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

[blackcap]

We did and do expect that but since then the share price has come down a fair way. I bought some yesterday at 25.5, seems less risky than at 35 cents a while back anyway.

[percy]

We did and do expect that but since then the share price has come down a fair way. I bought some yesterday at 25.5, seems less risky than at 35 cents a while back anyway.

I think your timing will prove to be excellent.
25.5 to 27 cents cents looks pretty good buying to me.

[Snoopy]

Updating the performance metrics for the financial year just gone. I am interested in the underlying performance of the finance business at DPC. So I am leaving out the equity accounted earnings of Turner's Auctions in which DPC has a significant stake.

In addition, I leave out the effect of the substantial tax losses brought back onto the books which benefitted DPC shareholders during the year. While the benefit of bringing these losses back onto the books is very real for DPC shareholders, they are not useful when assessing the performance of the underlying business going forwards.

DPC paid no income tax for FY2014. So EBIT can best be estimated by adding to operating profit (huh, I thought EBIT was operating profit - obviously not so in the case of DPC) the interest expense:

($4.171m + $2188m)/$2.188m = 2.91 > 1.2

=> a big improvement from last year. DPC now passes the EBIT to Interest Expense Ratio test.

Updating for the FY2015 financial year (ended 31-03-2015)

The underlying interest expense is shown under note 7 (AR2015) to be $7.381m.

The underlying EBIT is a bit more complicated. There is a $7.058m gain recorded because of the write up in the value of the then Dorchester's existing stake in TUA to 'market bid value' level. But the market bid was made my Dorchester. So Dorchester have in effect bid up the value of their pre-owned TUA shares to a market level that they themselves have chosen. $7.058m is a one off self controlled capital gain that is not repeatable. IMO this should not be included in any underlying EBIT to Interest Expense ratio.

(EBT +Interest Expense)/(Interest Expense) = [($18.264m-$7.058m)+$7.381m]/$7.381m = 2.52 > 1.2

=> Pass Test

SNOOPY

[Snoopy]

Updating the above FY2013 figures

The gearing ratio in based on the underlying debt of the company, calculated by stripping out the already contracted future liabilities eventually payable to insurance policy holders on the balance sheet.

$52.630m -( $6.733m + $15.293m + $6.420m ) = $24.184m

Likewise on the asset side of the balance sheet we have to strip the finance receivables, and this case the equity investment in TUA, from the total company assets. From the Balance Sheet.

$126.682m - $37.726m - $10.209m = $78.747m

Gearing Ratio = Underlying Liabilities/Underlying Assets = $24.184m/$78.747m = 30.7% < 90%

=> Pass Test, and a large improvement on the previous year

The gearing ratio in based on the underlying debt of the company, calculated by stripping out the already contracted future liabilities (from AR2015 Balance Sheet p32) eventually payable to insurance policy holders on the balance sheet. I have additionally removed the deferred revenue ($7.476m) from these underlying liabilities

$207.970m -($9.260m + $16.378m + $7.476m) = $174.850m

Likewise on the asset side of the balance sheet we have to strip the third party 'finance receivables' from the total company assets. From the Balance Sheet.

$328.972m - $142.827mm = $186.145m

Gearing Ratio = Underlying Liabilities/Underlying Assets = $174.850m/$186.145m = 94% > 90%

=> Fail Test

The big spending Turner's acquisition of Oxford Finance (01-04-2014) and the old 'Turners Auctions' (28-10-2014) have greatly increased the gearing ratio of the formerly conservatively geared company!

[Snoopy]

I made a hash of this last year, but PT put me straight. So let's see if I can get it right this year.

I do realise that Tier 1 and Tier 2 capital are usually terms reserved for banks, and that DPC is not a bank. But to enable a comparison with other listed entities in the finance sector, please bear with me.

We are looking here for a certain equity holding to balance a possible temporary mismatch of cashflows. The company needs basic equity capital and disclosed reserves defined as:

Tier 1 capital > 20% of the loan book.

(Dorchester has only Tier 1 capital for these calculation purposes.)

Tier 1 Capital = (Shareholder Equity) - (Intangibles) - (Deferred tax)
= $74.052m - $25.912m - $6.761m
= $41.379m

Not sure if I should make another deduction for 'Investment in Associate' (the Turners shareholding) but my gut feeling is no, so I won't.

The money to be repaid to the company (assets of the company) can be found as assets on the balance sheet. This is the sum total of:

1/ 'Financial Assets at fair value through profit or loss'
2/ 'Finance Receivables'
3/ 'Receivables and deferred expenses'
4/ 'Reverse annuity mortgages'

For the FY14 year these come to $77.65m

$41.379m / $77.65m = 53.3% > 20%

This is a big improvement on the fail grade of last year, and shows the result of the recapitalisation of the company during the year.

I am applying a 'banking covenant' to a non-bank. While not a legal requirement for TNR, this is to enable a comparison with other listed entities in the finance sector (real banks like Heartland for instance ;-) ), so please bear with me. The data below may be found in the 'Consolidated Statement of Financial Position' (AR2015, p32).

We are looking here for a certain equity holding to balance a possible temporary mismatch of cashflows. The company needs basic equity capital and we are looking for disclosed reserves defined as:

Tier 1 capital > 20% of the loan book.

(Dorchester has only Tier 1 capital for these calculation purposes.)

Tier 1 Capital = (Shareholder Equity) - (Intangibles) - (Deferred tax)
= $121.002m - $103.595m - $8.532m
= $8.875m

The money to be eventually repaid to the company (assets of the company) can be found as assets on the balance sheet. This is the sum total of:

1/ 'Financial Assets at fair value through profit or loss': $17.350m
2/ 'Finance Receivables': $142.827m
3/ 'Receivables and deferred expenses': $5.946m
4/ 'Reverse annuity mortgages': $13.253m

For the FY15 year these come to $179.376m

$8.875m / $179.376m = 4.9% < 20%

=> Fail test

Care needs to be taken in interpreting a result like this. A big increase in Intangible Assets over the year have done the damage to this statistic.

From note 22 in the annual report, $45.6m of intangibles was brought onto the books with the acquisition of TUA. $30.454m was brought onto the books with the acquisition of Oxford Finance. These companies were bought outright to become profitable acquisitions. A good margin over asset backing was paid because these assets were highly profitable, demanding any buyer to pay a premium. The downside is that should either of these assets suddenly become less profitable than expected an urgent capital raising from TNR shareholders could be required!

SNOOPY

[Snow Leopard]

Value at 31-Mar-2014: $0.234
Value at 31-Mar-2015: $0.248

Just done two quick and dirty evaluations of TNR:

The pessimistic one - little growth from FY17 on:
Value at 10-Sep-15: $0.277
Value at 31-Mar-16: $0.288

The not so pessimistic one - some growth for a few years:
Value at 10-Sep-15: $0.307
Value at 31-Mar-16: $0.322

Take your pick.

Best Wishes
Paper Tiger

[Snow Leopard]

...
We are looking here for a certain equity holding to balance a possible temporary mismatch of cashflows. The company needs basic equity capital and we are looking for disclosed reserves defined as:

Tier 1 capital > 20% of the loan book.

(Dorchester has only Tier 1 capital for these calculation purposes.)

...

$8.875m / $179.376m = 4.9% < 20%

=> Fail test

...

Whilst I disagree with the pass mark being set at greater than 20%
I do agree that less than 5% Tier 1 is a fail in most peoples books.

But what about those Bond's you hold?
Does TNR have the right to convert them to equity (i.e. shares) at some point?

Best Wishes
Paper Tiger

[Snoopy]

Whilst I disagree with the pass mark being set at greater than 20%
I do agree that less than 5% Tier 1 is a fail in most peoples books.

But what about those Bond's you hold?
Does TNR have the right to convert them to equity (i.e. shares) at some point?

Best Wishes
Paper Tiger

The discretion on the bonds is all mine. I have the option to convert my bonds to TNR shares in September 2016. The 5% discount on the market head share price at the time is an incentive for me to do so. But I can equally well ask for my cash back. (TNR cannot force me to convert my bonds to shares). Right now, I do not know which way I will go.

SNOOPY

[Snow Leopard]

So TNR would like to own upto 20% of MTF, which would require an MTF vote on whether to permit that.

The offer of $1.15 a share is daylight robbery - if MTF was listed I would expect it to trade at a significantly higher price.

<update>
Forget the daylight robbery bit - I missed a zero out (10x off ) of a reasonably important number.
</update>

[ It seems that the court case involving MTF is essentially resolved - or am I miss reading that?
<update>
Apparently I am misreading that
</update> ]

But buying the 19% they do not own will require about $5M of real money.

It also makes me wonder whether TNR are setting themselves up for a potential fall in that I think that they are stretching themselves a bit and a knock would leave them with a sudden need for equity, especially given that Snoopy (& the other holders) can demand that he gets cash for his bonds next year.

DYOR and show me that I am meowing up the wrong tree.

Best Wishes
Paper Tiger

[janner]

It also makes me wonder whether TNR are setting themselves up for a potential fall in that I think that they are stretching themselves a bit and a knock would leave them with a sudden need for equity, especially given that Snoopy (& the other holders) can demand that he gets cash for his bonds next year.

Best Wishes
Paper Tiger

Agree.. I think they could be biting off more than they can chew with this one ..

Will be at the meeting.

Disc. Holding.