My 'Capitalised Dividend' valuation for this share was a failure. But after some soul searching, I believe that 'capitalising earnings' is a more realistic way to go.
Turners Automotive Group Limited (TNR/TRA) |
|
FY2015 |
FY2016 |
FY2017 |
FY2018 |
Snoopy Normalised Earnings Per Share {A} |
|
19.4c |
24.2c |
22.5c |
25.6c |
Dividend Paid (per share) {B} |
|
9c |
12c |
13c |
14.5c |
Underlying Retained Earnings (per share) {A}-{B} |
|
10.4c |
12.2c |
9.5c |
11.1c |
I favour using at least five years of data when doing an exercise like this. However, when considering a company as fast evolving as Turners Automotive Group there comes a point when historical data used as a proxy for what might happen going forwards becomes positively antiquated. So I have reverted to using just four years of data which covers the period from when TRA was conceived in its current form.
The valuation is in two parts. Once again I am using an acceptable gross return of 7.5% for the dividend part of it.
Average dividend received over the last four years
(9c+12+13c+14.5c) / 4 = 48.5c, divide by four = 12.1c
Gross Capitalised Dividend Component = 12.1c / (0.075 x 0.72) = $2.24 (1)
Average Retained Earnings Valuation reinvested over the last four years
All things going to best plan, retained earnings should be worth more than cash paid as a dividend. But this assumes a largely monotonic increasing profit year in year out, with very few exceptions. I don't believe that the historical underlying profitability data indicates that Turners can achieve this. So I think it wise to assume that a 'dividend in the bank account' is worth more than a 'potential dividend in the bush'. To reflect 'business execution' and 'car market volatility' risks, I am going to increase my required return for 'retained earnings' by two percentage points, out to 9.5%
(10.4 + 12.2 + 9.5 + 11.1)/4 = 10.8c (average)
Gross Capitalised Retained Earnings Component = 10.8c / (0.095 x 0.72) = $1.58 (2)
So my total 'fair valuation' for TRA becomes (1) + (2):
$2.24 + $1.58 = $3.82
Thus at a market price of just over $3, it looks like TRA might be worth accumulating!
SNOOPY