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

[Snow Leopard]

RTM (and others). TNR have never said they want to gain control of MTF. TNR want to raise their shareholding in MTF to match the level of business they have with MTF, right now. This equates to 10-15% of the shares in MTF IIRC. You Heartland enthusiasts had better hope that Heartland does not bid for MTF. Because if they are successful then TNR could pull all of their business from MTF, as TNR have their own 100% owned finance companies that could do the job for them.

Heartland 'win' the bid for MTF, then 15% of the business disappears overnight? It won't be good for Heartland shareholders.

SNOOPY

I had gained the impression, based on statements such as:

"Turners currently write around 10% of new loans originated through MTF with that % continuing to increase in recent months."
(taken from this announcement)

that Turners provided loan monies to MTF.

Are you saying that Turners provide customers who take up 15% of the MTF loans?

Best Wishes
Paper Tiger

[percy]

I think everyone will find Chris Lee's comments of interest.'
www.chrislee.co.nz scroll down and "click here to enter our site" then go to "Taking stock."

[winner69]

I think everyone will find Chris Lee's comments of interest.'
www.chrislee.co.nz scroll down and "click here to enter our site" then go to "Taking stock."

Very insightful comments

Thanks for pointing us to it

[Snoopy]

I had gained the impression, based on statements such as:

"Turners currently write around 10% of new loans originated through MTF with that % continuing to increase in recent months."
(taken from this announcement)

that Turners provided loan monies to MTF.

Are you saying that Turners provide customers who take up 15% of the MTF loans?

Yes I am saying that PT. That's how I read things anyway. Happy to be convinced another way if I have 'got it wrong', but in support of my case:

The following quotes are from the MTA Annual Report of FY2015.

From note 1

"The principal activity of the Group consists of accepting finance receivables entered into by transacting shareholders."

From note 9 on funding (secured), the policy statement.

"MTF funds a major portion of its business by the sale of finance receivables to securitisation entities established solely for purchasing finance receivables from MTF."

"MTF recognises transactions with securitisation entities as financing arrangements; expenditure related to securitisation programmes is recognised as a cost of funding and the securitised assets and funding from securitisation programmes are recognised respectively as assets and liabilities in the balance sheet."

"Under the MTF securitisation programme, entities are created to purchase eligible finance receivables."

I read that as MTA bundling together loans from for example, "Joe Blow Cars" together with those from "Fred Smith Cars" and all those other little dealers into a critical mass of car finance deals that can be packaged together and on-sold. A fixed interest investor that would balk at funding "Joe Blow Cars", might be happier funding a collection of deals from different dealers packaged together to lower portfolio risk. I am not sure that the MTA ever envisaged one organisation controlling 10-15% of the used car market. Once a 'dealer' (like Turners Fleet - the part of the old Turner's Auctions that goes to Japan buys their own cars and on sells them direct to the New Zealand public) gets to a certain size, then that dealer's own portfolio may grow to a size that it can self manage its own portfolio risk, independently of the MTA. This is where Turner's Auctions own in house finance company comes in. They can take on higher risk loans that the MTA might not be happy with.

The MTA securitized loans are sold off to fixed interest investors.

As for any unsecuritized loans:

More from note 9 (my emboldening):
"MTF has committed bank facilities with BNZ secured by a general security agreement over all unsecuritised assets, including unsecuritised finance receivables."

Those loans not yet rolled up and on sold seem to be 100% financed by BNZ, not the likes of Turners.

SNOOPY

[blackcap]

the proposed changes to their capital structure are interesting. not that doing a 1:10 consolidation will change anything but a $3 stock may be more worthy of a NZX 50 place. Quarterly dividends are interesting. I note Telecom (now spark) did these a while back but not many other companies in NZ follow the US model. Again this will not have a material impact at all and changes nothing but I wonder at the motive for both and how can this "advice" be beneficial for the company.
Good to see TNR again well ahead of forecast and glad I topped up a few weeks ago.

[percy]

I brought back into TNR this morning.Thought I would get them "at the open" at 31 cents,but ended up paying 32 cents.!

[kizame]

I brought back into TNR this morning.Thought I would get them "at the open" at 31 cents,but ended up paying 32 cents.!

Still good value,I am surprised you sold out in the first place,has great medium to longer term growth potential.

[percy]

Yesterday I misread the TNR result.I got mixed up with taking the abnormals as normal.
The result offcourse did not include a full year of the "Turners auctions".
I also failed to factor in the fact TNRs are not paying full tax.
The 2016 projection was downgraded from $23mil to $20mil.
The result was not what I expected, therefore I have sold my holding.
To achieve the $23mil TNR will have to make an acquisition.Depending on what the acquisition is,the terms of the acquisition,and whether I think it is good or not,will guide me as to whether I will buy in again.

The above was posted 28-05-2015.
I have brought back in this morning at about the same price I sold for.
Yesterday's announcement was very good and the outlook looks positive.
I also brought a parcel for the wife's account this afternoon.

[janner]

The above was posted 28-05-2015.
I have brought back in this morning at about the same price I sold for.
Yesterday's announcement was very good and the outlook looks positive.
I also brought a parcel for the wife's account this afternoon.

Told Ya !!..

How ever... You probably made a few bucks in the interim with those funds :-))))

[Snoopy]

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!

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' (HYAR2016, p14).

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.

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

Tier 1 Capital = (Shareholder Equity) - (Intangibles) - (Deferred tax)
= $125.810m - $105.145m - $5.310m
= $15.355m

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': $15.910m
2/ 'Finance Receivables': $164.436m
3/ 'Receivables and deferred expenses': $4.553m
4/ 'Reverse annuity mortgages': $11.878m

For the HY2016 year balance date these come to $196.771m

$15.355m / $196.771m = 7.8% < 20%

=> Fail test

Care needs to be taken in interpreting a result like this. The increase in Intangible Assets over the last six months (representing a business acquired over the period) needs to be considered. Southern Finance Limited was brought onto the books on 31st July 2015, just two months before the reporting period ended on 30th September 2015. .

From note 6 in the half year report, $1.677m of intangibles was brought onto the books with the acquisition of Southern Finance. The $1.677m is a measure of what Turners were prepared to pay over and above asset backing, because of the prospective profitability of the acquisition. Nevertheless $1.677m represents a minimal overall asset distortion to a company with over $100m of intangible assets on the books already. So I am judging the acquisition of Southern Finance, with a loan book of $9.5m, (under 6% of the total finance receivables loan book for TNR) , as not distortionary and hence not material for Tier 1 lending covenant purposes.

Put bluntly, while an improvement from the FY2015 position, I consider the capital behind this company is (still) insufficient for the size of the loan book.

SNOOPY

discl: shareholder and bondholder