I make a point of not taking any Turners result at face value. It seems inevitable that once you delve into the results something comes out a bit smelly. And so it has proved with the FY2018 result. The key to 'cleaning out the garbage' is once again found under note 7 (the detail of the 'Profit Before Tax', and in particular the section marked 'Other Income'..
There you will find a very significant figure of $2.664m which is a 'Fair Value Gain on Contingent Consideration.'
Say what??? If there is a heading you can't understand, it often pays to look under the general heading of 'insurance' for further clarification. That took the nose of this hound to p76, and the heading 'Insurance Contracts' threw up the following detail.
Change in Discount rate 3.08% to 2.61% (Insurance Contracts) |
-$0.120m |
Difference between Actual and Assumed Experience(Insurance Contracts) |
$2.491m |
Difference between Actual and Assumed Experience (Life Investments) |
$2.491m |
Total |
$2.665m |
Within the bounds of the third decimal place rounding error, this is in agreement with the $2.664m which is a 'Fair Value Gain on Contingent Consideration.' I don't think this is a co-incidence. While this extra profit is real, I believe it is due to the ups and downs of markets and/or settlements of insurance contracts. These kinds of gains are not sustainable year to year. So the underlying profit for TRA was significantly less than the headline figure quoted. The same can be said for the money made on the 'revaluation gains on investments', 'revaluation gain on investment property' and the 'gain on sale of property plant and equipment'. In my judgement the actual comparable net profit gain, the figure that should be used when comparing results from year to year should be adjusted from the headline figure as follows:
Operating Net Profit = $23.192m - 0.72x$2.664m - ($0.590m+$0.820m+$1.000m) = $19.085m
which is 18% lower than the headline figure.
With 84.802m shares on issue at balance date this equates to 'earnings per share' of 22.5cps
At today's trading price of $2.94, this puts TRA on an historical PE of 13.0
That looks 'about right' and shows that at under $3, TRA may not be quite the bargain that some think. Maybe Mr Market knows what he is doing after all?
The other element that must be factored into the 'profit growth' is the ever increasing number of shares on issue. I have added this information into the table below via an 'earnings per share' calculation..
|
FY2014 |
FY2015 |
FY2016 |
FY2017 |
FY2018 |
NPAT (Turners Limited) (A) |
$3.823m |
$8.595m |
$15.332m |
$16.789m |
$19.085m |
Shareholder Equity (Turners Auctions :TUA) |
$13.378mm |
|
|
Shareholder Equity (Dorchester Pacific: DPC) |
$74.052m |
|
|
|
Shareholder Equity (Turners Limited: TNR) |
|
$121.002m |
$129.812m |
$171.716m |
$214.323m |
Total Combined Shareholder Equity (B) |
$92.430m |
$121.002m |
$129.812m |
$171.716m |
$214.323m |
Shares on Issue EOFY {C} |
NM |
63.077m |
63.431m |
74.524m |
84.802m |
eps {A}/{C} |
NM |
13.6c |
24.2c |
21.8c |
22.5c |
Return On Equity (A)/(B) |
4.1% |
7.1% |
11.8% |
9.8% |
8.9% |
Note: I have also now normalized the tax treatment of the FY2015 result, as this gives a better basis for comparison.
It is interesting to see that while share price has gone nowhere over the last two years neither has Operating NPAT. And that correlation might not be a co-incidence!
SNOOPY