Capitalised Dividend Valuation Model (FY2018 Estimate Perspective)
Quote:
Originally Posted by
Snoopy
Turners Auctions (TUA) + Turners Limited (TNR/TRA) |
|
FY2012 |
FY2013 |
FY2014 |
FY2015 |
FY2016 |
FY2017 |
Modelled Dividend Paid {A} |
|
$2.506m |
$3.285m |
$2.131m |
No. Shares on Issue (TNR/TRA) {B} (*) |
|
24.057m |
27.395m |
55.966m |
63.077m |
63.433m |
74.524m |
Modelled Dividend Paid (cps) {A}/{B} |
|
10.42c |
12.00c |
3.81c |
Actual Dividend Paid (cps) (**) |
|
|
|
|
5c + 4c |
6c + 6c |
7c + 3c +3c |
(*) The number of TNR shares on isssue at the end of the financial year has been adjusted retrospectively for the 10:1 share consolidation. To see how the number of TRA shares on issue was derived refer to my post 1414 "Buffett Test 2: Increasing 'eps' Trend (FY2016 perspective): Preamble Part 2.
(**) The actual dividends paid by TNR/TRA over FY2015 and FY2016 were unimputed. This was because of prior losses incurred under the DPC/TNR/TRA structure. However, in my modelling the TUA group was already combined with DPC/TNR/TRA. Previous year TUA profits wiped out those previous year equivalent DPC/TNR/TRA losses. Under this modelled scenario, those FY2015 and FY2016 dividends would have been fully imputed. That's because looking at the combined picture, those prior offsetting DPC/TNR/TRA losses never happened. Further note that all dividends have been adjusted retrospectively to account for the 23rd March 2016 10:1 share consolidation.
From the above table the 'six year average' dividend payout was:
(10.42c + 12.00c + 3.81c + 9c + 12c + 13c)/ 6 = 10.04c (net)
Average Gross Dividend Yield (based on a 28% tax rate) is therefore:
10.04/(1-0.28) = 13.94c
Using a capitalized value gross interest rate of 7.5% (see thread An Investment Story - Geneva/Turners/Heartland, post 40), this translates to a fair value share price of:
13.94/ 0.075 = $1.86
That makes for sobering reading, when the last price paid in the market on Friday was $3.75!
Turners Auctions (TUA) + Turners Limited (TNR/TRA) |
|
FY2012 |
FY2013 |
FY2014 |
FY2015 |
FY2016 |
FY2017 |
FY2018 |
Modelled Dividend Paid {A} |
|
$2.506m |
$3.285m |
$2.131m |
No. Shares on Issue (TNR/TRA) {B} (*) |
|
24.057m |
27.395m |
55.966m |
63.077m |
63.433m |
74.524m |
Modelled Dividend Paid (cps) {A}/{B} |
|
10.42c |
12.00c |
3.81c |
Actual Dividend Paid (cps) (**) |
|
|
|
|
5c + 4c |
6c + 6c |
7c + 3c +3c |
4c +4.5c |
Estimated Dividend to be Paid (cps) |
|
|
|
|
|
|
|
3c +3c |
(*) The number of TNR shares on isssue at the end of the financial year has been adjusted retrospectively for the 10:1 share consolidation. To see how the number of TRA shares on issue was derived refer to my post 1414 "Buffett Test 2: Increasing 'eps' Trend (FY2016 perspective): Preamble Part 2.
(**) The actual dividends paid by TNR/TRA over FY2015 and FY2016 were unimputed. This was because of prior losses incurred under the DPC/TNR/TRA structure. However, in my modelling the TUA group was already combined with DPC/TNR/TRA. Previous year TUA profits wiped out those previous year equivalent DPC/TNR/TRA losses. Under this modelled scenario, those FY2015 and FY2016 dividends would have been fully imputed. That's because looking at the combined picture, those prior offsetting DPC/TNR/TRA losses never happened. Further note that all dividends have been adjusted retrospectively to account for the 23rd March 2016 10:1 share consolidation.
From the above table the 'seven year average' dividend payout was:
(10.42c + 12.00c + 3.81c + 9c + 12c + 13c + 14.5c)/ 7 = 10.68c (net)
Average Gross Dividend Yield (based on a 28% tax rate) is therefore:
10.68/(1-0.28) = 14.83c
Using a capitalized value gross interest rate of 7.5% (see thread An Investment Story - Geneva/Turners/Heartland, post 40), this translates to a fair value share price of:
14.83/ 0.075 = $1.98
Turners closed on the market on Friday at $3.48. While everything continues to go well for Turners, I am not seriously suggesting the shares are only worth $1.98. The 'capitalized dividend valuation method' assumes no growth over the business cycle. And even if that assumption were true, the actual fair value of Turners would likely fluctuate around a $1.98 mean value, maybe up to around $2.40 when times looked good. Yet that high price still leaves us over a dollar behind the market price. One way to interpret that difference is to say that Turners currently carry a 'growth premium' of around $1. It is up to each TRA investor to decide if paying that $1 'growth premium' is justified.
The 27th July 2017 presentation to 'potential Australian investors' was an interesting development. Right at the end Turners quote the broker guidance for FY2018 earnings ranges from Net Profit Before Tax of $29M (Deutsche) to $32M (Credit Suisse).
Over FY2017 Turners Automotive Group made a NPAT of $17.674m. Annualizing that profit for the businesses acquired during the year (my post 1479) brings that figure to:
$17.674m + $1.026m + $5.440m = $24.140m
Assuming a tax rate of 28%, this equates to a comparative base for NPBT of: $24.140/0.72 = $33.528m for FY2017.
Can that be correct? At least two brokers are forecasting that underlying TRA profits will fall for FY2018? If you believe those brokers, that TRA share price of $3.48 at close on Friday is looking very hard to justify!
SNOOPY