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

[percy]

Ground work laid for exponential growth.

[blackcap]

Good annoucement about progress and Q3 results, including duel listing on ASX.

This makes me more happy given the recent drop in SP. Definitely considering topping up at the current price.

Think you might have to pay in excess of $3.75 tomorrow morning. Will be interesting to see what the early bidding looks like.

[BlackPeter]

Think you might have to pay in excess of $3.75 tomorrow morning. Will be interesting to see what the early bidding looks like.

Agree - earnings and divvie up - should put a bit of fire under the SP!

[Beagle]

Think you might have to pay in excess of $3.75 tomorrow morning. Will be interesting to see what the early bidding looks like.

Its hard to say really. I agree that they are putting in place the groundwork for growth, (exponential growth seems a tad bullish for my liking), sorry Percy.

Buy Right cars is only performing in line with expectations, I would have liked to have read exceeding expectations.

It seems there was some hold-up in accounting for Autosure, was supposed to have settled in December but only starting to contribute to EPS for FY18. Reserve Bank approval for transfer of obligations was required, what happened to the profits from Autosure for this current quarter ?

At the mid point of the forecast $24.25m this would represent a profit increase before tax of 12.26% for the year from last year's $21.6m but they issued 14.5% more shares half way through the year in October 2016 due to previous convertible bond issue conversion and small capital raise so weighted average shares on issue are up about 7.25% so EPS up about 5% this year.

Building blocks for future growth but I remain more comfortable with the bonds which give almost complete downside protection but capture most of the upside that should be forthcoming over the next 18 months.

Great that they are listing on the ASX in FY18, should boost liquidity in the shares which alleviates one concern I had on bond conversion, (lack of liquidity in the shares).

[percy]

Roger.
Be prepared to be surprised.!
Next year will be an absolute cracker.!
The "outlook" statement, when this year's result is announced, will move you from the food bowl to the buy more button.!
I am offcourse already "well positioned."

[Beagle]

Roger.
Be prepared to be surprised.!
Next year will be an absolute cracker.!
The "outlook" statement, when this year's result is announced, will move you from the food bowl to the buy more button.!
I am offcourse already "well positioned."

I hope you're right Percy as I am also well positioned, in the bonds

[percy]

The bonds will be a great winner for you.

ps.Take a fresh piece of paper and rework the bonds conversion.
ie 10,000TNRHB will convert to 2,666 or 2,667 shares.

[blackcap]

Agree - earnings and divvie up - should put a bit of fire under the SP!

Yes exactly. Can anyone though enlighten me why they are going to list on the ASX? Apart from liquidity, SP performance, what positive apart from more costs does an ASX listing actually give the company? (not the shareprice)

[percy]

Yes exactly. Can anyone though enlighten me why they are going to list on the ASX? Apart from liquidity, SP performance, what positive apart from more costs does an ASX listing actually give the company? (not the shareprice)

Maybe they see their business model working in Aussie?
Their EC Credit business is already very strong in Aussie,and they did state in their last annual report;"EC Credit is a reputable,full service credit management provider in the SME market and we are looking to build on this as well as target the corporate debt collection market,particularly in Australia."
Being listed on the ASX would give them credibility with customers and lenders, as well as giving them access to Australian capital.

[Beagle]

Although I do not hold any, I think the convertible bonds are a very good investment,as Roger rightly points out,more upside than downside potential.
However my back of the envelope valuation is a lot lower than Roger's.
Maybe I would not pay any more than $1.08 to $1.10.
So before buying BYOR,on the conversion rate.

The bonds will be a great winner for you.

ps.Take a fresh piece of paper and rework the bonds conversion.
ie 10,000TNRHB will convert to 2,666 or 2,667 shares.

Threw out the Black and Schoals option model and did some fresh clean sheet thinking as you suggested above the other day and reluctantly have to agree with your first post above now that the SP has come down 30 cents in recent weeks. Realistically best case is those 2667 shares are worth say $5 = $13,335 which gives a 33.5% gain over 18 months....who knows I suppose it could theoretically be worth a bit more in Sept 18 more but let's not go there until they get some more runs on the board.

Worst case is they're issued at a 5% discount to vwap so provided you can sell them for what they're issued to you at the bonds give a 5% capital gain as a minimum.
The running yield at 6.5% is okay notwithstanding you have to pay a small premium to the issue price of $1.00. Anything you pay over $1.05 at present, (say hitting the offer at $1.065) is a cost of the effective option element, in that case 1.5 cents get's you a look at the possibility of making a capital gain, maybe 33.5% less the initial premium paid now 6.5% = 27% net gain if they're $5 or maybe 20% - 6.5%, net gain 13.5% if they're $4.50. To look at it that way you have to accept that you are okay with getting slightly less than 6.5% on the bond value of your investment for the next 18 months. Some people aren't okay with that and demand a circa 10% return for any type of investment that has a capital risk of any kind to it, (these bonds rank behind bank debt and the new collaterised debt obligations the company is issuing) and I can see their point of view but I am happy with 6.5 / 1.06 5 = 6.1% running yield.

Throwing all the option pricing theories in the rubbish bin for a minute, (some would say they belong there but I couldn't possibly comment) and using pure gut instinct I think with the shares where they are currently ~ $3.60 your assessment of no more than $1.08 - $1.10 which represents paying a real effective option price right now of 3-5 cents, (remember you are more or less guaranteed a 5% premium so paying $1.05 now is the low water mark in my opinion) for the possibility of a net capital gain of 13.5% - 27% in eighteen months seems about right. My calculations were originally based on a share price of $3.90 so with the shares having come down ~ 30 cents, (glad I sold my shares) in recent times one has to be more realistic about the option value. All that said at current prices in my opinion, convertible bonds on offer for $1.065, a real option cost of only 1.5 cents per bond, they're the better and more one sided investment, (have very limited downside).

On the other hand non risk averse shareholders might argue that getting the full gain from here $5 / $3.60 = 38.9% without paying any premium up front for their investment gives them a better potential return than the bond investor who stands to make a potential 27%. (Note SP needs to be at a 5% premium to the floor exercise price of $3.75 = $3.95 before bondholders start to participate in the SP uplift).

The recent 30 cent SP drop has dramatically affected the bonds value because effectively the entire move down was from just before the threshold at which point the bonds start enjoying SP capital gain.
In effect the bonds were a high conviction BUY when I was buying at up to $1.0825 when the SP was $3.90 but are just a BUY at $1.065 now with the SP at ~ $3.60.
Hope this almost endless ramble makes some sense to people trying to decide between bonds and shares.