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  1. #4221
    Speedy Az winner69's Avatar
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    BP, good post you made yesterday

    One comment you made was - Consensus earnings for the next 3 years average to 27 cents. Not too bad for a $2.30 share with growth potential (all CAGR's I take are well above 15%).

    I assume you are saying in a round about way that TRA’s current PE is too low relative to company growth ....ie TRA is ‘cheap’

    I often look at the chart below to remind myself not to put too much reliance on PEs because EPS growth has almost no bearing on valuations, at least in the USA. Might try to extract data for the NZX but I would hazard a guess that it’s much the same here.
    Attached Images Attached Images
    Last edited by winner69; 23-02-2019 at 11:49 AM.
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  2. #4222
    always learning ... BlackPeter's Avatar
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    Still trying to make sense out of the TRA trend. Beagle likes to compare it (unfavourable) with CMO - and while I didn't thought that this is a valid comparison (second hand car dealer with insurance and finance vs new car dealer with service) - actually, if we look at the charts the trend at least used to be quite nicely correlated (i.e. markets thought its a valid comparison):

    Attachment 10338

    I know - didn't manage to get the time axis into the pic, but this is a 5 years comparison starting Feb 2014 and ending Feb 2019. Pretty nicely correlated until May / June 2017. At this stage TRA (blue) started its mercyless decent ... and CMO SP (yellow) kept growing.

    What changed in the mid of 2017 uncorrelating these two companies?

    Other thing above chart shows is that TRA's SP well might be a cyclical ... with it currently being on a 5 year (cyclical) low. Obviously - given that revenue and earnings don't seem to by cyclical (this is the lower graph) is it difficult to see where the cycle would come from.

    TRA EPS REV.PNG
    Blue line: revenue in $m (obviously - 2019 - 2021 are analyst estimates)
    Red line: EPS in tenth of cents (just to allow me to use the same Y-axis)

    ah yes - and 2012 - 2014 are combined TNR + DPC revenue and income (borrowed from one of Snoopy's posts - cheers!);

    Here is one observation: growth was 5 years ago (2012-2014) quite weak (restarted 2014/15) and it is now again quite weak (following potential profit warning and analysts forecasts). Maybe the low SP is just a reflection on low (current) growth?

    Who knows ...
    Last edited by BlackPeter; 23-02-2019 at 01:36 PM.
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  3. #4223
    ShareTrader Legend Beagle's Avatar
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    Quote Originally Posted by BlackPeter View Post
    Still trying to make sense out of the TRA trend. Beagle likes to compare it (unfavourable) with CMO - and while I didn't thought that this is a valid comparison (second hand car dealer with insurance and finance vs new car dealer with service) - actually, if we look at the charts the trend at least used to be quite nicely correlated (i.e. markets thought its a valid comparison):

    Attachment 10338

    I know - didn't manage to get the time axis into the pic, but this is a 5 years comparison starting Feb 2014 and ending Feb 2019. Pretty nicely correlated until May / June 2017. At this stage TRA (blue) started its mercyless decent ... and CMO SP (yellow) kept growing.

    What changed in the mid of 2017 uncorrelating these two companies?

    Other thing above chart shows is that TRA's SP well might be a cyclical ... with it currently being on a 5 year (cyclical) low. Obviously - given that revenue and earnings don't seem to by cyclical (this is the lower graph) is it difficult to see where the cycle would come from.

    TRA EPS REV.PNG
    Blue line: revenue in $m (obviously - 2019 - 2021 are analyst estimates)
    Red line: EPS in tenth of cents (just to allow me to use the same Y-axis)

    ah yes - and 2012 - 2014 are combined TNR + DPC revenue and income (borrowed from one of Snoopy's posts - cheers!);

    Here is one observation: growth was 5 years ago (2012-2014) quite weak (restarted 2014/15) and it is now again quite weak (following potential profit warning and analysts forecasts). Maybe the low SP is just a reflection on low (current) growth?

    Who knows ...
    That's the riddle to solve. If we go back further CMO's outperformance looks even better.
    I have a number of theories.
    1. The second hand vehicle industry is a very very tough one with no meaningful barriers to entry whereas the new vehicle distributor needs to hook into a well recognised manufacturer to establish itself.
    2. Colonial motors have been doing very well with the Ford Ranger and the Mazda SUV range which is best in class in my view as well as their heavy truck division.
    3. Turners have been struggling with the delinquent loan problem from non recourse lending through MTF and this will continue into FY20.
    4. I think Turners will struggle a bit with the new IFRS9 requiring more prudent bad and doubtful debt provisioning from the get-go.
    5. I think more and more people are buying second hand cars through Trade Me and other digital platforms whereas new vehicles must generally be purchased through franchised dealerships.

    I would reiterate that the average analyst forecast is for declining eps of ~ 8% FY18 to FY19 and FY19 to FY20.
    I really don't know how you get your average growth figures...perhaps a little "convenient" taking a 3 year forward view ?
    The market is concerned with the here and now for TRA in terms of the eps decline for FY19 and FY20.

    My view, (flame suit is on) is that at present it is clear Turners is a no growth company. They have a LOT to prove to the market that their business plan will generate eps growth. After Baker's major mistake of not attending the annual meeting I am not surprised that the market is calling TRA out in terms of its credibility.
    No growth companies are worth a PE of 8.5 in my book, (Ben Graham core figure for no growth) so 8.5 x FY20 eps of 24.8 cps https://www.marketscreener.com/TURNE...14/financials/ gives a fair value later this year as we head into FY20 of $2.11.
    Momentum is a powerful thing though and I would not be the least bit surprised to see it go under $2, in fact I would go further and say I will be surprised if this doesn't happen. The market hates uncertainty and that's exactly what Turners is exuding at the moment.
    Last edited by Beagle; 23-02-2019 at 02:22 PM.
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  4. #4224
    Reincarnated Panthera Snow Leopard's Avatar
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    Quote Originally Posted by Beagle View Post
    ...No growth companies are worth a PE of 8.5 in my book...
    A no-growth company with a consistent 17c dividend?

    You need a new book!
    Last edited by Snow Leopard; 23-02-2019 at 08:04 PM. Reason: quote /quote error correction
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  5. #4225
    Speedy Az winner69's Avatar
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    BP ...your mystery re why TRA and CMO share prices have diverged has little to do with ‘fundamentals’. It’s all about how they’ve treated the market per se.

    TRA share price started falling when the market woke up and noticed that the much touted eps accretive growth acquisitions weren’t really working. Add to that a delusional Board who have sucked millions out of investors pockets and who then keep crying all the way to Mummy complaining the market doesn’t love them it’s no surprise the TRA share price is where it is today.

    CMO on the other hand have just quietly kept on doing what they do well. They’ve said very little and investors remain pretty happy with them as the share price continues to trend up and is not too far it’s all time high

    I conclude it’s all about how the market perceives the Board and management of each company
    Last edited by winner69; 23-02-2019 at 03:38 PM.
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  6. #4226
    always learning ... BlackPeter's Avatar
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    Quote Originally Posted by Beagle View Post
    4. I think Turners will struggle a bit with the new IFRS9 requiring more prudent bad and doubtful debt provisioning from the get-go.
    Hmm - that's not what the company says in its 2018 annual reprot:

    The indicative impacts of implementing NZ IFRS 9 are as follows:
     Classification and measurement of financial instruments:
    The Group's financial assets and liabilities include only those measured, at amortised cost, at fair value through profit or loss; and at
    fair value through other comprehensive income. The Group anticipates that the classification and measurement of its financial assets
    will remain unchanged under NZ IFRS 9.

     Impairment model change from incurred losses to expected credit losses:
    The introduction of the expected credit losses impairment model is expected to involve a change in the timing of when impairment
    losses are recognised.
    Trade and other receivables
    With regards to the Group’s trade receivables, the Group's incurred credit losses from these financial assets have historically not been
    material. Consequently the introduction of the expected credit losses impairment model is not expected to have a material impact on
    the Group’s financial statements
    , given the Group’s low exposure to counterparty default risk as a result of the Group’s credit risk
    management processes that are in place.
    Finance receivables
    With regards to the Group’s trade receivables, the Group's incurred credit losses from these financial assets have historically been
    material. Consequently, the introduction of the expected credit losses (‘ECL’) impairment model is expected to have a material impact
    on the Group’s financial statements. The Group has undertaken a preliminary assessment on the possible impact that the introduction
    of the ECL impairment model will have on the Group’s finance receivable impairment provisioning. The preliminary analysis indicates
    that as at 31 March 2018 it would have resulted in an increase in finance receivable provisioning between $1.2m to 1.7m
    . The Group is
    continuing to undertake further analysis.
     Hedge accounting
    The Group has hedging arrangements, however these are immaterial and the recognition and measurement of these arrangements
    under NZ IFRS 9 will remain largely unchanged
    The Group will adopt NZ IFRS 9 for the accounting period beginning on 1 April 2018.
    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?


    Quote Originally Posted by Beagle View Post
    5. I think more and more people are buying second hand cars through Trade Me and other digital platforms whereas new vehicles must generally be purchased through franchised dealerships.
    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 ...

    Quote Originally Posted by Beagle View Post

    I would reiterate that the average analyst forecast is for declining eps of ~ 8% FY18 to FY19 and FY19 to FY20.
    You forgot to mention that EPS in FY21 is growing again.

    Quote Originally Posted by Beagle View Post

    I really don't know how you get your average growth figures...perhaps a little "convenient" taking a 3 year forward view ?
    The market is concerned with the here and now for TRA in terms of the eps decline for FY19 and FY20.
    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".


    Quote Originally Posted by Beagle View Post

    No growth companies are worth a PE of 8.5 in my book, (Ben Graham core figure for no growth) so 8.5 x FY20 eps of 24.8 cps https://www.marketscreener.com/TURNE...14/financials/ gives a fair value later this year as we head into FY20 of $2.11.
    Momentum is a powerful thing though and I would not be the least bit surprised to see it go under $2, in fact I would go further and say I will be surprised if this doesn't happen. The market hates uncertainty and that's exactly what Turners is exuding at the moment.
    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 ...
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  7. #4227
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    Quote Originally Posted by winner69 View Post
    I often look at the chart below to remind myself not to put too much reliance on PEs because EPS growth has almost no bearing on valuations, at least in the USA. Might try to extract data for the NZX but I would hazard a guess that it’s much the same here.
    Winner, that R^2 = 0.0006 in your diagram is the overall correlation value right? An R^2 value of 0 means no correlation at all. And 0.0006 is pretty close to zero anyway.

    It is investors who set the PE ratio. It is they who decide what price they will pay for any hoped for earnings growth. So really what you are saying, in a very discreet collective way, is that we investors have the forecasting skill of someone who forecasts their investment growth rate by throwing darts at a dart board? Is that sobering or insulting? Maybe a bit of both?

    On closer inspection of your chart, perhaps we aren't quite so bad? If you look at those really high PE shares, around a PE of 50, then only a couple had a negative growth rate after five years. It is actually the companies that had a PE ratio of 10 to 25 (within the more normal range) where:

    1/ the 'eps' growth up to 2014 AND
    2/ the PE ratio paid in 2010

    show the most similar pattern (in this case, the least correlation).

    My interpretation of that chart is that, as an investor, you should target companies with a current PE of 10 or lower. Because that way, you are not paying a high price for future 'eps' growth. Yet there is an average chance you will get it anyway.

    SNOOPY
    Last edited by Snoopy; 24-02-2019 at 07:23 AM.
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  8. #4228
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    Quote Originally Posted by winner69 View Post
    Snoops, you may be right that technically Turners haven’t downgraded F19 earnings guidance ....just indicated that they might be lower.

    Wonder what disclosure guidelines say about such vagueness?
    Is an 'If'/'Then' prediction vague? I thought Turners communicated the possible profit weakness appropriately.

    So statistically there’s still a high chance of them delivering $34m-$36m npbt .....yes?
    Not sure what the source of that $34m - $36m NPBT prediction is. From my post 3984 on this thread, my annualised operational NPAT prediction for FY2019 is $17.370m. At a 28% tax rate, that would represent a NPBT of $24.125m. Add back in the property sale profit from Wiri of $3.4m and the earn out payment adjustment for Autosure of $0.8m and I get NPBT of $28.325m. Can the gap be bridged further?

    I think there are more property deals in the second half that could do it. I further think that there might be more ticket clipping across the sales/finance/insurance 'cross clip'. Yet I prefer to look at the operational NPAT and, by my definition, that doesn't include the income from "in house property development".

    So as of now, $17.370m remains my 'go to' NPAT profit figure for FY2019. That is equivalent to an 'eps' figure of 19.4cps. At $2.20, that means the share is currently trading on a projected PE ratio of 11.3 for FY2019. If you look back over the years from an operational NPAT perspective, the PE ratio has come down from a high of 19.4 in FY2015. Growth has probably been on track over that time period. But the less well publicised figure of 'eps Growth' has been far less impressive, as the shares on issue have ballooned from 63m to over 89m.

    You can blame sub optimal management and a softening used car market for TRAs share price woes. But to look at the biggest reason for the share price decline, shareholders might do well to look in the mirror. The biggest reason for the share price decline is that four years ago investors were too optimistic and were willing to pay too high a multiple for the shares. And yes I blame myself too as part of that investor overoptimistic group, even though I harbour a secret feeling that maybe some of those promised triple ticket clipping gains are still to be fully realised.

    SNOOPY
    Last edited by Snoopy; 24-02-2019 at 08:20 AM.
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  9. #4229
    Speedy Az winner69's Avatar
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    Quote Originally Posted by Snoopy View Post
    Winner, that R^2 = 0.0006 in your diagram is the overall correlation value right? An R^2 value of 0 means no correlation at all. And 0.0006 is pretty close to zero anyway.

    It is investors who set the PE ratio. It is they who decide what price they will pay for any hoped for earnings growth. So really what you are saying, in a very discreet collective way, is that we investors have the forecasting skill of someone who forecasts their investment growth rate by throwing darts at a dart board? Is that sobering or insulting? Maybe a bit of both?

    On closer inspection of your chart, perhaps we aren't quite so bad? If you look at those really high PE shares, around a PE of 50, then only a couple had a negative growth rate after five years. It is actually the companies that had a PE ratio of 10 to 25 (within the more normal range) where:

    1/ the 'eps' growth up to 2014 AND
    2/ the PE ratio paid in 2010

    show the most similar pattern (in this case, the least correlation).

    My interpretation of that chart is that, as an investor, you should target companies with a current PE of 10 or lower. Because that way, you are not paying a high price for future 'eps' growth. Yet there is an average chance you will get it anyway.

    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

    1- yes investors (if you want to punters who don’t hold forever investors) set the PE

    2- not insulting anyone about their ‘forecasting’ skills ...just suggesting PEs aren’t much help in doing valuations

    3- many things drive PE ratios. In Turners case it is current much lower than a year or so ago. I think it’s investors (oh that word again) have given the one finger salute to Turners Board and management for emptying their pockets, those non eps accretive acquisitions and the constant bleating about how nobody understands the business and the shares are undervalued.

    4- sort of agree with your last paragraph but there is still implied hope in what you say in that maybe there’s a good reason it trades on low multiples and high yield (implying high risk)


    I still hoping for that takeover to come ....soon I hope
    “ At the top of every bubble, everyone is convinced it's not yet a bubble.”

  10. #4230
    Speedy Az winner69's Avatar
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    Snoops the $34m to $36m npbt was original company guidance for F19

    They talked about if/maybe and 10% less. Not very specific was it = ‘vague”

    I think it was you who suggested it wasn’t really guidance as the if may never happen.

    Wouldn’t it have been less vague and a firmer guidance if they had just come out and said ‘Because of if (reason) F19 npbt is now forecast to be 10% less than our previous guidance of $34-$36m’
    Last edited by winner69; 24-02-2019 at 08:09 AM.
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