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19-06-2018, 02:23 PM
#2451
Member
Originally Posted by blackcap
Thank you - I didn't even know there was a Turners in Porirua - saves traipsing out to Seaview.
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19-06-2018, 04:05 PM
#2452
Interests associated with Grant Baker buy 500k on market at about $3.03. Great signal or just shuffling around jiggery pokery?
http://nzx-prod-s7fsd7f98s.s3-websit...578/281279.pdf
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19-06-2018, 06:15 PM
#2453
Junior Member
Disclosure notice says on market purchase with parties who are not known - looks like a 17% top up for the trust.
After Trilogy was sold and de-listed, expect there's a little bit of cash sitting around in affiliated entities of Mr Baker, the magic maker.
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19-06-2018, 09:33 PM
#2454
Orange Flag 3: FY2018 Perspective
Originally Posted by percy
TRA are big ticket clippers.
Sale of vehicle...……………..Ticket clipped.
Finance of vehicle...………..Ticket clipped
Insurance…………………………Ticket clipped.
Vehicle service...……………..Ticket clipped.
Development of sites...…...Ticket clipped.
MTF non recourse loans.....Ticket clipped
Debt management services,Ticket clipped.
More and bigger tickets to clip.
I agree with Percy's observation, right up until that last line. I sincerely hope it isn't Turners policy to string the buyer along all the way through the car ownership process, clipping the ticket all the way, with the ultimate objective of getting the car back as a failed debt, leaving the owner penniless and jobless (because he can't drive to work)!
Nevertheless I should point out that the strength of this business model is also its weakness:
No Sale of vehicle...…………means...
No Finance of vehicle...……….and...
No Insurance needed…………..and...
No Vehicle service needed...…which means....
Developed Sites become superfluous...(at least these have been sold off to third party landlords, so it is they and not Turners who will suffer) .
also....lower MTF non recourse loans....means a reduced dividend from that source.
What I am saying here is that a very weak car market could see all Turners divisions fall over like dominoes, bar one:
Debt management Services,Ticket clipped.
Turners should at least maximise what they can salvage by chasing their own debtors!
Originally Posted by Snoopy
Turners have not insignificant borrowings. Question: So how is the 'interest rate charged' trend for TNR looking?
|
FY2015 |
FY2016 |
FY2017 |
FY2018 |
Interest Expense (A) |
$7.381m |
$11.436m |
$11.350m |
$14.344m |
Total Liabilities |
$207.970m |
$232.491m |
$384.917m |
$437.662m |
Total Borrowings |
$156.995m |
$174.816m |
$265.889m |
$317.373m |
Averaged Borrowing Balance (B) |
|
$165.906m |
$220.353m |
$291.631m |
Implied Borrowing Interest Rate (A)/(B) |
|
6.9% |
5.2% |
4.9% |
The other issue for Turners going forwards is rising interest rates. It strikes me that 4.9% is unusually low as a borrowing rate for this type of business. If the average borrowing interest rate went up to 6.9%, the sort of rate Turners was paying just two years ago, then the annual interest bill could leap from $14.344m to $20.199m. A near $6m rise in interest charges would hit NPAT by about $4m - ouch!
Note that I am not forecasting that any of this definitely will happen. But I think investors should be aware of these potential risks.
SNOOPY
Last edited by Snoopy; 19-06-2018 at 10:06 PM.
Watch out for the most persistent and dangerous version of Covid-19: B.S.24/7
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19-06-2018, 09:44 PM
#2455
Originally Posted by blackcap
Looks like a clean on market purchase as vendors are unknown so its genuine new money giving even more skin in the game ! Follow the smart money.
Ecclesiastes 11:2: “Divide your portion to seven, or even to eight, for you do not know what misfortune may occur on the earth.”
Ben Graham - In the short run the market is a voting machine but in the long run the market is a weighing machine
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19-06-2018, 10:15 PM
#2456
Capitalised Earnings Valuation: FY2018 Perspective
Originally Posted by Snoopy
I think of Turners as:
1/ Riding a cyclical car market PLUS
2/ Adding an incremental growth premium on top of this.
Valuing 1/ is relatively easy. Valuing 2/ I find much more difficult.
My 'Capitalised Dividend' valuation for this share was a failure. But after some soul searching, I believe that 'capitalising earnings' is a more realistic way to go.
Turners Automotive Group Limited (TNR/TRA) |
|
FY2015 |
FY2016 |
FY2017 |
FY2018 |
Snoopy Normalised Earnings Per Share {A} |
|
19.4c |
24.2c |
22.5c |
25.6c |
Dividend Paid (per share) {B} |
|
9c |
12c |
13c |
14.5c |
Underlying Retained Earnings (per share) {A}-{B} |
|
10.4c |
12.2c |
9.5c |
11.1c |
I favour using at least five years of data when doing an exercise like this. However, when considering a company as fast evolving as Turners Automotive Group there comes a point when historical data used as a proxy for what might happen going forwards becomes positively antiquated. So I have reverted to using just four years of data which covers the period from when TRA was conceived in its current form.
The valuation is in two parts. Once again I am using an acceptable gross return of 7.5% for the dividend part of it.
Average dividend received over the last four years
(9c+12+13c+14.5c) / 4 = 48.5c, divide by four = 12.1c
Gross Capitalised Dividend Component = 12.1c / (0.075 x 0.72) = $2.24 (1)
Average Retained Earnings Valuation reinvested over the last four years
All things going to best plan, retained earnings should be worth more than cash paid as a dividend. But this assumes a largely monotonic increasing profit year in year out, with very few exceptions. I don't believe that the historical underlying profitability data indicates that Turners can achieve this. So I think it wise to assume that a 'dividend in the bank account' is worth more than a 'potential dividend in the bush'. To reflect 'business execution' and 'car market volatility' risks, I am going to increase my required return for 'retained earnings' by two percentage points, out to 9.5%
(10.4 + 12.2 + 9.5 + 11.1)/4 = 10.8c (average)
Gross Capitalised Retained Earnings Component = 10.8c / (0.095 x 0.72) = $1.58 (2)
So my total 'fair valuation' for TRA becomes (1) + (2):
$2.24 + $1.58 = $3.82
Thus at a market price of just over $3, it looks like TRA might be worth accumulating!
SNOOPY
Last edited by Snoopy; 19-06-2018 at 10:55 PM.
Watch out for the most persistent and dangerous version of Covid-19: B.S.24/7
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20-06-2018, 07:53 AM
#2457
Originally Posted by Snoopy
The other issue for Turners going forwards is rising interest rates. It strikes me that 4.9% is unusually low as a borrowing rate for this type of business. If the average borrowing interest rate went up to 6.9%, the sort of rate Turners was paying just two years ago, then the annual interest bill could leap from $14.344m to $20.199m. A near $6m rise in interest charges would hit NPAT by about $4m - ouch!
SNOOPY
Gee you are a hard man (or woman) to please Snoops. Surely if interest rates rise, then they rise across the board and new finance will be at higher rates thus compensating Turners more. I have read somewhere that these type of borrow low and lend out at higher rates type companies do better when interest rates are higher as to maintain the % of "premium" the real amount of premium goes up. Ie if you can borrow at 2% and lend out at 4% you havea 2% margin. If you have to pay 5% for your money you can lend at 10%, now you have a 5% margin thus profits are boosted even more. I would argue that Turners would do better under a higher interest rate environment....
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20-06-2018, 08:50 AM
#2458
Originally Posted by blackcap
Gee you are a hard man (or woman) to please Snoops. Surely if interest rates rise, then they rise across the board and new finance will be at higher rates thus compensating Turners more. I have read somewhere that these type of borrow low and lend out at higher rates type companies do better when interest rates are higher as to maintain the % of "premium" the real amount of premium goes up. I.e. if you can borrow at 2% and lend out at 4% you have a 2% margin. If you have to pay 5% for your money you can lend at 10%, now you have a 5% margin thus profits are boosted even more. I would argue that Turners would do better under a higher interest rate environment....
Two I points I would make blackcap:
1/ Interest Rate Margin on Loans: I take your point, and look forward to reading your source, when you can remember where your readings came from ;-P! You may have a point here, although I suspect the reality is more complex. In the medium term your argument sounds plausible. In the shorter term I would expect a 'lag effect'. I would expect existing car loans would be 'locked in' for a contacted term, with Turners having to wear the cost of any increase in their funding while any existing offsetting pre-signed up income remains steady.
2/ Not all of the money that Turners has borrowed has gone to supporting loans. I analysed this in 'Chapter 5' of Winner's 'An Investment Story - Geneva/Turners/Heartland' thread. At EOFY2017, the Turners loan book liabilities stood at $153.305m. But total liabilities for the Turners Automotive group were $384.917m. A lot of this difference can be explained by intangible assets, such as the $71.400m on the balance sheet classified as 'brand' and $92.509m in 'goodwill'. The borrowing used to purchase these intangible assets does not have a direct offsetting consummate income stream. So any increase in this borrowing becomes a straight cost to the 'Turners Automotive Group' company.
SNOOPY
Last edited by Snoopy; 20-06-2018 at 01:16 PM.
Watch out for the most persistent and dangerous version of Covid-19: B.S.24/7
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20-06-2018, 09:00 AM
#2459
Originally Posted by blackcap
Gee you are a hard man (or woman) to please Snoops. Surely if interest rates rise, then they rise across the board and new finance will be at higher rates thus compensating Turners more. I have read somewhere that these type of borrow low and lend out at higher rates type companies do better when interest rates are higher as to maintain the % of "premium" the real amount of premium goes up. Ie if you can borrow at 2% and lend out at 4% you havea 2% margin. If you have to pay 5% for your money you can lend at 10%, now you have a 5% margin thus profits are boosted even more. I would argue that Turners would do better under a higher interest rate environment....
Banks and finance companies benefit from higher interest rates,for the very reasons you pointed out..
Has always been the case.
Last edited by percy; 20-06-2018 at 09:09 AM.
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20-06-2018, 09:21 AM
#2460
Thanks snoops ..was wondering why TRA had high levels of debt ....leading to a pretty low ROIC
”When investors are euphoric, they are incapable of recognising euphoria itself “
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