didn't even blink when a 5c dividend was paid either...
Then again, was always too cheap at under $3
didn't even blink when a 5c dividend was paid either...
Then again, was always too cheap at under $3
Thank you Todd Hunter and Aaron Saunders for a fantastic presentation.
Most impressed with the straight honest answers given to the great number of questions asked.
None fobbed off.Todd and Aaron really so knowledgeable in all parts of their business.
They certainly know where they want to take the business, and know how to do that.Exciting times.
I thought I knew the business fairly well,but learnt so much today.
Anything to share from the Q and A's from today?
Leases of sites.TRA have the capital to develop their own sites.So landlords need to focus their attention.!
New bond issue will not be convertible, and at a lot lower interest rate.
Securitization works out a lot lower interest charge to TRA ,and requires a lot less capital ratio than bank lending.
Looking at strong organic growth,and will only buy another dealer to secure a site.
Todd Hunter has a good sense of humour.
Some one asked about Dorcester legacy loans.
"All written off the books."
pause
"However still active,"
"So some names come up again,"
pause
"When applying for a loan when buying a car from Turners"
pause
"Yes your car loan looks as though it will be approved...….once you have made satisfactory arrangements to clear your outstanding Dorcester loan." ...lol.
Apologise for taking a bit of a liberty with what Todd actually said.
It is interesting to see how things like this go in cycles. 'Back in the day' 'Turners Auctions' (as it was then) sold off their premises to reduce debt. Today 'Turners Automotive Group' not so worried about debt. Aaron Saunders told us they are only paying 4.5-5.5% on bank interest: not so far above home interest rates! One shareholder thought even that was too much and urged them to borrow from Japan at 1%! But I digress.
The problem with renting a premises is that landlords want to build a large building and so get maximum rent. Turners favour a small building (hence lower rent) with plenty of land to stock their cars outside. So both the current Christchurch premises and Penrose in Auckland are 'sub optimal' according to that paradigm. However, both premises have a couple of years to run on their lease agreements. I have to take back what I said before about Turners not being into property development. Buying your own site is the best way to get the site you want. Stick your custom built 'container office' on your new site, which doubles as a billboard if you go for the two story version and design in a back-lit high wall.
Then once the site is developed to Turners requirements, lock in a long lease and sign a lucrative rental agreement. In doing so, you will maximize the capital value of the property for sale and so maximize the development margin returned to Turners. Or if the property is on a potentially lucrative site in a main centre, Turners are not averse to retaining their sites in house. There are a few years of property development in the pipeline!
Finally when the site has run its course, bring in the crane and take your office building away to the next site! The ultimate in leasing capital efficiency?
They seemed keen on the message of no more - significant - earnings dilution.Quote:
New bond issue will not be convertible, and at a lot lower interest rate.
The explanation of the process of securitization was enlightening. The banks are quite fussy about the loans they like grouped together - they want cars loans plain and simple, and the more homogeneous the amounts and terms, the better. Turners fund heavy equipment, and even light property development (the expansion of a dental practice was mentioned). But banks won't have those in their securitized loans! Never mind, Oxford will do those in house.Quote:
Securitization works out a lot lower interest charge to TRA ,and requires a lot less capital ratio than bank lending.
Car loans supported by bank loans require Turners to hold on the books, shareholders funds based on 20% of the value of the car loans, with the balance of the borrowed money charged out to Turners at a rate of 4.5 - 5.5%. Contrast that to the securitized loans.
Turners are only required to hold on the books 8% of the value of the securitized car loans (so they are more 'capital efficient'). Once a loan is securitized the BNZ (who does the securitization) gets direct access to the loan cashflows. As 'payment' for this privilege, the charge on securitized bank loan funding to Turners is reduced to 3.5 - 4.5%.
SNOOPY
As we heard at today's presentation, this is not going to happen. 'Buy Right' may extend down to Hamilton. But it is seen as a 'top of the North Island' brand.
Slide 12 of the presentation highlighted 'Satisfaction' and 'Likelihood to repurchase' (I have added some more info).
Turners Buy Right Cars Satisfaction 87% 88% Likelihood to Repurchase 71% 77% Stock Turnover 35-45 days 60-90 days Price Sweet Spot $10k-$15k $15k-$25k
These figures are quite good although Todd wants the customer feedback figures to be even higher. Questioned on the relative out performance of 'Buy Right', Todd said that at 'Buy Right', salespeople would spend 3-4 hours with each customer getting a better feel for their needs. With Turners cars at a lower price point, there isn't the staff buyer interaction time required to generate the same depth of mutual understanding of the deal. The 'Turners' brand is more of a self service model. Todd also told us previous management at 'Buy Right'; had done a sub optimal job on stock turn, with some vehicles still on the yard after more than a year. As a result some $2.5m of the $6m earn out payments due by August 2018 (two years after the business purchase ) to the former 'Buy Right' owners will not be paid.
We also learned that Turners had looked at taking on a new car franchise. The problem here was car makers often dictated what sort of show room (usually a capital intensive design) is required to represent that manufacturer. Further, with new car sales at a peak, the price to be paid for acquiring a new car franchise would be high. So this idea has been shelved, but serves to highlight the value of being a 'brand agnostic' seller.
Aaron Saunders also chipped in with his experience of 'market resilience', what happened in the NZ car market during the GFC. New car sales dropped by up to 50%. But the fall in used car sales was a more modest 15%. There is less buyer discretion in the used car market! When you need wheels to get to work, you have to buy something!
SNOOPY
Great stuff Snoopy & Percy, saves me writing up some points :).
Just one small thing (Snoopy) - the name of the CFO is Aaron (not Alan) Saunders, unless he changed next to removing his facial hair as well his first name ;);
Given that percy and snoopy took already all the thunder - here are in no particular order some remaining snippets I found worthwhile to note:
Average stock turnover for Turners Auctions: 30 to 45 days, for Buy Right cars 45 to 60 days (and some of the down writes at BRC, now resolved, >365 days). This reduced my concerns that they might (when electric cars come) end up with a huge pile of obsoleted stock. Todd emphasized however anyway that the number of electric cars in NZ is still minute and replacement of the whole stock will in his view take more than 2 decades (given current number of new cars sold ...);
Todd considered the takeover of BRC as one of the more difficult acquisitions (well, his most difficult one ...), but he is confident the issues are now resolved.
The business allows high flexibility to grow (and shrink) sites as per demand - their sell out of a container strategy obviously makes that still easier
A question re the risk of credit defaults (we discuss this from time to time on this thread): Average default rate for car loans is 2%, at the peak of the GFC it was 4% - i.e. quite manageable, particularly considering that it is quite easy to repossess a car (i.e. default is not equal to total loss).
Credit Management: good business, but not really their core business. Still - they first plan to grow it before they consider selling ...
Somebody asked about expansion into Australia: They thought about it and might do at some stage (but credit management - they are already in Australia) , but focus now on growing NZ (which I think, is a good decision);
Growth potential: current market share 4%; Double that in 5 years?
Oh yes - and here is a bonus: the profs say that winter (i.e. now) is the best time to buy a new used car, given that for some reason most ex lease cars as well as Japanese cars come in our autumn - i.e. stock levels are high, prices therefore lower ... just visit a friendly TRA site close to your home ;);
Discl: holding & feeling confident my money is in good hands.
Typo now corrected - thanks.
I was surprised and disappointed to hear that EC Credit may eventually be 'on the block'. As Aaron Saunders put it: People efficient, low CAPEX, spins off cash. Exactly the sort of business you want, I would have thought. Granted I see that it doesn't quite fit with the integrated model that is pervasive between the other branches of the business (with the sole exception of referring bads debts to ECC, fortunately a rare event.)Quote:
Credit Management: good business, but not really their core business. Still - they first plan to grow it before they consider selling ...
The ECC business model is to take on the recovery overdue accounts from the likes of ACC, Government Departments, the Big Banks and Electricity Retailers (without buying the associated debt ledgers). Other target customers are SMEs, where debt collection can help terms of trade. Instead of 'buying' the debt ledger, the business model is to earn a 5 to 20% commission on the loans ECC do manage to collect. Turners are passionate users of the IODM software that automates the debt collection process.
http://www.iodm.com.au/about-iodm/
The 'big opportunity' is to extend the successful business relationship that ECC have with the NZ banks to their Australian parents. If that were to happen then the whole business would scale. At that point ECC might be worth more outside the Turners tent than inside it.
The business that Turners would like to get involved with in Australia is 'Pickles Auctions'.Quote:
Somebody asked about expansion into Australia: They thought about it and might do at some stage (but credit management - they are already in Australia) , but focus now on growing NZ (which I think, is a good decision);
https://www.pickles.com.au/
Pickles is privately owned and earns a NPAT of between $A25m - $35m per year. However, in terms of turnover it is five to six times bigger than Turners. Turners would love to do a JV with these guys. However, the owners are staunch Australians who see no reason to step outside their own market comfort and ownership zone.
This is the kind of thing that Turners would be looking at in Australia. In the distant past (as TUA) they apparently made a medium sized investment in some smaller auction businesses and turned a medium wad of cash into something smaller.
SNOOPY
A bit more on the finance side. Aaron said of the Turners loans that had gone bad, many had been written through Motor Trade Finance (MTF). Motor Trade Finance had its beginnings in Dunedin as a co-operative more than 40 years ago. The ownership rules state that no one shareholder may own more than 10% of MTF (Turners are the largest shareholder and own 8%). Other significant shareholdings of 3-4% are owned by each by Honda Cars and Colonial Motors. 75% of all stakeholders must vote to change the ownership cap. Heartland had a go at taking over MTF a few years ago. But they couldn't get the 75% of existing stakeholders to agree. Turners are looking to improve the quality of their loans through Motor Trade Finance. Turners originally bought into MTF at a share price of $1.15. While increasing their stake towards the 10% cap cannot be ruled out, the current MTF market price of over $2 make such a move unattractive. MTF has a participating membership of 200 dealers and 50 independent franchisees. MTF is stronger towards the bottom of the South Island and weakens as you move up the country. MTF is slightly under represented in Auckland.
As for the Turners owned finance operations, the three regional sales forces of the constituent companies, the old Dorchester (+ add ons) in Auckland, Oxford Finance in Levin and Southern Finance in Christchurch have retained their own regional sales forces. But the processing facilities have been centralized in Levin. These finance companies have on average written higher quality loans than those through MTF. The objective this year will be to fold in all the Turner's Auctions in house finance business into Oxford Finance. 85% of the loan book of the now rebranded 'Oxford Finance' combination are written on motor vehicles. As well as writing finance for Turners, Oxford is affiliated to 800 dealers across the country.
SNOOPY
Appreciate your posts Snoopy and BP which add to our understanding of Turners operations.