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

[Fox]

Saw the convertible notes (TRAHB) selling at a discount last week; $0.99 to be exact. With 2 more coupon payments and a face value return of $1.00 at Sept month end, that gives a guaranteed (touch wood) PV return of ~4.2% over the coming 4.5 months (~11% annualised ). And thats without taking into account the 5% discount to 90-day VWAP if you're a betting man.

Unfortunately by the time I transferred some funds around some other punters took the feed and gobbled up the opportunity.

Still value to be found in this company, just have to look in the right places.

[Snoopy]

Saw the convertible notes (TRAHB) selling at a discount last week; $0.99 to be exact. With 2 more coupon payments and a face value return of $1.00 at Sept month end, that gives a guaranteed (touch wood) PV return of ~4.2% over the coming 4.5 months (~11% annualised ). And thats without taking into account the 5% discount to 90-day VWAP if you're a betting man.

Unfortunately by the time I transferred some funds around some other punters took the feed and gobbled up the opportunity.

Still value to be found in this company, just have to look in the right places.

Fox, I agree that you cannot look to buy TRA shares without also looking at the TRA bonds (TNR bonds before that). That's because the TRA bonds also act as a 'right to buy' TRA shares at a future date. So the change in the TRA share price does influence the TRA bond price. So what was the historic return rate if you had bought bonds on 1st October 2015?

Bond Price	Sept 30th 2015	Sept 30th 2016	Sept 30th 2017
TNRHA/TNRHB/TRAHB bonds	$1.05	$1.00	$1.03

Notes

1/ TNRHA bonds (9.0% coupon) expired on 30th September 2016. Existing bond holders got a preferential entitlement to apply for the new TNRHB bonds (6.5% coupon) from that date.
2/ Ticker change from TNRHB to TRAHB on 23rd May 2017,

Income Received	Sale of Rights	CY Q3	CY Q4	CY Q1	CY Q2
FY2016		0.72x 2.375cps	0.72x 2.375cps	0.72x 2.375cps	0.72x 2.375cps
FY2017		0.72x 2.375cps	0.72x 1.625cps	0.72x 1.625cps	0.72x 1.625cps
FY2018	0.45cps	0.72x 1.625cps	0.72x 1.625cps

Notes

1/ Annual bond interest has been distributed quarterly and taxed at 28%,

2/ TRAHB Bondholders had a right to apply for new TRA shares in the share purchase plan of 15th September 2017. Each $1 of bonds held had an implied right to purchase 1/3.75 = 0.2666 shares. The application price for these new shares was set at $3.02. At SPP date there were $25,561m worth of TRAHB bonds on issue. For SPP purposes, these were the equivalent of:

$25.561m x 0.26666 = 6.816m extra shares

Confirmation of shares allocated (after scaling) only happened on October 2011.

3/ The number of TRA shares on issue after a separate share placement of $25m of shares to selected large holders and a nominal $5m for all holders was 84,685,506. We can use this figure and the actual number of shares placed to work out the actual number of shares issued in accordance with the September 2017 share purchase plan.

No. Shares after Placement and SPP	84,685,506
less No. Shares before Placement and SPP	74,523,527
less No. Shares in Placement	8,278,146
equals Actual No. Shares issued in SPP	1,883,833

For SPP issuing purposes the equivalent number of shares on issue were:

No. Shares before Placement and SPP	74,523,527
plus Equivalent No. Shares before Placement and SPP represented by bonds	6,816,266
equals Representative No. Shares before Placement and SPP represented by bonds	81,339,793

We can now work out the pro-forma entitlement for representative shares to be:

81,339,793 / 1,883,833 = 1 new share for every 43 held (!)

However, the allocation isn't 'pro-forma' because even the big boys could only apply for $15,000 worth of shares ($15,000/3.02= 4966 new shares) as a maximum, and that would have been subject to scaling. There is a good chance that the larger shareholders would have been approached as part of the placement plan, and so wouldn't have bothered about an extra small top up through the SPP. If we define a larger shareholder as having 100,000 share or more, then 61,340,917 shares were held by larger shareholders. Take that number away from the pro-forma entitlement number and there were:

81,339,793 - 61,340,917 = 19,998,876

share equivalents owned by smaller holders to participate in the share plan.

19,998,876 / 1,883,833 = 1 new share for every 10 held (approximately).

This is the kind of allocation an applicant to the share price plan, without the benefit of hindsight might expect.

O.K.
What did this all mean for bondholders at the time, without the benefit of hindsight?

1/ We know that each dollar in a bond was regarded as the equivalent of 0.2666 of one share. SO
2/ The expected new share entitlement in the SPP at 1 for 10 was 0.02666 shares
3/ The new shares had a market price on the day of issue of $3.19 verses and application price of $3.02. That equates to a capital gain of 17cps.
4/ So each dollar in a bond could have collected) a projected capital gain of 0.02666 x 17c = 0.45c

0.45c per dollar effectively became my estimate of the 'option value' of the bond, over and above the interest payments.


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Overall Bond Growth 30/09/2015 to 30/09/2016

$1.05 (1+g) = ($1.00 + 0.72x($0.02375+$0.02375 + $0.02375 +$0.02375) ) => g = 1.75%

Overall Bond Growth 30/09/2016 to 30/09/2017

$1.00 (1+g) = ($1.03 + $0.0045 +0.72x($0.01625 + $0.01625 +$0.01625 +$0.01625) ) => g = 8.13%

At a casual glance this is an odd result. The coupon rate of the bond went down in the later period, yet the return went up! Certainly the option value of the bond realised by holding in the second period was not enough to offset the lower interest earned. The problem was the capital reduction in bond value between September 2015 and September 2016. This was caused by an concomitant fall in the TRA share price on the expectation that many shares would soon be available at $2.95 (less than the prevailing share price in the six months before September 2016). So the capital value of the bond went down as its option value evaporated.

SNOOPY

[percy]

Snoops .....truely amazing ...especially when nearly everyone but percy calls it a dog (and that is being polite.)

Maybe he is the only smart one here ...unless you hold as well and then you are smart as well.

The market says I am wrong.
The charts confirm I am wrong.
TRA's, CEO,Todd Hunter, posts on this thread; post #2157 page 144, and post #2196 page 147, confirm to me I am right.
Judgement day is not far away,infact next Tuesday the 29th May.
Either right or wrong.Simple as that.Buy/sell.Easy.

[Beagle]

Hope for your sake its not like Judgement day in Terminator 3 in which case it might not be so easy to sell due to the worse than usual, (already very poor) liquidity.

[percy]

So do I..!!!!!.....
I am looking for an old fashioned Judgement Day.
And Todd did cometh forward with an outstanding result.
The non believers saw the errors of their ways,saw the light,and became true believers..
And I lived happily ever after,with the increased fully imputed dives....lol.

[LAC]

She'll be orite....

[Beagle]

Will they be brave enough to disclose in the headline profit announcement what the EPS growth is, if any ?...or does one need to actually lift the hood and do an engine diagnostic (so too speak) to work it out taking into account the weighted average number of shares on issue ? It would be a refreshing change if they made it crystal clear what the percentage change in EPS is.
Might get them a brownie point from me if they were a little more transparent about this rather than the usual trumpeting of growth without nary a mention of EPS.

[percy]

There is no doubt the new car market has been buoyant off the back of aggressive market share growth and a strong NZD has meant the sort of great pricing mentioned in posts above. These all flow directly into the used car prices...the biggest influence on the used car pricing is what they new version of the same vehicle sells for.

Also important to bring some market sizing to the discussion as well...in the year to Dec 17 there were 1.142M used vehicle "change of ownerships". This was across dealer channels, and private to private channels. Over the same period there were 151k new passenger and light commercial vehicle registrations...reinforces the market research numbers I published earlier. A lot of the new car registrations will be rental fleets and corporate fleets so the true number of retail customers buying new cars is a lot less than the 151k.

What we like about the used car market is the following...
- Used cars is a less discretionary market than the new car market. In 2009 used car change of ownerships for the 12 months ending Dec 2009 were 886k, new car registrations were 70k.
- We control our go to market strategy. We don't have an OEM setting rules for how to execute in the market, lifting our rebate targets each year, telling us to invest huge amounts of capex in new buildings.
- check out our latest shareholder newsletter for the "container office" look we are implementing in our new Cambridge Terrace site in Wellington.

We have a great brand, great distribution, and great sources of supply of used vehicles...however as has been pointed out in previous posts we have work to do on the sales experience.

In FY13 Turners Auctions (pre Dorchester full acquisition) we made $5.8m NPBT...in FY17 this division made $12.3M, we have more than doubled the return in 4/5 years from focusing on this wholesale to retail transition. We are challenging ourselves from a growth perspective on other parts of the wider business. We are a business that delivers on what we say we will and I can assure everyone that the board and management are focused on EPS growth.

As an aside Beagle had asked earlier for my opinion on why some wealthy people drove old bangers and chose not to upgrade their cars. I think answer is "people". Some people choose this as part of their brand....they like being understated and under the radar. For others it will simply be the cost and hassle of change.

But what is undeniable is that most kiwis need a car to get to work and get their kids to school. Over 80% of household trips are taken in a car and this number has only been rising. Of course it doesn't mean to say it will be like this forever (perhaps we should be branching out into e-bikes!), but the vast majority of car buyers are looking to purchase a good reliable vehicle from someone they trust for under $15k. The used car market and the services like finance and insurance that support them are large and highly fragmented markets with plenty of opportunity in them.

Beagle.
I think you missed;
"I can assure everyone that the board and management are focused on EPS growth."

[Beagle]

No I didn't miss that Percy. Lets see how they go.

[LAC]

https://www.nzx.com/announcements/318617

Its out