TRA - Turners Automotive Group [previously TNR - Turners Limited]

[winner69]

BP ...good copy and paste from AR re IFRS9 and bad debts

Have you noted the words prelimary, expected, model assessesment, would have etc.

I think they are still learning how to drive their model and hoping that a bad number doesn’t pop out

Turners don’t seem to be very good at learning how to ‘fix’ things they didn’t really understand. From memory they mentioned at least 4 times they have struggled to weed out and control bad loans ..,and raised that issue in the half year report. Doesn’t give you much confidence does it.

Even the bright sparks at Heartland didn’t get their first run through of IFRS9 reporting correct.

[percy]

[QUOTE=winner69;748696]

Turners don’t seem to be very good at learning how to ‘fix’ things they didn’t really understand. From memory they mentioned at least 4 times they have struggled to weed out and control bad loans ..,and raised that issue in the half year report. Doesn’t give you much confidence does it.

Turners have a very low % of bad motor vehicle loans,as do HGH.Motor vehicle lending is a good sector to be in.
The "learning how to fix things" happened when they offered MTF originators the option of non-recourse loans.[remember this was the attraction to MTF of HGH taking them over,which TRA stopped with their clever blocking holding]
Going from MTF announcement last year, Turners woke up to the fact the MTF non-recourse loans were of a much lower standard than Turners own loans.
Turners then acted straight away, tightening their non-recourse criteria for MTF non-recourse originated loans.
One problem quickly identified,and fixed.What we do not know is the cost it came to.A one off cost?
With TRA board having such a strong background in finance, it came as no surprise to me they acted so quickly.What was disappointing was they let it happen in the first place.[However I guess if TRA had not been caught HGH would have been].
The outcome is Turners now get involved at the very start of any loan origination.HGH now have the same policy.
The big losers would be to the MTF originators TRA weeded out.
Turners also diverted a lot of the loans they usually put through MTF to their own Oxford Finance Company,with a resulting increase of margin to Turners..

HGH.At the same TRA had issues with MTF originated non-recourse loans,Heartland had issues with their new operating systems."Two months of Hell" is how they discribed it.The out come was loans arrears were not chased up and therefore blew out.


So both HGH and TRA had issues.Both acted quickly and limited the amount lost. However there were losses.These losses I feel should be regarded as "one offs". HGH got their new system up and running,while TRA sorted out their non-recorse lending with MTF.

[BlackPeter]

BP ...good copy and paste from AR re IFRS9 and bad debts

Have you noted the words prelimary, expected, model assessesment, would have etc.

I think they are still learning how to drive their model and hoping that a bad number doesn’t pop out

Turners don’t seem to be very good at learning how to ‘fix’ things they didn’t really understand. From memory they mentioned at least 4 times they have struggled to weed out and control bad loans ..,and raised that issue in the half year report. Doesn’t give you much confidence does it.

Even the bright sparks at Heartland didn’t get their first run through of IFRS9 reporting correct.

Well, yes - I did notice these words. It would be brave (or more likely stupid) if they wouldn't use some qualifiers when predicting an outcome of an exercise they hadn't done at that time - wouldn't it?

Not sure how to read your comment "Turners don’t seem to be very good at learning how to ‘fix’ things they didn’t really understand. From memory they mentioned at least 4 times they have struggled to weed out and control bad loans" comes from. As far as I recall - they identified the issue, identified a strategy to fix it and are implementing it now. And yes, it takes more than 6 months to fix the problem and changing the goal post (implementation of IFRS9 on half way) did not help. Actually - they use the new numbers already in the HY report, so yes, it is a bit worse than anticipated in the FY report (something like 1.9m instead of the max of 1.7 m they forecasted). Should have checked the latest HY report in the first place ...

Not a bean counter, but from my impression Aaron Saunders appears to be pretty switched on. I am sure he makes mistakes as everybody else, but I would expect he is learning from them as well. Don't you?

[kiora]

For investors it comes down to hold or fold?,buy or sell?
A decision to make one way or the other with the available information.If in doubt .........

[Beagle]

Hmm - that's not what the company says in its 2018 annual reprot:
OK - So Turners says they expect a roughly $1.2m to 1.7m impact in provisioning. Big deal. .. or do you think they are wrong?
Its a preliminary figure. In my experience most finance companies under provision for bad and doubtful debts especially when they finally and often begrudgingly admit there's a key area that's gone wrong, (in this case non recourse MTF loans running at a staggering 8% delinquency rate IIRC) I don't think these have been provisioned fully and their modelling is highly likely to be incorrect.

I have not seen evidence that TradeMe is taking business away form traditional second hand dealers. Yes, it is a platform to advertise, used as well a lot by second hand dealers (like Turners). Buying a second hand car from private (no matter whether through TradeMe or otherwise) is just much more risky ... [COLOR="#0000FF"]You're not going to see evidence but the fact is Turners sales have only broadly only matched the population growth in N.Z. which last year was running quite strong with immigration. This population / sales match appears to have come from a significant increase in retail footprint..

You forgot to mention that EPS in FY21 is growing again.
The motor vehicle industry is notoriously cyclical and in bad times low single digit PE's are possible. Plenty of punters predicting a recession in 2020...who knows what Fy21 looks like for TRA, its pure guesswork this far out.

I am taking 3 year forward / 4 year backward. Convenient? Not sure - but this is one of my standard measures, i.e. not specifically made up for TRA. Pick any other window and I will show you some companies for which these would be "convenient".[COLOR="#0000FF"]Its a sunset industry BP.
Convenient you moved just for TRA back to the original Grahams formula? I remember you worked for other companies with a factor of 10 plus one times growth, but hey ...

Standard valuation methodologies are used on sunset industries at one's absolute peril !

I believe they mentioned at the annual meeting that they'd changed their lending policies to try and weed down bad loans. IIRC they mentioned they'd changed them 4 times. It all had a rather "experimental" feel to it...you know...trial and error...and more trail and more error and so on...
Watch for bad and doubtful debts and provisioning for them to be a real feature of FY19 and FY20 reporting along with a much larger retail footprint generating a very similar amount of sales and we all know what that does to profitability.

Personally I feel one is best to be quite conservative at this stage and take an average eps of 26.68 cps, the last 2 years and the next forecast 3 off market screener, forget about all this talk of growth because the only thing growing fast is directors fees and the number of a certain person's posts telling us all is fine and dandy and then start with a no growth PE of 8.5 and take something off for this being a long term sunset industry. I think that gives us around 7.5 - 8.0 x 26.68 = $2.00 - $2.13.

I expect with all the downward momentum it will overshoot on the downside of that in the near term. That's how I see it anyway but I am sure others will see it differently and that's fine. I'm interested once a new uptrend has been proven (minimum indicator is a break back above 30 day MA) but where's the bottom with all the present uncertainty is frankly anyone's guess.

[Snoopy]

Snoops - only posted that chart in response to BP who implied that with EPS growth about 15% a PE of <10 isn’t fair/reasonable or whatever you want to call it. I was just showing that eps growth almost has no bearing on markets

I also am projecting 'normalised' earnings growth of 15% for FY2019. But if you consider 'normalised earnings' then at $2.20, I have TRA on a forecast PE for FY2019 of 11.3. Perhaps that PE makes a bit more sense for a company growing earnings at 15%? (I have stripped out all of the property redevelopment profits out of my normalised figures).

I think your chart showed that forecast eps growth (for in effect that is what a PE is, because a punter must estimate a future 'eps' when buying to get a forecast PE Ratio) did not correlate with actual eps growth. It did not show that actual eps growth had almost has no bearing on markets' pricing of a share. But then I haven't read the wider text of the article behind that chart.

SNOOPY

[percy]

For the record.
There has been some conjecture, in some quarters that Percy Corp has also incured a rather large loss, due to a big drop in the paper value of my stocks, similar to the NZ $36.5 billion [paper] loss, Warren Buffett's Berkshire Hathway suffered in the fourth quarter.
This conjecture is with out foundation, and Percy Corp remains "well positioned," as my stocks are performing well overall,and have the capacity to pay increasing fully imputated dividends...............................lol.

[minimoke]

For the record.
There has been some conjecture, in some quarters that Percy Corp has also incured a rather large loss, due to a big drop in the paper value of my stocks, similar to the NZ $36.5 billion [paper] loss, Warren Buffett's Berkshire Hathway suffered in the fourth quarter.
This conjecture is with out foundation, and Percy Corp remains "well positioned," as my stocks are performing well overall,and have the capacity to pay increasing fully imputated dividends...............................lol.

I suspect Percy Corp has got in some crafty accountants and come up with new independent valuation of some property holdings,

[percy]

I suspect Percy Corp has got in some crafty accountants and come up with new independent valuation of some property holdings,

Not so.
I have always relied on my own valuations.
They are the only ones I trust.?,.....................................lol.

[LAC]

Can I buy one share in Percy Corp....is it listed on the NSE lol