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  1. #2446
    ShareTrader Legend Beagle's Avatar
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    Quote Originally Posted by blackcap View Post
    Probably a must go to for many of the posters on this thread. I shall attempt to go to the Porirua one:

    https://www.nzx.com/announcements/319510

    Nice to see they are saving money by not hiring expensive hotels for this roadshow but using existing premises. Gives us shareholders a chance to see the business first hand too. 2 birds with one arrow type of thing.
    Excellent idea. I am sure many shareholders will enjoy the chance to meet the senior team and learn more about how they're working to grow the business.
    I couldn't agree more Blackcap, no point hiring an expensive corporate show pony venue, just let shareholders see more of the company first hand.
    Excellent move by the Turners team and I hope to find the time to attend.
    Last edited by Beagle; 18-06-2018 at 03:03 PM.
    No butts, hold no mutts, (unless they're the furry variety).

  2. #2447
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    Quote Originally Posted by winner69 View Post
    TRA Bonds grossing 6.5% which TRA stock grossing about 7%

    Some would say the ‘company risk’ reflects the bond yield ...if so not much of an “equity premium” or the added risk of holding shares

    Those same punters might also say if a reasonable equity premium is about 3.5% (to compensate for the added risk of holding shares over bonds) then the dividend yield should be about 10% which implies a 215 share price

    Market mis-pricing somewhere .....Just asking for a friend because I have no idea
    Is part of the answer the retained earnings? Only 50-60% of NPAT is paid out in dividends so shareholder returns can be expected to be larger than the yield would suggest. The bonds have also traded at over $1 for most of the last couple of years so any replacement bonds issued later this year could be at a lower rate.

  3. #2448
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    Quote Originally Posted by blackcap View Post
    Probably a must go to for many of the posters on this thread. I shall attempt to go to the Porirua one:

    https://www.nzx.com/announcements/319510

    Nice to see they are saving money by not hiring expensive hotels for this roadshow but using existing premises. Gives us shareholders a chance to see the business first hand too. 2 birds with one arrow type of thing.
    I have booked my spot.
    Always learn something worthwhile from these type of presentations.

  4. #2449
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    Quote Originally Posted by winner69 View Post
    TRA Bonds grossing 6.5% which TRA stock grossing about 7%

    Some would say the ‘company risk’ reflects the bond yield ...if so not much of an “equity premium” or the added risk of holding shares

    Those same punters might also say if a reasonable equity premium is about 3.5% (to compensate for the added risk of holding shares over bonds) then the dividend yield should be about 10% which implies a 215 share price

    Market mis-pricing somewhere .....Just asking for a friend because I have no idea
    I've never quite got my mind around the usefulness/validity of equity risk premium, in part because the original formulation does not seem to allow for inflation which is one of the risks that concerns me most over the longer term. Although some academics have been using TIPS instead of T-bills and T-Bonds on their work which suggests that inflation is being factored in. In any case, like EMH, the usefulness of ERP to investors has been challenged by a number of people. There's a good article (and discussion in the comments) from the FT here: https://www.ft.com/content/15a56d48-...0-37cd398b9839
    Last edited by traineeinvestor; 18-06-2018 at 05:43 PM.

  5. #2450
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    Quote Originally Posted by winner69 View Post
    TRA Bonds grossing 6.5% which TRA stock grossing about 7%

    Some would say the ‘company risk’ reflects the bond yield ...if so not much of an “equity premium” or the added risk of holding shares
    Winner these TNRHB bonds were issued nearly two years ago. So to compare the yield offered, you really need to stack the bond yield up against what was offered as a dividend yield 'back then'.

    Turners Automotive Group Limited (TNR/TRA) FY2015 FY2016 FY2017 FY2018
    No. Shares on Issue (TNR/TRA) {B} (EOFY) 63.077m 63.433m 74.524m 84.803m
    Snoopy Normalised Earnings Per Share 19.4c 24.2c 22.5c 25.6c
    Dividend Paid (per share) 5c + 4c 6c + 6c 7c + 3c +3c 4c + 4.5c +3c +3c

    Back then the share price was floating around $3 and we were looking at an historical dividend yield of 12cps.

    12/300 = 4% net yield or a 5.6% gross yield. It is the 5.6% gross yield that you should compare against the 6.5% TRAHB bond yield back then. Turners provided an independent valuation of the bond yield on offer at the time. IIRC is was judged fair, but only just (coming in near the bottom of the fair value range).

    Since then interest rates have fallen, although it is possible that the underlying risk of those bonds has altered over the time the bonds have been in existence too.

    Those same punters might also say if a reasonable equity premium is about 3.5% (to compensate for the added risk of holding shares over bonds) then the dividend yield should be about 10% which implies a 215 share price

    Market mis-pricing somewhere .....Just asking for a friend because I have no idea
    With current low interest rates I am happy with a 2.0% equity premium on a solid utility share. I would say 3.5% as a rule of thumb equity premium is something that should apply only to a higher risk share: If you go back to the GFC days, consider some of those 'fringe money market players' with lending to people of doubtful credit to loans on assets of doubtful value (for example).

    SNOOPY
    Last edited by Snoopy; 19-06-2018 at 06:13 PM.
    To be free or not to be free. That is the cash-flow question....

  6. #2451
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    Quote Originally Posted by blackcap View Post
    Probably a must go to for many of the posters on this thread. I shall attempt to go to the Porirua one:

    https://www.nzx.com/announcements/319510
    Thank you - I didn't even know there was a Turners in Porirua - saves traipsing out to Seaview.

  7. #2452
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    Interests associated with Grant Baker buy 500k on market at about $3.03. Great signal or just shuffling around jiggery pokery?

    http://nzx-prod-s7fsd7f98s.s3-websit...578/281279.pdf

  8. #2453
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    Disclosure notice says on market purchase with parties who are not known - looks like a 17% top up for the trust.

    After Trilogy was sold and de-listed, expect there's a little bit of cash sitting around in affiliated entities of Mr Baker, the magic maker.

  9. #2454
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    Default Orange Flag 3: FY2018 Perspective

    Quote Originally Posted by percy View Post
    TRA are big ticket clippers.
    Sale of vehicle...……………..Ticket clipped.
    Finance of vehicle...………..Ticket clipped
    Insurance…………………………Ticket clipped.
    Vehicle service...……………..Ticket clipped.
    Development of sites...…...Ticket clipped.
    MTF non recourse loans.....Ticket clipped
    Debt management services,Ticket clipped.
    More and bigger tickets to clip.
    I agree with Percy's observation, right up until that last line. I sincerely hope it isn't Turners policy to string the buyer along all the way through the car ownership process, clipping the ticket all the way, with the ultimate objective of getting the car back as a failed debt, leaving the owner penniless and jobless (because he can't drive to work)!

    Nevertheless I should point out that the strength of this business model is also its weakness:

    No Sale of vehicle...…………means...
    No Finance of vehicle...……….and...
    No Insurance needed…………..and...
    No Vehicle service needed...…which means....
    Developed Sites become superfluous...(at least these have been sold off to third party landlords, so it is they and not Turners who will suffer) .
    also....lower MTF non recourse loans....means a reduced dividend from that source.

    What I am saying here is that a very weak car market could see all Turners divisions fall over like dominoes, bar one:

    Debt management Services,Ticket clipped.

    Turners should at least maximise what they can salvage by chasing their own debtors!

    Quote Originally Posted by Snoopy View Post
    Turners have not insignificant borrowings. Question: So how is the 'interest rate charged' trend for TNR looking?

    FY2015 FY2016 FY2017 FY2018
    Interest Expense (A) $7.381m $11.436m $11.350m $14.344m
    Total Liabilities $207.970m $232.491m $384.917m $437.662m
    Total Borrowings $156.995m $174.816m $265.889m $317.373m
    Averaged Borrowing Balance (B) $165.906m $220.353m $291.631m
    Implied Borrowing Interest Rate (A)/(B) 6.9% 5.2% 4.9%
    The other issue for Turners going forwards is rising interest rates. It strikes me that 4.9% is unusually low as a borrowing rate for this type of business. If the average borrowing interest rate went up to 6.9%, the sort of rate Turners was paying just two years ago, then the annual interest bill could leap from $14.344m to $20.199m. A near $6m rise in interest charges would hit NPAT by about $4m - ouch!

    Note that I am not forecasting that any of this definitely will happen. But I think investors should be aware of these potential risks.

    SNOOPY
    Last edited by Snoopy; 19-06-2018 at 10:06 PM.
    To be free or not to be free. That is the cash-flow question....

  10. #2455
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    Quote Originally Posted by blackcap View Post
    Interests associated with Grant Baker buy 500k on market at about $3.03. Great signal or just shuffling around jiggery pokery?

    http://nzx-prod-s7fsd7f98s.s3-websit...578/281279.pdf
    Looks like a clean on market purchase as vendors are unknown so its genuine new money giving even more skin in the game ! Follow the smart money.
    No butts, hold no mutts, (unless they're the furry variety).

  11. #2456
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    Default Capitalised Earnings Valuation: FY2018 Perspective

    Quote Originally Posted by Snoopy View Post
    I think of Turners as:

    1/ Riding a cyclical car market PLUS
    2/ Adding an incremental growth premium on top of this.

    Valuing 1/ is relatively easy. Valuing 2/ I find much more difficult.
    My 'Capitalised Dividend' valuation for this share was a failure. But after some soul searching, I believe that 'capitalising earnings' is a more realistic way to go.

    Turners Automotive Group Limited (TNR/TRA) FY2015 FY2016 FY2017 FY2018
    Snoopy Normalised Earnings Per Share {A} 19.4c 24.2c 22.5c 25.6c
    Dividend Paid (per share) {B} 9c 12c 13c 14.5c
    Underlying Retained Earnings (per share) {A}-{B} 10.4c 12.2c 9.5c 11.1c

    I favour using at least five years of data when doing an exercise like this. However, when considering a company as fast evolving as Turners Automotive Group there comes a point when historical data used as a proxy for what might happen going forwards becomes positively antiquated. So I have reverted to using just four years of data which covers the period from when TRA was conceived in its current form.

    The valuation is in two parts. Once again I am using an acceptable gross return of 7.5% for the dividend part of it.

    Average dividend received over the last four years

    (9c+12+13c+14.5c) / 4 = 48.5c, divide by four = 12.1c

    Gross Capitalised Dividend Component = 12.1c / (0.075 x 0.72) = $2.24 (1)

    Average Retained Earnings Valuation reinvested over the last four years

    All things going to best plan, retained earnings should be worth more than cash paid as a dividend. But this assumes a largely monotonic increasing profit year in year out, with very few exceptions. I don't believe that the historical underlying profitability data indicates that Turners can achieve this. So I think it wise to assume that a 'dividend in the bank account' is worth more than a 'potential dividend in the bush'. To reflect 'business execution' and 'car market volatility' risks, I am going to increase my required return for 'retained earnings' by two percentage points, out to 9.5%

    (10.4 + 12.2 + 9.5 + 11.1)/4 = 10.8c (average)

    Gross Capitalised Retained Earnings Component = 10.8c / (0.095 x 0.72) = $1.58 (2)

    So my total 'fair valuation' for TRA becomes (1) + (2):

    $2.24 + $1.58 = $3.82

    Thus at a market price of just over $3, it looks like TRA might be worth accumulating!

    SNOOPY
    Last edited by Snoopy; 19-06-2018 at 10:55 PM.
    To be free or not to be free. That is the cash-flow question....

  12. #2457
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    Quote Originally Posted by Snoopy View Post

    The other issue for Turners going forwards is rising interest rates. It strikes me that 4.9% is unusually low as a borrowing rate for this type of business. If the average borrowing interest rate went up to 6.9%, the sort of rate Turners was paying just two years ago, then the annual interest bill could leap from $14.344m to $20.199m. A near $6m rise in interest charges would hit NPAT by about $4m - ouch!



    SNOOPY
    Gee you are a hard man (or woman) to please Snoops. Surely if interest rates rise, then they rise across the board and new finance will be at higher rates thus compensating Turners more. I have read somewhere that these type of borrow low and lend out at higher rates type companies do better when interest rates are higher as to maintain the % of "premium" the real amount of premium goes up. Ie if you can borrow at 2% and lend out at 4% you havea 2% margin. If you have to pay 5% for your money you can lend at 10%, now you have a 5% margin thus profits are boosted even more. I would argue that Turners would do better under a higher interest rate environment....

  13. #2458
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    Quote Originally Posted by blackcap View Post
    Gee you are a hard man (or woman) to please Snoops. Surely if interest rates rise, then they rise across the board and new finance will be at higher rates thus compensating Turners more. I have read somewhere that these type of borrow low and lend out at higher rates type companies do better when interest rates are higher as to maintain the % of "premium" the real amount of premium goes up. I.e. if you can borrow at 2% and lend out at 4% you have a 2% margin. If you have to pay 5% for your money you can lend at 10%, now you have a 5% margin thus profits are boosted even more. I would argue that Turners would do better under a higher interest rate environment....
    Two I points I would make blackcap:

    1/ Interest Rate Margin on Loans: I take your point, and look forward to reading your source, when you can remember where your readings came from ;-P! You may have a point here, although I suspect the reality is more complex. In the medium term your argument sounds plausible. In the shorter term I would expect a 'lag effect'. I would expect existing car loans would be 'locked in' for a contacted term, with Turners having to wear the cost of any increase in their funding while any existing offsetting pre-signed up income remains steady.

    2/ Not all of the money that Turners has borrowed has gone to supporting loans. I analysed this in 'Chapter 5' of Winner's 'An Investment Story - Geneva/Turners/Heartland' thread. At EOFY2017, the Turners loan book liabilities stood at $153.305m. But total liabilities for the Turners Automotive group were $384.917m. A lot of this difference can be explained by intangible assets, such as the $71.400m on the balance sheet classified as 'brand' and $92.509m in 'goodwill'. The borrowing used to purchase these intangible assets does not have a direct offsetting consummate income stream. So any increase in this borrowing becomes a straight cost to the 'Turners Automotive Group' company.

    SNOOPY
    Last edited by Snoopy; 20-06-2018 at 01:16 PM.
    To be free or not to be free. That is the cash-flow question....

  14. #2459
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    Quote Originally Posted by blackcap View Post
    Gee you are a hard man (or woman) to please Snoops. Surely if interest rates rise, then they rise across the board and new finance will be at higher rates thus compensating Turners more. I have read somewhere that these type of borrow low and lend out at higher rates type companies do better when interest rates are higher as to maintain the % of "premium" the real amount of premium goes up. Ie if you can borrow at 2% and lend out at 4% you havea 2% margin. If you have to pay 5% for your money you can lend at 10%, now you have a 5% margin thus profits are boosted even more. I would argue that Turners would do better under a higher interest rate environment....
    Banks and finance companies benefit from higher interest rates,for the very reasons you pointed out..
    Has always been the case.
    Last edited by percy; 20-06-2018 at 09:09 AM.

  15. #2460
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    Thanks snoops ..was wondering why TRA had high levels of debt ....leading to a pretty low ROIC
    “In a roaring bull market, knowledge is superfluous and experience is a handicap.”

    –Benjamin Graham”

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