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

[Snoopy]

Turners Auctions (TUA) + Turners Limited (TNR/TRA)		FY2012	FY2013	FY2014	FY2015	FY2016	FY2017
Modelled Dividend Paid {A}		$2.506m	$3.285m	$2.131m
No. Shares on Issue (TNR/TRA) {B} (*)		24.057m	27.395m	55.966m	63.077m	63.433m	74.524m
Modelled Dividend Paid (cps) {A}/{B}		10.42c	12.00c	3.81c
Actual Dividend Paid (cps) (**)					5c + 4c	6c + 6c	7c + 3c +3c

(*) The number of TNR shares on isssue at the end of the financial year has been adjusted retrospectively for the 10:1 share consolidation. To see how the number of TRA shares on issue was derived refer to my post 1414 "Buffett Test 2: Increasing 'eps' Trend (FY2016 perspective): Preamble Part 2.

(**) The actual dividends paid by TNR/TRA over FY2015 and FY2016 were unimputed. This was because of prior losses incurred under the DPC/TNR/TRA structure. However, in my modelling the TUA group was already combined with DPC/TNR/TRA. Previous year TUA profits wiped out those previous year equivalent DPC/TNR/TRA losses. Under this modelled scenario, those FY2015 and FY2016 dividends would have been fully imputed. That's because looking at the combined picture, those prior offsetting DPC/TNR/TRA losses never happened. Further note that all dividends have been adjusted retrospectively to account for the 23rd March 2016 10:1 share consolidation.

From the above table the 'six year average' dividend payout was:

(10.42c + 12.00c + 3.81c + 9c + 12c + 13c)/ 6 = 10.04c (net)

Average Gross Dividend Yield (based on a 28% tax rate) is therefore:

10.04/(1-0.28) = 13.94c

Using a capitalized value gross interest rate of 7.5% (see thread An Investment Story - Geneva/Turners/Heartland, post 40), this translates to a fair value share price of:

13.94/ 0.075 = $1.86

That makes for sobering reading, when the last price paid in the market on Friday was $3.75!

Turners Auctions (TUA) + Turners Limited (TNR/TRA)		FY2012	FY2013	FY2014	FY2015	FY2016	FY2017	FY2018
Modelled Dividend Paid {A}		$2.506m	$3.285m	$2.131m
No. Shares on Issue (TNR/TRA) {B} (*)		24.057m	27.395m	55.966m	63.077m	63.433m	74.524m
Modelled Dividend Paid (cps) {A}/{B}		10.42c	12.00c	3.81c
Actual Dividend Paid (cps) (**)					5c + 4c	6c + 6c	7c + 3c +3c	4c +4.5c
Estimated Dividend to be Paid (cps)								3c +3c

(*) The number of TNR shares on isssue at the end of the financial year has been adjusted retrospectively for the 10:1 share consolidation. To see how the number of TRA shares on issue was derived refer to my post 1414 "Buffett Test 2: Increasing 'eps' Trend (FY2016 perspective): Preamble Part 2.

(**) The actual dividends paid by TNR/TRA over FY2015 and FY2016 were unimputed. This was because of prior losses incurred under the DPC/TNR/TRA structure. However, in my modelling the TUA group was already combined with DPC/TNR/TRA. Previous year TUA profits wiped out those previous year equivalent DPC/TNR/TRA losses. Under this modelled scenario, those FY2015 and FY2016 dividends would have been fully imputed. That's because looking at the combined picture, those prior offsetting DPC/TNR/TRA losses never happened. Further note that all dividends have been adjusted retrospectively to account for the 23rd March 2016 10:1 share consolidation.

From the above table the 'seven year average' dividend payout was:

(10.42c + 12.00c + 3.81c + 9c + 12c + 13c + 14.5c)/ 7 = 10.68c (net)

Average Gross Dividend Yield (based on a 28% tax rate) is therefore:

10.68/(1-0.28) = 14.83c

Using a capitalized value gross interest rate of 7.5% (see thread An Investment Story - Geneva/Turners/Heartland, post 40), this translates to a fair value share price of:

14.83/ 0.075 = $1.98

Turners closed on the market on Friday at $3.48. While everything continues to go well for Turners, I am not seriously suggesting the shares are only worth $1.98. The 'capitalized dividend valuation method' assumes no growth over the business cycle. And even if that assumption were true, the actual fair value of Turners would likely fluctuate around a $1.98 mean value, maybe up to around $2.40 when times looked good. Yet that high price still leaves us over a dollar behind the market price. One way to interpret that difference is to say that Turners currently carry a 'growth premium' of around $1. It is up to each TRA investor to decide if paying that $1 'growth premium' is justified.

The 27th July 2017 presentation to 'potential Australian investors' was an interesting development. Right at the end Turners quote the broker guidance for FY2018 earnings ranges from Net Profit Before Tax of $29M (Deutsche) to $32M (Credit Suisse).

Over FY2017 Turners Automotive Group made a NPAT of $17.674m. Annualizing that profit for the businesses acquired during the year (my post 1479) brings that figure to:

$17.674m + $1.026m + $5.440m = $24.140m

Assuming a tax rate of 28%, this equates to a comparative base for NPBT of: $24.140/0.72 = $33.528m for FY2017.

Can that be correct? At least two brokers are forecasting that underlying TRA profits will fall for FY2018? If you believe those brokers, that TRA share price of $3.48 at close on Friday is looking very hard to justify!

SNOOPY

[percy]

With a little help from www.4-traders.com
Forecast NPBT of $29mil to $32mil works out eps of either 29.25.cps or 31,4 cents cps.
On current [from 4-traders] eps of 25.1 cps we can look forward to eps growth of either 16.33% or 25%.
Makes the current PE of 13.86 look rather modest.
Other than SUM and THL, I can not think of another NZ share where the PE ratio is lower than the company's growth rate.
Strong buy.

[Beagle]

With a little help from www.4-traders.com
Forecast NPBT of $29mil to $32mil works out eps of either 29.25.cps or 31,4 cents cps.
On current [from 4-traders] eps of 25.1 cps we can look forward to eps growth of either 16.33% or 25%.
Makes the current PE of 13.86 look rather modest.
Other than THL, I can not think of another NZ share where the PE ratio is lower than the company's growth rate.
Strong buy.

See post #5446 in the SUM thread. Best BUY on the NZX at present by a considerable margin in my opinion and a proven performer.

[percy]

See post #5446 in the SUM thread. Best BUY on the NZX at present by a considerable margin in my opinion and a proven performer.

Post remedied.!!!.lol,and thanks for reminding me.

[McGinty]

With a little help from www.4-traders.com
Forecast NPBT of $29mil to $32mil works out eps of either 29.25.cps or 31,4 cents cps.
On current [from 4-traders] eps of 25.1 cps we can look forward to eps growth of either 16.33% or 25%.
Makes the current PE of 13.86 look rather modest.
Other than SUM and THL, I can not think of another NZ share where the PE ratio is lower than the company's growth rate.
Strong buy.

Yes agree completely.

Within the next week or two we should get an announcement with the next dividend and AGM date. It would be nice if they threw out a nice update on how things are ticking along as well :-)

Considering making this one a conviction stock

[percy]

Yes agree completely.

Within the next week or two we should get an announcement with the next dividend and AGM date. It would be nice if they threw out a nice update on how things are ticking along as well :-)

Considering making this one a conviction stock

Whatcha mean its not already on your conviction list.????????????????????????!!!!!!!!!!!!!!!!!!!!! !!!!

ps.Sales may have slowed down a bit due to the election.

[McGinty]

Whatcha mean its not already on your conviction list.????????????????????????!!!!!!!!!!!!!!!!!!!!! !!!!

ps.Sales may have slowed down a bit due to the election.

It's still my largest NZ holding at the moment, but as yet I haven't moved it to 'back the truck up' mode. Still unsure how much Hugh Green sell down overhead is floating around.

Usually I follow the TA + FA signals, but unlike THL which is in a great looking up trend. TRA's chart resembles a 3 day old party balloon forgotten in a corner of a room. :-)

[LAC]

It's still my largest NZ holding at the moment, but as yet I haven't moved it to 'back the truck up' mode. Still unsure how much Hugh Green sell down overhead is floating around.

Usually I follow the TA + FA signals, but unlike THL which is in a great looking up trend. TRA's chart resembles a 3 day old party balloon forgotten in a corner of a room. :-)

Totally agree, it seems to be the forgotten one, I have been slowly accumulating. Wish I could have gotten them at the prices Craigs clients got them for but oh well I am still happy to get them at current prices.

[Snoopy]

The 27th July 2017 presentation to 'potential Australian investors' was an interesting development. Right at the end Turners quote the broker guidance for FY2018 earnings ranges from Net Profit Before Tax of $29M (Deutsche) to $32M (Credit Suisse).

Over FY2017 Turners Automotive Group made a NPAT of $17.674m. Annualizing that profit for the businesses acquired during the year (my post 1479) brings that figure to:

$17.674m + $1.026m + $5.440m = $24.140m

Assuming a tax rate of 28%, this equates to a comparative base for NPBT of: $24.140/0.72 = $33.528m for FY2017.

Can that be correct? At least two brokers are forecasting that underlying TRA profits will fall for FY2018? If you believe those brokers, that TRA share price of $3.48 at close on Friday is looking very hard to justify!

With a little help from www.4-traders.com
Forecast NPBT of $29mil to $32mil works out eps of either 29.25.cps or 31.4 cents cps.

Assuming a company tax rate of 28% (and remembering that the Australian debt collection business, if it makes a profit at all will pay tax at 30%), we can change the NPBT predictions into 'eps' figures as follows:

$29m x (1-0.28) /74.524m = 28.0cps

$32m x (1-0.28) /74.524m = 30.9cps

On current [from 4-traders] eps of 25.1 cps we can look forward to eps growth of either 16.33% or 25%.

Current year was:

$17.849m/ 74.524m = 24.0cps

That figure is based on the number of shares at the end of the financial year, whereas I suspect that 4-traders may be using a weighted average number of shares over the year. That would produce a higher 'eps' figure. Using my end of year share figures, I get a projected eps growth of between 16.7% and 28.8%. That is comparable to the 4-traders figures (actually a little higher). However, all of this 'growth' can be explained by the fact that Turners did not own either 'Buy Right' cars or 'Autosure' for the full year.

If we assume that Turners did own both 'Buy Right' cars and 'Autosure' for the full year, then FY2017 eps would have been.

$24.140m/ 74.524m = 32.3cps

I submit that this 'growth' that 4-traders is predicting is not real growth at all. The only reason why it looks like growth is because of the timing of last years financial acquisitions. Looking at a constant 12 month ownership period shows that expected profits for FY2018 are below the equivalent FY2017 period. IOW Turners is shrinking, not growing.

I would expect Turners to be growing due to rationalization of brands and back office facilities and more cross selling. Yet this is not being predicted by 4-traders. Perhaps the Auckland market property trends are now weighing on Turners? Do analysts predict a slow down in car sales, now that waiting in an Auckland traffic jam for your house price top go up is no longer a wealth creation strategy?

Makes the current PE of 13.86 look rather modest.

For a company that is not growing, a PE of 13.36 is too high. A PE of 10 would be more appropriate. If we take the most optimistic 4-traders projection, 30.9cps, this points to a fair value share price of $3.09 at best. At worst $2.80 looks fair. Suddenly last Friday's market close of $3.48 is looking rather expensive.

SNOOPY

[percy]

However we work the eps figure, the fact is shareholders can look forward to excellent eps growth, which will enable TRA to keep increasing their footprint and dividends.