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16-06-2018, 11:08 AM
#2441
Originally Posted by Beagle
Sorry my Beagle friend, I concur with Blackcap and any attempt to value Turners using historical dividends is going to give you very limited visibility on fair value.
I look at the forward PE and the expected growth rate over the next few years. Brokers use their fancy DCF models and try and NPV future cashflows using a whole bunch of assumptions and guesses followed by a terminal growth guess from the five year out point.
Beagle I am not suggesting that my 'capitalising the dividend' is anywhere near as sophisticated as the kind of valuation techniques that the brokers use. But any modelling is only as good as the 'assumptions and guesses' put into it. And just because the mathematical model is more sophisticated, that doesn't make the assumptions and guesses more valid.
What I can say is that if you can buy a share on the basis of an historical favourable capitalised dividend valuation, then you will likely be buying any future growth 'for free'. And buying something of investment value 'for nothing' usually works out well from an investment perspective. 'Capitalising the Dividend' is a quick and easy technique using the most reliable data inputs (remember dividends cannot be distorted or faked) to identify these opportunities.
SNOOPY
Last edited by Snoopy; 16-06-2018 at 11:20 AM.
Watch out for the most persistent and dangerous version of Covid-19: B.S.24/7
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16-06-2018, 11:12 AM
#2442
Originally Posted by Snoopy
Beagle I am not suggesting that 'capitalising the dividend' is anywhere near as sophisticated as the kind of valuation techniques that the brokers use.
I didn't think you were either mate and as you can see from the tone of my post those DCF valuations are based on so many assumptions and guesses I think one is often best to stick their snout in the air, sniff the breeze and come up with their own guesses
Ecclesiastes 11:2: “Divide your portion to seven, or even to eight, for you do not know what misfortune may occur on the earth.”
Ben Graham - In the short run the market is a voting machine but in the long run the market is a weighing machine
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18-06-2018, 08:21 AM
#2443
Orange Flag 2: FY2018 results
Originally Posted by winner69
By the way the reported EPS of 15% was boosted by having a lower tax rate this year v last year. (Normalised you could say it was less than 10% but does it really matter when nobody knows what the F19 tax rate will be)
The tax rate for DPC/TNR/TRA (I will call it Turners Automotive Group, the new name going forwards) has certainly varied wildly even since FY2015. The first factor in this is that existing tax losses had to be used up. Then there were 'asset sales' to distort the tax take. The 'normal' company tax rate is 28%. However companies tend to pay provisional tax. That means that some tax payments for the current tax year roll over to the next. And when there are significant business changes over the year, the 'catch up' tax can significantly distort tax paid in any particular year. The table below shows the actual tax rate paid by Turners Automotive Group from FY2015 to FY2018.
Actual Tax Paid |
Financial Year |
Tax paid {A} |
Net Profit Before Tax {B} |
Net Profit After Tax {B}-{A) |
Tax rate paid {A}/{B} |
2015 |
$0.956m |
$19.006m |
$18.050m |
5% |
2016 |
$5.949m |
$21.551m |
$15.602m |
28% |
2017 |
$7.057m |
$24.631m |
$17.574m |
29% |
2018 |
$7.773m |
$31.133m |
$23.360m |
25% |
I don't know exactly why the tax rate has dropped for FY2018. But asset sales that are not subject to income tax could be one reason. And once an asset is sold, it cannot be sold again. So including such sales as profits are distortionary for inter year comparatory purposes.
For my own comparisons year to year, I look to take out one off asset sales and foreign exchange gains and losses. I also use a consistent tax rate (usually 28%) and work out the tax that would have been paid had none of those previously mentioned distortions existed.
Snoopy Modelled Tax Paid |
Financial Year |
Tax paid {A} |
Snoopy modelled Net Profit Before Tax {B} |
Snoopy modelled Net Profit After Tax {B}-{A) |
Tax rate paid {A}/{B} |
2015 |
$4.748m |
$16.958m |
$12.210m |
28% |
2016 |
$5.949m |
$21.281m |
$15.332m |
28% |
2017 |
$6.529m |
$23.318m |
$16.789m |
28% |
2018 |
$8.437m |
$30.133m |
$21.696m |
28% |
The fact that declared tax rates vary so much is an 'Orange Flag' to me that means a business is evolving. Thus extreme care is needed when projecting current declared after tax earnings trends into the future.
SNOOPY
Last edited by Snoopy; 19-06-2018 at 03:35 PM.
Watch out for the most persistent and dangerous version of Covid-19: B.S.24/7
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18-06-2018, 01:50 PM
#2444
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
”When investors are euphoric, they are incapable of recognising euphoria itself “
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18-06-2018, 02:45 PM
#2445
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.
Last edited by blackcap; 18-06-2018 at 02:46 PM.
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18-06-2018, 02:54 PM
#2446
Originally Posted by blackcap
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.
Ecclesiastes 11:2: “Divide your portion to seven, or even to eight, for you do not know what misfortune may occur on the earth.”
Ben Graham - In the short run the market is a voting machine but in the long run the market is a weighing machine
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18-06-2018, 02:54 PM
#2447
Originally Posted by winner69
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.
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18-06-2018, 03:22 PM
#2448
Originally Posted by blackcap
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.
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18-06-2018, 05:42 PM
#2449
Originally Posted by winner69
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.
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18-06-2018, 06:09 PM
#2450
Originally Posted by winner69
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.
Watch out for the most persistent and dangerous version of Covid-19: B.S.24/7
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