:

1/ Buying a horse at the start of a race, and for all subsequent races AND
2/ Waiting foir the race to have finished, seeing how your horse did and THEN buying your horse for coming races once there is confirmation of form.

Strategy 2 normally(*) means you miss out on the horses first race winnings (but also avoid horse owning costs, which would result in a net loss should the horse not win). But it gives you more time to check out the form of the horse without taking ownership.

(*) In this instance the gross income from the bonds more than makes up for any dividends foregone so there is no income downside to bond ownership

If your horse turns out to be a winner all the way, then you have gained nothing by delaying the horse purchase. But the point is no matter how good the horse, you don't know how good it is until after the first race is won. The option to back out of the deal and take cash has great value during the racing career of the horse. Once all the races have been run (the with hindsight view), you might take the historical view that your opt out ownership clause (analagous to owning bonds instead of shares) had no value. But that is only because the real uncertainty as the races were being run, has now been consigned to the dustbin by history. It doesn't mean the option had no value at the time.

In short if you take the tunnel visioned view that you have 'faith' in management and that business performance is certain, then buying an option will never have any value to you. But if you recognize that business performance is inherently uncertain, then an option like this one (DPC bonds) has huge value.

However the bonds give so much more downside protection that I would favour bonds over shares any day if I could choose.

The above is the whole point. Bonds give the best return over a range of possible scenarios. Bonds will not give the best value if the business performs at the very highest level. Direct share ownership is better in that case.

SNOOPY

Snoopy

31-10-2014, 03:32 PM

3) "getting DPC shares today at 25c and looking to double your money in just 23 months is not going to happen"
Wish I knew so much about the future.
More divs, more acquisitions, some hype and momentum and I reckon 50c is possible.

The problem is Bunter, all of these acquisitions have been made possible by issuing more and more DPC shares. If profit doubles, but the number of shares on issue doubles at the same time, then the share price doesn't move. Profit growth should be easy to achieve. eps growth, I think much harder.

IMO small DPC shareholders have not been particularly well treated by management in the past because the big boys are tapped for funds first and the small shareholders end up relatively smaller by missing out on past recapitalizations.

SNOOPY

blackcap

31-10-2014, 03:42 PM

Blackcap, I don't dispute the result of your maths, nor your and Bunter's assertion that if you believe that the DPC share price will be 50c in 23 months time you would be better off accepting DPC shares now, and not getting bonds and converting them to DPC shares later.

However, this leaves aside the inherent value of the 'option' nature of the bonds. In racehorse terms this is the comparative difference between:

1/ Buying a horse at the start of a race, and for all subsequent races AND
2/ Waiting foir the race to have finished, seeing how your horse did and THEN buying your horse for coming races once there is confirmation of form.

Strategy 2 normally(*) means you miss out on the horses first race winnings (but also avoid horse owning costs, which would result in a net loss should the horse not win). But it gives you more time to check out the form of the horse without taking ownership.

(*) In this instance the gross income from the bonds more than makes up for any dividends foregone so there is no income downside to bond ownership

If your horse turns out to be a winner all the way, then you have gained nothing by delaying the horse purchase. But the point is no matter how good the horse, you don't know how good it is until after the first race is won. The option to back out of the deal and take cash has great value during the racing career of the horse. Once all the races have been run (the with hindsight view), you might take the historical view that your opt out ownership clause (analagous to owning bonds instead of shares) had no value. But that is only because the real uncertainty as the races were being run, has now been consigned to the dustbin by history. It doesn't mean the option had no value at the time.

In short if you take the tunnel visioned view that you have 'faith' in management and that business performance is certain, then buying an option will never have any value to you. But if you recognize that business performance is inherently uncertain, then an option like this one (DPC bonds) has huge value.

The above is the whole point. Bonds give the best return over a range of possible scenarios. Bonds will not give the best value if the business performs at the very highest level. Direct share ownership is better in that case.

SNOOPY

Snoopy, I fully concur with you in this matter and have stated that I would also prefer bonds all day long. I was merely pointing out the scenario if the share price did appreciate a lot during the 2 years. The bonds have so much down side protection and plenty of distribution to cover eventual "losses" that they are the far superior option that DPC is offering. For the record I do not think DPC will be at 50 cents in 2 years time. I believe they will be around the 30-34 cent mark.

As to the issuance of more shares.. there is something more at play here I think. I believe DPC want to become a top 50 company and get institutional investors on board. Something they will be close to doing if the bond holders convert to equity. I do not care about the dilution factor if profits increase comparatively. Making the NZX 50 will not be far off and then maybe a 5/1 consolidation to make it a dollar stock? (the last sentence just musings)

BIRMANBOY

06-11-2014, 11:00 AM

BIRMANBOY

06-11-2014, 11:00 AM

Snoopy

08-11-2014, 02:26 PM

Thanks for all your analysis and comments over the years Snoopy. Since the rise and demise of companies is of interest for me I stepped back in time .....fascinating reading going back to start of thread and seeing who said what etc. Like the "Rise and Fall of Reginald Perrin". I'm sad to see TUA gobbled up but can understand due to its desirable features. As Crosby, Stills, Nash and Young said.."If you cant be with the one you love, love the one you're with". Hope Dorchester works out for takers. I am not one...cash for me... more because I don't like uncertainty and tend to move accordingly. If Dorchester refrain from tinkering with Turners it could all turn out well....here's hoping.

Birmanboy TUA has certainly been a roller coaster ride. Bought my first tranche in the $1.80s IIRC. Then, as funds allowed, I accumulated more and more with my last purchases being at around 80c. Chartists would say I did everything wrong. But if you don't try to trade the business cycles (I don't, because I don't claim to be able to identify them in advance), then purcahse price is everything and 'trends' mean nothing. All my puchases ended up well in the money, while the dividend flow from go to whoa has been almost obscene. In percentage terms, with capital growth and dividends combined, it is probably my most successful NZX investment. Unfortunately those who fretted about 'lack of liquidity' and 'not being able to get out easily' missed out. This is what too much 'watching the market' (thinking Mr Market is always right) instead of 'watching the investment' does to you. When Phaedrus put it up as a case study all those years ago, I'll bet he never foresaw it finishing up like this!

Very disappointed to see TUA delisted so cheaply. Even if you don't like Dorchester and Paul Byrnes, you have to have grudging respect for the way he spotted a bargain that made a good fit with Dorchester, then managed to secure it at a good price (for DPC).

I quite understand your disgruntled resistance Birmanboy. But I've run my ruler over DPC and actually like the businesses in there already. And bank covenants are in place to give bond investors peace of mind that interest will be paid, excepting the most desperate of circumstances. So I was happy to sign over half of my holding for DPC bonds.

Now TUA is being delisted, I have revised my strategy. I have taken a 'token' shareholding in DPC. That way at least I will get an annual report. Secondly it will mean that I can legitimately ask managment questions as a shareholder should the need arise. Yet my holding will be small enough that I can 'get out quickly' should DPC take a change in direction that I don't like. A further advantage of being a sharehodler is that I get a foot in the door for any upcoming cash issues.

I have put my hand out for a few more bonds too. Can't get too many of those! Actually I can because DPC when it all comes down to it is a smallish company which I don't think will join the NZX50 soon, despite its recent growth. So I have taken 'most' of my remaining half payment in cash. I will put that aside for six months to allow my head to cool before committing those funds to new investment pastures.

I hope you put your TUA cash towards something worthwhile Birman boy. Finally I can't sign off on this thread without putting out a big thankyou to the mysterious "All Ears" who appeared back on 'sharechat' forum days without much good to say about the company. It was his derision that really brought the company to my attention and lead to the fantastic result I got out of it.

SNOOPY

Snoopy

19-09-2015, 04:28 PM

Very disappointed to see TUA delisted so cheaply. Even if you don't like Dorchester and Paul Byrnes, you have to have grudging respect for the way he spotted a bargain that made a good fit with Dorchester, then managed to secure it at a good price (for DPC).

The new owners of TUA (TNR) reported that for the first five months of trading in the new TNR financial year, the old 'TUA' was the star performer. 'Performance' is up 15% on what seems quite an aggressive budget. This translates to an overall performance improvement of 35% year on year! Shame on those former Turners directors who mounted such a weak defence and allowed our company to be sold out to the then Dorchester (now TNR) so cheaply.

SNOOPY

Snoopy

28-07-2016, 07:09 PM

The new owners of TUA (TNR) reported that for the first five months of trading in the new TNR financial year, the old 'TUA' was the star performer. 'Performance' is up 15% on what seems quite an aggressive budget. This translates to an overall performance improvement of 35% year on year! Shame on those former Turners directors who mounted such a weak defence and allowed our company to be sold out to the then Dorchester (now TNR) so cheaply.

The old Turners Auctions has had its first full year (FY2016) under Dorchester, whoops Turners Group, ownership. And the 'selling out cheaply' has been confirmed.

I have managed to disaggregate the results, to find an 1st April to 31st March full year EBIT of $9.392m. This represents the old 'Auctions' and 'Fleet' business units only. The accompanying finance businesses have already been detached for inclusion in other parts of the new Turners Group.

One way of valuing the old TUA now would be to use the same EBIT multiples that 'Grant Samuel' used 'back then' at takeover time. 'Grant Samuel' valued the old TUA at between $3.12 and $3.42. The final sale price was $3.15, including a just declared dividend. By my calculations, using the same valuation multiples, the same business unit is now worth between $4.39 and $4.87 per old TUA share. Even taking a comparison between the bottom of ther range actual share price offered, and the bottom of the new range, it looks like TUA shareholders have handed over:

$4.39 - $3.15 = $1.24

of value per share to Dorchester shareholders. This represents a gain in TUA capital value of 39% to the victorious Dorchester shareholders. In dollar terms, based on the 27.235m of TUA shares that used to exist, the old TUA is now worth $34m more than Dorchester (now TNR) paid for it!

Dorchester, sorry Turners Group, have performed reasonably well since the takeover. The shareprice has risen from the equivalent of $2.50 to $3.06 today, a rise of 22%. Yet it remains very clear based on these figures, that the old TUA shareholders would be far better off today had they not accepted the Dorchester takeover offer for their TUA shares :-(.

SNOOPY

percy

28-07-2016, 07:42 PM

Maybe so,but it has turned out a very astute acquisition by DPC.
The latest acquisition of Buy Right Cars looks to be another astute acquisition too.
My divie was in my bank today.

blackcap

28-07-2016, 07:46 PM

Another way to look at it Snoopy is to question without the Dorchester stewardship, would the old TUA have made the progress it has?
Either way I am happy as a TNR holder and like Percy says, divvie in the bank today and not a yeild to sneeze at. Acquisitions to date have been astute.

Snoopy

29-07-2016, 03:18 PM

Another way to look at it Snoopy is to question without the Dorchester stewardship, would the old TUA have made the progress it has?

The main synergy benefit, as I understood things, Blackcap was that the old Turners Auctions would suddenly have access to a lot more in house finance company capital. Since amalgamation, the old TUA finance division has been absorbed into Dorchester. So it is difficult to know how having a strong finance house partner in house has improved the old TUA finance profits. Nevertheless one area where we can make a comparison is what has happened to the old TUA fleet and auctions businesses, now reported as a single business unit: Fleet & Auctions.

The EBIT that I was referring to was just Fleet & Auctions. I think it is fair to say that Dorchester had no experience at all in this. So I am very confident that the much improved EBIT performance I was referring was all due to measures put in place by the old TUA management and would have flowed through whether or not the Dorchester takeover happened. From an existing shareholder perspective, I think we gave all of these benefits (worth $34m in capitalised market terms) straight to the new owners.

But there are always two sides to any story. As Percy says, it took the astuteness of Paul Byrnes to see the posibilities and no doubt Dorchester shareholders are very happy with what happened!

SNOOPY

etnom

25-08-2016, 09:25 PM

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

winner69

02-10-2018, 11:35 AM

The old Turners Auctions has had its first full year (FY2016) under Dorchester, whoops Turners Group, ownership. And the 'selling out cheaply' has been confirmed.

I have managed to disaggregate the results, to find an 1st April to 31st March full year EBIT of $9.392m. This represents the old 'Auctions' and 'Fleet' business units only. The accompanying finance businesses have already been detached for inclusion in other parts of the new Turners Group.

One way of valuing the old TUA now would be to use the same EBIT multiples that 'Grant Samuel' used 'back then' at takeover time. 'Grant Samuel' valued the old TUA at between $3.12 and $3.42. The final sale price was $3.15, including a just declared dividend. By my calculations, using the same valuation multiples, the same business unit is now worth between $4.39 and $4.87 per old TUA share. Even taking a comparison between the bottom of ther range actual share price offered, and the bottom of the new range, it looks like TUA shareholders have handed over:

$4.39 - $3.15 = $1.24

of value per share to Dorchester shareholders. This represents a gain in TUA capital value of 39% to the victorious Dorchester shareholders. In dollar terms, based on the 27.235m of TUA shares that used to exist, the old TUA is now worth $34m more than Dorchester (now TNR) paid for it!

Dorchester, sorry Turners Group, have performed reasonably well since the takeover. The shareprice has risen from the equivalent of $2.50 to $3.06 today, a rise of 22%. Yet it remains very clear based on these figures, that the old TUA shareholders would be far better off today had they not accepted the Dorchester takeover offer for their TUA shares :-(.

SNOOPY

An interesting old post of Snoopy’s

winner69

02-10-2018, 11:39 AM

This is an excellent example of the lack of correlation that can exist between company announcements and stock performance.

It shows the boundless optimism that some people can sustain in the face of unpleasant reality.

View it as an object lesson in the folly of buying into a downtrending stock and the inadvisability of "averaging down".

http://i602.photobucket.com/albums/tt102/PhaedrusPB/TUA22907fa.gif

Nothing seems to have changed from 11 years ago

percy

22-12-2018, 04:51 PM

FY to 31/12/09 $3.3M up 207% FY DIV 12.0 cps

Turners Auctions today announced its 2009 net profit after tax of $3.3 million, up 207 percent on the same period last year. Despite the continued decline in the used vehicle markets over the year Turners Auctions has grown market share and focused closely on costs to ensure a strong result for shareholders. There has been strong profit growth in all the core areas of the business which is very pleasing given the economic situation the business has operated in throughout 2009.

The New Zealand used vehicle market has declined a further 5% in 2009 off the back of a 9% decline in 2008. However auction revenues have held up well at $36.6 million up slightly over $36.5 million in 2008. There has been continued growth in sales of repossessed vehicles, government fleet vehicles, lease and rental company vehicles.

Operating profits from Turners Fleet have improved significantly by comparison with 2008 as a result of more prudent buying in Japan and tighter control of inventory. Turners Finance profits have increased due to higher interest margins, a growing loan book and improved sales of add-on insurance products such as mechanical warranties.

As indicated at the half year changes in strategy have delivered significant savings in business costs with total expenses for the year down 13.8% to $65.8 million. Turners Fleet cost of sales are down 25% to $24.7 million and the change to an online advertising strategy has reduced advertising costs by 51% to $1.4 million and delivered an extra 9.4% registered bidders over 2008 levels. We have continued to invest in online initiatives throughout the year and this has delivered an increase of 31% in web traffic in 2009 and contributed to an increase in online purchasing.

The strong full year result and Turners’ positive cash position have led the Directors to declare a final dividend of 7.0 cents per share fully imputed at 33%, payable on March 30, 2010. This brings total dividend payments for 2009 to 12.0 cents per share.

Results summary:
- Operating Revenues $70.4 million, down 9.5%
- Group Net Profit after tax $3.3 million, up 207%
- Total Group Assets $44.2 million, up 6%
- Final Dividend payment 7.0 cps payable 30th March 2010

Very interesting posted 19/2/2010.