Capitalised Dividend Valuation Model (FY2018 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) |
|
FY2014 |
FY2015 |
FY2016 |
FY2017 |
FY2018 |
Modelled Dividend Paid {A} |
|
$2.131m |
No. Shares on Issue (TNR/TRA) {B} (*) |
|
55.966m |
63.077m |
63.433m |
74.524m |
84.803m |
Normalised Earnings Per Share |
|
6.8c |
19.4c |
24.2c |
22.5c |
25.6c |
Modelled Dividend Paid (cps) {A}/{B} |
|
3.81c |
Actual Dividend Paid (cps) (**) |
|
|
5c + 4c |
6c + 6c |
7c + 3c +3c |
4c + 4.5c +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 'five year average' dividend payout was:
(3.81c + 9c + 12c + 13c +14.5c)/ 5 = 10.46c (net)
Average Gross Dividend Yield (based on a 28% tax rate) is therefore:
10.46/(1-0.28) = 14.53c
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:
14.53c/ 0.075 = $1.94
As previously noted, I no longer believe this valuation method provides a satisfactory technique for valuing Turners Automotive Group. This is because the retained earnings of TRA are employed in growing the business, and this valuation method ignores that contribution. So why do it?
If you were able to pick up some TUA shares at $1.94, this could be justified on a dividend return basis alone. That means any growth that shareholders would get going forwards would come 'for free'. However, I don't fancy my chances of picking up many TRA shares at that price. At today's closing price of $3.05, that means the price you pay for the TRA growth premium is:
$3.05 - $1.94 = $1.11
Is it worth it? That is the next question I will seek to answer.
SNOOPY
Orange Flag 2: FY2018 results
Quote:
Originally Posted by
winner69
By the way the reported EPS of 15% was boosted by having a lower tax rate this year v last year. (Normalised you could say it was less than 10% but does it really matter when nobody knows what the F19 tax rate will be)
The tax rate for DPC/TNR/TRA (I will call it Turners Automotive Group, the new name going forwards) has certainly varied wildly even since FY2015. The first factor in this is that existing tax losses had to be used up. Then there were 'asset sales' to distort the tax take. The 'normal' company tax rate is 28%. However companies tend to pay provisional tax. That means that some tax payments for the current tax year roll over to the next. And when there are significant business changes over the year, the 'catch up' tax can significantly distort tax paid in any particular year. The table below shows the actual tax rate paid by Turners Automotive Group from FY2015 to FY2018.
Actual Tax Paid |
Financial Year |
Tax paid {A} |
Net Profit Before Tax {B} |
Net Profit After Tax {B}-{A) |
Tax rate paid {A}/{B} |
2015 |
$0.956m |
$19.006m |
$18.050m |
5% |
2016 |
$5.949m |
$21.551m |
$15.602m |
28% |
2017 |
$7.057m |
$24.631m |
$17.574m |
29% |
2018 |
$7.773m |
$31.133m |
$23.360m |
25% |
I don't know exactly why the tax rate has dropped for FY2018. But asset sales that are not subject to income tax could be one reason. And once an asset is sold, it cannot be sold again. So including such sales as profits are distortionary for inter year comparatory purposes.
For my own comparisons year to year, I look to take out one off asset sales and foreign exchange gains and losses. I also use a consistent tax rate (usually 28%) and work out the tax that would have been paid had none of those previously mentioned distortions existed.
Snoopy Modelled Tax Paid |
Financial Year |
Tax paid {A} |
Snoopy modelled Net Profit Before Tax {B} |
Snoopy modelled Net Profit After Tax {B}-{A) |
Tax rate paid {A}/{B} |
2015 |
$4.748m |
$16.958m |
$12.210m |
28% |
2016 |
$5.949m |
$21.281m |
$15.332m |
28% |
2017 |
$6.529m |
$23.318m |
$16.789m |
28% |
2018 |
$8.437m |
$30.133m |
$21.696m |
28% |
The fact that declared tax rates vary so much is an 'Orange Flag' to me that means a business is evolving. Thus extreme care is needed when projecting current declared after tax earnings trends into the future.
SNOOPY