Not much gets past the folks here!. Thanks for your response. Great to see communications to shareholders and interested community.
"...Some observers suspect that the enthusiasm of top managers for share buybacks may also be motivated by boosting the value of the variable part of their remuneration package which often includes stock options and outright share allocations.
"The remuneration incentive of executives based on the share price is without a doubt behind this increase in share buybacks," said Christophe Moussu, a professor at the ESCP Europe business school..."
I wonder just how many TRA executives remuneration depends to some degree on a healthy share price?
My other concern is that most buybacks are funded from excess profits - these seem to be funded by debt?.
The TRA dividend policy is to pay out 50-60% of earnings as dividends. Grant Baker in the October 2018 shareholder update states:
"We are targeting a minimum FY2019 dividend of 17cps."
Based on 84.802m shares on issue, the total money to pay this dividend will be:
0.170 x 84.802m = $14.4m
The projected profit for FY2019 was for NPBT of $34m to $36m. We are told that NPBT could be impacted by 5 – 10% from the previous guidance range. Worst case this means NPBT of $30.6m to $32.4m. Take off tax at 28% and this leaves an NPAT of: $22.0m to $23.3m. This means that the projected $14.4m dividend would take 62%-65% of earnings: above the 50% to 60% dividend guidance range. However, I would be surprised if dividends were actually reduced, even in this most pessimistic scenario. That's because once dividend goals are announced, and are well covered by earnings, management do not like to back flip.
If there is to be a reduction in dividends, that might come in FY2020. But FY2020 is an entirely different year. Who knows what conditions in the used car market will be by then.
SNOOPY
Good that the company has instituted a buy-back and listened to my suggestion regarding exactly that as posted a little while back.
The next step Todd is for the company to lift the dividend payout ratio to 60-70%, (recall I posted some time ago that Colonial Motors are managing to expand their business nicely wwith a payout ratio of 65%).
This lift could be done in tandem with a newly instituted dividend reinvestment program which would give those shareholders who wanted to reinvest their dividend an opportunity to do so at a modest discount to the volume weighted average price for the five days after ex dividend.
I would suggest to start this program and new dividend policy next year at a 5% discount, (previous capital raisings have traditionally been higher than this so this discount while higher than some other companies is still cheaper than the discounts at which the company has previously raised capital).
Why is the above a good idea ?
I think there are a significant number of Turners shareholders who are seeking yield for their retirement income. Those that aren't can reinvest. This puts the power back into shareholders hands to a certain extent in terms of what percentage of profits they'd like to see paid out.
For example in the FY20 year if Turners were looking at 30 cents per share in earnings and paid out 2/3rd's of that, 20 cps fully imputed this would equate to 20 / 0.72 = 27.77 cps gross and provide more than a 10% gross yield, (based on today's share price) for those shareholders that wanted yield.
I believe shareholders would welcome this and we would see a rerating in the share price.
Snoops - irrespective of whether its 50% or 60% or even 70% they’ll still pay the promised 17 cents dividend as they’ll play the ‘we have strong cash flows and confidence in the future” trick
And if you were Chairman Baker would you want to face the wrath of an angry beagle demanding why dividend wasn’t 17 cents .......assuming beagle hasn’t fallen out of love
LOL Its never a good idea to take food out of a Beagle's dog bowl. If one is foolish enough to do this they're known to bite first and bark about the questions later :D