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

[Beagle]

However.. It is not his money paying the bill..

Hasn't stopped him getting into big trouble though has it lol

[percy]

Classic...……………………………...lol.

[janner]

Hasn't stopped him getting into big trouble though has it lol

Should that be a reason for mirth ???.

But.. That is a little off topic.

[Beagle]

Back on topic. History shows that the bond conversion period coincides with a low period in the SP and it rebounds later. I am going to run with that and complete my bond conversion option paperwork with full share conversion election and put it in the letterbox quickly before I change my mind. (This bob each way thing has possibly got a little out of hand and we need some push back and decisiveness)

[winner69]

Back on topic. History shows that the bond conversion period coincides with a low period in the SP and it rebounds later. I am going to run with that and complete my bond conversion option paperwork with full share conversion election and put it in the letterbox quickly before I change my mind. (This bob each way thing has possibly got a little out of hand and we need some push back and decisiveness)

Probably left it too late knowing NZ Post

But then fate might make the right decision for you

[Beagle]

Probably left it too late knowing NZ Post

But then fate might make the right decision for you

LOL yeah I probably have played Russian roulette with the post...bit like having a bob each way I suppose

[percy]

Reading the last few posts I find them funny as a play...….lol.


All the time Turners are improving their business.

[Joshuatree]

Wasn't Beagle talking about Quantum Physics just then , im a bit confused

[Snoopy]

I am not going through the full Buffett analysis for FY2018. The key sticking point is the far from stellar (based on a 15% target) return on equity over many years.

	FY2014	FY2015	FY2016	FY2017	FY2018
NPAT (Turners Limited) (A)	$3.823m	$12.210m	$15.332m	$16.789m	$21.696m (e)
Shareholder Equity (Turners Auctions :TUA)	$13.378mm
Shareholder Equity (Dorchester Pacific: DPC)	$74.052m
Shareholder Equity (Turners Limited: TNR)		$121.002m	$129.812m	$171.716m	$214.323m
Total Combined Shareholder Equity (B)	$92.430m	$121.002m	$129.812m	$171.716m	$214.323m
Return On Equity (A)/(B)	4.1%	10.1%	11.8%	9.8%	10.1%

(e) Profit for FY2018 assumed to be as declared in first FY2018 profit release statement. In past years the headline declared figure has required significant normalisation corrections once the detailed results are published.

If we remember that the bare ROE figure for FY2017 was distorted because of the capital raising during that year, unfortunately ROE is going backwards, away from our 15% target. Granted I believe that 10.1% is still above the company's cost of capital, but perhaps not by much. The problem is if your return on equity is only just above your cost of capital the company becomes more vulnerable (to ongoing changes in the loan/car market in this instance). It then becomes plausible that return on equity could drop below the cost of capital. And this means the company could start destroying shareholder value, should the business cycle turn. So Warren Buffett would almost certainly not invest in this company. But that doesn't mean TRA isn't a satisfactory investment, using other investment criteria and different expectations.

I make a point of not taking any Turners result at face value. It seems inevitable that once you delve into the results something comes out a bit smelly. And so it has proved with the FY2018 result. The key to 'cleaning out the garbage' is once again found under note 7 (the detail of the 'Profit Before Tax', and in particular the section marked 'Other Income'..

There you will find a very significant figure of $2.664m which is a 'Fair Value Gain on Contingent Consideration.'

Say what??? If there is a heading you can't understand, it often pays to look under the general heading of 'insurance' for further clarification. That took the nose of this hound to p76, and the heading 'Insurance Contracts' threw up the following detail.

Change in Discount rate 3.08% to 2.61% (Insurance Contracts)	-$0.120m
Difference between Actual and Assumed Experience (Insurance Contracts)	$2.491m
Difference between Actual and Assumed Experience (Life Investments)	$0.294m
Total	$2.665m

Within the bounds of the third decimal place rounding error, this is in agreement with the $2.664m which is a 'Fair Value Gain on Contingent Consideration.' I don't think this is a co-incidence. While this extra profit is real, I believe it is due to the ups and downs of markets and/or settlements of insurance contracts. These kinds of gains are not sustainable year to year. So the underlying profit for TRA was significantly less than the headline figure quoted. The same can be said for the money made on the 'revaluation gains on investments', 'revaluation gain on investment property' and the 'gain on sale of property plant and equipment'. In my judgement the actual comparable net profit gain, the figure that should be used when comparing results from year to year should be adjusted from the headline figure as follows:

Operating Net Profit = $23.192m - 0.72x$2.664m - ($0.590m+$0.820m+$1.000m) = $19.085m which is 18% lower than the headline figure.

With 84.802m shares on issue at balance date this equates to 'earnings per share' of 22.5cps

At today's trading price of $2.94, this puts TRA on an historical PE of 13.0

That looks 'about right' and shows that at under $3, TRA may not be quite the bargain that some think. Maybe Mr Market knows what he is doing after all?

The other element that must be factored into the 'profit growth' is the ever increasing number of shares on issue. I have added this information into the table below via an 'earnings per share' calculation..

	FY2014	FY2015	FY2016	FY2017	FY2018
NPAT (Turners Limited) (A)	$3.823m	$8.595m	$15.332m	$16.789m	$19.085m
Shareholder Equity (Turners Auctions :TUA)	$13.378mm
Shareholder Equity (Dorchester Pacific: DPC)	$74.052m
Shareholder Equity (Turners Limited: TNR)		$121.002m	$129.812m	$171.716m	$214.323m
Total Combined Shareholder Equity (B)	$92.430m	$121.002m	$129.812m	$171.716m	$214.323m
Shares on Issue EOFY {C}	NM	63.077m	63.431m	74.524m	84.802m
eps {A}/{C}	NM	13.6c	24.2c	21.8c	22.5c
Return On Equity (A)/(B)	4.1%	7.1%	11.8%	9.8%	8.9%

Note: I have also now normalized the tax treatment of the FY2015 result, as this gives a better basis for comparison.

It is interesting to see that while share price has gone nowhere over the last two years neither has Operating NPAT. And that correlation might not be a co-incidence!

SNOOPY

[Beagle]

Good you've got the time to get your snout deep in the accounts mate. I don't know how you get the time for all this but I for one am glad you do and I am also glad I have a very modest stake in these. Looks like as I suspected all along Colonial Motors is better value.