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

[percy]

Turners settles on Buy Right Cars.
As Todd Hunter said "the acquisition further grows Turners control of customer origination transactions enabling additional volume into the finance and insurance business.
What he did not say,yet we know it,sourcing cars from Japan and retailing them is very profitable also.
A perfect bolt on acquisition,with Turners clipping the ticket all the way from Japan, to the final owner driving down the Southern motorway..

[RTM]

Turners, the financial services firm, has bought a one-hectare industrial site in Wiri for $4.8 million to extend its footprint in South Auckland
http://www.sharechat.co.nz/article/d...r-4-8-mln.html

Interesting that they buy their own land rather doing business with someone like PFI. Didn't think that was fashionable in todays world, although I am pleased to see the reasoning...

"Acquisitions of strategic property sites are becoming an increasingly important part of the growth strategy for Turners to allow for further footprint expansion as the business grows, and to achieve stronger control over property overheads," Turners said. "As part of this strategy, Turners have previously purchased properties in South Auckland and Christchurch."

[percy]

Turners, the financial services firm, has bought a one-hectare industrial site in Wiri for $4.8 million to extend its footprint in South Auckland
http://www.sharechat.co.nz/article/d...r-4-8-mln.html

Interesting that they buy their own land rather doing business with someone like PFI. Didn't think that was fashionable in todays world, although I am pleased to see the reasoning...

"Acquisitions of strategic property sites are becoming an increasingly important part of the growth strategy for Turners to allow for further footprint expansion as the business grows, and to achieve stronger control over property overheads," Turners said. "As part of this strategy, Turners have previously purchased properties in South Auckland and Christchurch."

Makes sense to me.
Rather than letting PFI or others clip the ticket,Turners just add this to the great number of tickets they are clipping, right through their business.
Great ticket clippers!!

[Snoopy]

TNR, I think is best considered as a 'hybrid' company. The successful 'Auction & Fleet' business will distort comparisons with other more pure finance companies. So 'Auction & Fleet' needs to be taken out for financial company yardstick comparisons. Do that and the 'deconstructed' TNR business is represented in the table below

TNR for FY2016
	Assets	Liabiliities	Shareholder Equity	Interest Expense	NPAT	ROE
Auctions & Fleet (FY2016)	$99.81m	$65.58m	$34.23m	$3.23m	$4.44m	13.0%
Finance, Insurance & Collection Services (FY2016)	$262.49m	$166.91m	$95.58m	$8.21m	$11.08m	11.6%
Divisional Total (FY2016)	$362.30m	$232.49m	$129.81m	$11.44m	$15.52m	12.0%

The folowing information is more than most shareholders want to know. But it is background information that feeds into the published table above, and which I intend to use again. The first column is taken from the Segmented Information as presented in the annual report.

Divisional Asset Allocation FY2016
	Assets		Elimination Assets Reallocated		Corporate Assets Reallocated
Auctions & Fleet	$83.09m	15.96%	$57.81m	27.55%	$99.81m
Finance	$218.51m	41.96%	$152.04m	72.45%	$262.49m
Corporate & Other	$219.11m	42.08%	$152.45m
Sub Total	$520.71m
Eliminations	-$158.42m
Total	$362.30m	100.00%	$362.30m	100.00%	$362.30m

SNOOPY

[Snoopy]

Divisional Liability Allocation FY2016
	Liabilities		Elimination Liabilities Reallocated		Corporate Liabilities Reallocated
Auctions & Fleet	$62.63m	22.97%	$53.40m	28.21%	$65.58m
Finance	$159.39m	58.45%	$135.89m	71.79%	$166.91m
Corporate & Other	$50.67m	18.58%	$43.20m
Sub Total	$272.68m
Eliminations	-$40.19m
Total	$232.49m	100.00%	$232.49m	100.00%	$232.49m

SNOOPY

[Snoopy]

Divisional EBIT Allocation FY2016
	EBT	Revenue	EBT Corporate Reallocated (A)	Interest Expense	Liabilities	Corporate Interest Expense Reallocated (B)	EBIT: (A)+(B)
Auctions & Fleet	$10.009m	67.68%	$6.166m	$2.626m	28.21%	$3.226m	$9.392m
Finance	$17.220m	32.32%	$15.385m	$6.685m	71.79%	$8.210m	$23.595m
Corporate & Other	-$5.678m			$2.125m
Sub Total	$21.551m
Eliminations	$0m
Total	$21.551m	100.00%	$21.551m	$11.436m	100.00%	$11.436m	$32.987m

SNOOPY

[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.

<snip>

$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!

One year on and my fears were not realised. As far as the old Turners Auction business is concerned, profitability has improved so much that the extra earnings stream has allowed more money to be borrowed against those increased earnings. This in turn means more money can be lent from the finance division, because the whole group asset base is working harder. And that benefits the whole Turners group!

SNOOPY

[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 changing my analysis this year so that the financial statistics that I am evaluating are applied only to the financial division of the company.

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' (AR2016, p26).

Tier 1 capital > 20% of the loan book.

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

Tier 1 Capital = (Shareholder Equity) - (Intangibles: less Turners Auctions Intangibles) - (Deferred tax: Assume finance division using up deferred losses)
= (0.7245x$129.812m) - ($105.338m -$45.600 -$22.859) - $0m
= $57.170m

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': $18.455m
2/ 'Finance Receivables': $167.598m
3/ 'Receivables and deferred expenses': 0.7179 x $8.505m
4/ 'Reverse annuity mortgages': $9.374m

For the FY16 year these come to $201.532m

$57.170m > 0.2 x $201.532m = $40.307m (true)

=> Pass Test

SNOOPY

[voltage]

Hi Snoopy, you do great work, thanks but for the non accountants do you see this company as a hold or buy. I am finding it very hard to find any value in the NZ market.

[Snoopy]

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

In recognition of TNR being a hybrid company, I am no performing the EBIT to Interest expense test on the finance section of TNR only (my post 1257).

Updating for the FY2016 financial year (ended 31-03-2016)

The underlying interest expense is shown under note 7 (AR2016) to be $11.436m. Of this ( $11.436m x 0.7179= ) $8.210m can be applied to the finance division.

The underlying EBT for the finance division may be found in the same post.

(EBT +Interest Expense)/(Interest Expense) = [$15.385m+$8.210m]/$8.210m = 2.87 > 1.2

=> Pass Test

SNOOPY