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

[Jinx]

The parcel bought was 71,500.

Edited, thanks

[Snoopy]

	Heartland	Turners (Finance Division)
Loan Book 30-06-2014	$2,607.393m	N/A
Loan Book 31-03-2015	N/A	$142.827m
Loan Book 31-06-2015	$2,862.070m	N/A
Loan Book 31-09-2015	N/A	$164.386m

And here are the results of the calculations....

	Heartland	Turners Limited	Turners Limited (Finance Divisions Only)
EBIT /(Loan Book {averaged})	7.0%	N/M	12.8%
Impaired Loans / Total Loans	0.57%		3.9%
Impaired Loans / Shareholder Equity	3.4%	5.2%	8.3%

The:
(i) EBIT to total loan book calculation,
(ii) impaired loans to total loans and
(iii) impaired loans to shareholder equity referred to above are calculated like this:

Heartland:

(i{H}): ($260.488m-$68.403m)/ [(1/2)*($2,862.070m+$2,607.393m)] = 7.0%

(ii{H}) ($10.201m+$6.242m)/ ($2,862.070m+$10.201m+$6.242m) = 0.57%

(iii{H}) ($10.201m+$6.242m)/ ($480.125m) = 3.4%

Turners (Finance Only) (i{T} annualised):

(i{T}): 2x ($5.901m+$4.008m-$0.046m) / [(1/2)*($164.436m+$142.827m)] = 12.8%

(ii{T}) $6.637m / ($6.637m + $164.436m) = 5.2%

(iii{T}) $6.637m / $79.54m = 8.3%

So what do I conclude from this? The underlying loan book at Turners looks a lot more profitable than Heartland, (based on the respective end of year loan balances). But it probably needs to be because the proportion of impaired loans to total loans is higher.

Meanwhile the impaired loans to shareholder equity is there to show how these impairments could affect the shareholders capital of the company. In the case of Turners I have apportioned the company equity so that $79.54m is behind the finance operation and the rest (adding to a grand total of $125.81m) is there to support the old TUA, insurance and debt recovery businesses.

Turners has a lot less 'effective equity' to support their loan book than Heartland does. Turners also have a possible cash injection coming up. The maturity of the TNRHA bonds will see some of those convert to shares. Of the $23m in bonds that are due to mature, lets say $12m convert to shares.

The proportion of that new capital that will go behind the finance side of the business would approximately be:

$12m x ($79.54m/$125.810m) =$7.6m

(iii{T}) (projected, revised) $6.637m / ($79.54m + $7.6m) = 7.6%

That is still well below the level of 'impaired loan to equity cover' that Heartland enjoys. On this 'Loan Shock Debt Cover' head to head, I am declaring Heartland the winner.

SNOOPY

[Snoopy]

	Heartland	Turners Limited	Turners Limited (Finance Divisions Only)
ROE (averaged equity)	12.2%	12.0%	11.8%
EBIT /(Loan Book {averaged})	7.0%	N/M	12.9%

There is something rather strange about the above two tabulated results. Both are what I would loosely term 'Earnings Metrics'. But one shows that Heartland (just) has the upper hand, while the other is a 'clear win' to Turners. How can this be?

One thing that could explain this result is that the first statistic is based on 'Net Profit After Tax', while the second is based on 'Earnings Before Interest and Tax'. So maybe if I remove the interest and tax from the second statistic, and assume that Turners finance pays their full whack of tax, the two results should align? Let's see:

EBIT /(Loan Book {averaged}) to

NPAT /(Loan Book {averaged})

Heartland:

($260.488m-$68.403m)-($126.041m+$16.172m)/ [(1/2)*($2,862.070m+$2,607.393m)] = 1.8%

Turners (Finance Only) (annualised):

2x [($5.901m-$0.046m)-$4.008m] x0.72 / [(1/2)*($164.436m+$142.827m)] = 5.5%

Oh dear that didn't go well! The discrepancy is even greater now! I will have to rethink things - again!

SNOOPY

[percy]

Just keep rethinking.?????????????
HBL's result on Tuesday may help clear your thoughts.
What I will be really looking forward to is an update on their proposed capital return/share buy back.

[Jinx]

What I will be really looking forward to is an update on their proposed capital return/share buy back.

Question percy: Who's update will provide better results HBL or TNR in your opinion?

[percy]

Question percy: Who's update will provide better results HBL or TNR in your opinion?

Well I don't expect any surprises from HBL.Boring banks don't do surprises.!
That leaves TNR to possibly surprise,as they are more leveraged.
Both should be performing very well.
Both are focused,both have directors and management with a lot of skin on the line,with their large shareholdings,both companies are in sectors that are strong and are growing.

[Snoopy]

Well I don't expect any surprises from HBL.Boring banks don't do surprises.!
That leaves TNR to possibly surprise,as they are more leveraged.

From my post 'Gearing Ratio HY2016' (1152) on this thread:

Turners Gearing Ratio = Underlying Liabilities/Underlying Assets = $190.497m/$184.473m = 103%

Now from my post 'Gearing Ratio FY2015 ' (6946) on the Heartland thread:

Heartland Gearing Ratio = Underlying Liabilities/Underlying Assets = $53.889m/$92.229m = 58.4%

So Percy is quite correct when he says Turners are more leveraged. But things are not always as simple as they seem. Refer to my post 1170 (TNR v HBL Head to Head Round 1 (Overall Debt Cover) ) on this thread:

Heartland MDRT: [($3.378m + $465.773m +$258.630m)-$37.012] / ($48.169m +0.72($12.105m) ) = 12.2 years

Turners MDRT ($168.948m - $13.019m) / 2( $7.432m - $0.042) = 10.6 years

So despite being more leveraged, the profits on the Turners loans are so high that the risk of the extra leverage is more than wiped out. It is actually Heartland who has a more difficult job servicing their underlying loans than Turners!

SNOOPY

[Snoopy]

There is something rather strange about the above two tabulated results. Both are what I would loosely term 'Earnings Metrics'. But one shows that Heartland (just) has the upper hand, while the other is a 'clear win' to Turners. How can this be?

One thing that could explain this result is that the first statistic is based on 'Net Profit After Tax', while the second is based on 'Earnings Before Interest and Tax'. So maybe if I remove the interest and tax from the second statistic, and assume that Turners finance pays their full whack of tax, the two results should align? Let's see:

EBIT /(Loan Book {averaged}) to

NPAT /(Loan Book {averaged})

Heartland:

($260.488m-$68.403m)-($126.041m+$16.172m)/ [(1/2)*($2,862.070m+$2,607.393m)] = 1.8%

Turners (Finance Only) (annualised):

2x [($5.901m-$0.046m)-$4.008m] x0.72 / [(1/2)*($164.436m+$142.827m)] = 5.5%

Oh dear that didn't go well! The discrepancy is even greater now! I will have to rethink things - again!

Ok I have had my little rethink. Studying the respective numerators (top bits, for those whose maths was some time ago) ) of the fractions I was comparing was not enlightening. So time to move on to the respective denominators (bottom bits).

-----

Average shareholder equity for Heartland over our study period: $466.374m
Average shareholder equity for Turners over our study period: $72.44m

Ratio of shareholder equity value: Heartland/Turners = 6.4

-------

Average loan book value for Heartland over our study period: $2716.732m
Average loan book value for Turners over our study period: $153.632m

Ratio of loan book value: Heartland/Turners = 17.7

-------

Comparing the denominators reveals something rather significant. Heartland is loaning a lot more money, relative to their shareholder equity on the balance sheet, than Turners is doing. Of course one of the reasons that Heartland can do this is that is relative terms, they have less underlying debt. But in terms of 'capital efficiency' (debt is generally cheaper than shareholder funds) Turners is by far the better performer of the two.

SNOOPY

[h2so4]

Good news from ABC news today. So far this reporting season Aussie banks haven't been increasing their bad debt provisions. Those bankers are not stupid probably realise they overdid it a tad.

[h2so4]

......whoops I might be on the wrong thread. I think it should be on a bank v bank thread.