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

[percy]

[QUOTE=Snoopy;728005]
3/ Bad debt impairment expense up from $2.025m to $6.380 ( +315% ).

Todd and Aaron explained this was caused not Turners originated lending, but by MTF originators, who put "suspect" loans through MTF/TRA.Previously the MTF originators only had recourse loans to offer.Being able to offer non-recourse loans meant they were lazy with their lending.
Turners reacted by tightening their lending criteria, and terminating their agreement with the MTF originators who were the cause of the problems.
Again all Turners originated lending was of excellent standard,
Todd and Aaron also explained they were tightening all their lending citeria,looking for quality rather than quantity.
As these poor MTF loans go through the cycle, we will see bad debt impairments come back to their normal low level.

The debt Recovery business's future is in Australia,and as you point out it isn't necessarily connected to the car business..
It fact no connection at all,and unlikely ever wil be.

[Scrunch]

you have to remember that the intangible assets came into being because at the time, a business was purchased that was generating a really good return.

Agreed. If profitability remains even close to current levels, intangibles will keep their value and the real value of them will probably be higher than reported on the Balance Sheet.

If this same business unit was 'on sold' the next year to a third party and the profitability of the business unit has increased, then there is every chance that new purchaser would pay a higher total price for that business unit.

Again I agree with you. One of the quirks of intangible's is that they aren't revalued upwards over time meaning they can be a very arbitary snapshot in time.

If a business unit really goes bad then both the value of the tangible and intangible assets of ther business are under threat.

For IT, plant and equipment that business specific - agreed. If the PP&E has alternative uses, the value doesn't always collapse if the business is under threat. For example, if the business owns the factory buildings it operates from, these may hold their value if other businesses could operate from this site. The combination of tangible assets owned means that if conditions detoriate suffiicently that intangibles are under threat, their value can collapse a lot more quickly than tangible assets.

It is not correct to say that if business conditions deteriorate the value of TRA's intangible assets will go down. Because even in a downturn the intangible asset value will only reduce if the business conditions deteriorate to below the level set way back at the time the original business unit was purchased.

Again you are correct, but most of the intangibles on the balance sheet came on from 2015 onwards. That's a number of years into the current NZ economic expansion. If NZ economy goes pear-shaped, business conditions could be a whole lot worse than they were across 2015-2018 onwards.

Mr market only puts a 40c price gap between equity and the share price. That either means almost all existing profitability was purchased (and still retains a positive margin over purchase price), or the fair value of intangibles isn't a lot more than currently represented in the balance sheet.

[Snoopy]

For IT, plant and equipment that business specific - agreed. If the PP&E has alternative uses, the value doesn't always collapse if the business is under threat. For example, if the business owns the factory buildings it operates from, these may hold their value if other businesses could operate from this site. The combination of tangible assets owned means that if conditions deteriorate suffiicently that intangibles are under threat, their value can collapse a lot more quickly than tangible assets.

Turners do not own most of the sites they operate from. Granted management policy has now reversed on this matter. They now favour buying sites, redeveloping them in house then either selling them on or perhaps keeping some as 'blue chip' real estate investments to back up the returns on their insurance division capital. But way back in the TUA days, Turners sold all their sites and used the proceeds to repay debt. This is why they are now tenants in their flagship sites in Christchurch and Auckland.

I agree that property assets normally remain 'tangible', because the price paid for those assets does reflect the fact that they could be sold and used for a new business purpose. But not always. A company might pay over the market price for a property because it is immediately adjacent to a property they already own. The over the market payment price would be for operational synergy gains between the two adjacent sites, which is an intangible.

Again you are correct, but most of the intangibles on the balance sheet came on from 2015 onwards. That's a number of years into the current NZ economic expansion. If NZ economy goes pear-shaped, business conditions could be a whole lot worse than they were across 2015-2018 onwards.

I think some of the intangibles reflect operational synergy gains. For example TRA can now buy cars in Japan for both the 'Turners' and 'Buy Right' retail brands in one lot: economies of scale. They will be able to sell more insurance from Autosure as part of a package deal for new buyers.: accessing a whole group of customers who did not even consider Autosure before. These kind of gains are there independently of the state of the used car market in New Zealand. So I do not agree that intangible assets are more at risk than tangible assets in a market downturn in Turners case. Land could easily devalue if the business climate deteriorates in NZ, while the intangibles retain their value.

Mr market only puts a 40c price gap between equity and the share price. That either means almost all existing profitability was purchased (and still retains a positive margin over purchase price), or the fair value of intangibles isn't a lot more than currently represented in the balance sheet.

Shareholder equity is $214.323m at EOFY2018

No. shares on issue at the same time was 84.803m

So shareholder equity per share at EOFY2018 was: $214.323m/ 84.803m = $2.53

Add 40c to that and I get $2.93, about where TRA is trading.

I don't disagree with what you are saying here Scrunch, as possibilities that are part of a wider picture. But there are other explanations for where the share price is today too. For example, there could be a temporary reduction in demand for shares as shareholders who would otherwise buy 'on market' elect to convert their bonds to shares. It could be pressure from some of the former business bakery shareholders reducing their holdings (just as the share price rose when former 'business baker' Grant Baker increased his holdings recently).

AFAIK the fair value of intangibles is based on a set of future assumptions about cash flows that may or may not be reflected in market fluctuations of the TRA share price.

SNOOPY

[LAC]

Scrunch, you have to remember that the intangible assets came into being because at the time, a business was purchased that was generating a really good return. A return so good that buying that business at 'tangible asset' value would have been a 'steal' for the purchaser and would have seen the seller 'ripped off'. The intangible asset value was created at one point in time. However, once the asset was purchased the purchaser now has a new business unit, and the purchaser is now concerned with the return they are getting on their new purchase in the future. After the purchase, the fact that some of the assets purchased were 'intangible' becomes irrelevant.

If this same business unit was 'on sold' the next year to a third party and the profitability of the business unit has increased, then there is every chance that new purchaser would pay a higher total price for that business unit. Thus the new purchaser would have an even higher intangible value for that business unit on their own balance sheet. But for last years buyer (this years seller) what was an intangible asset would suddenly become very tangible as they received cash for it. The point I am making here is that an 'intangible asset' on a balance sheet is 'time frozen' at the time of its creation. At any future time point the market value of that intangible asset will not be the same on an open market, unless the business outlook is identical to the business outlook at the time of the first purchase (i.e. when the intangible asset was first created).

If a business unit really goes bad then both the value of the tangible and intangible assets of ther business are under threat. If, for instance, you own a manufacturing plant that has been superseeded by technology, then the intangible assets representing those manufacturing plant assets on the balance sheet will be worth nothing. But it is also true that the tangible assets representing those manufacturing plant assets on the balance sheet will be worth nothing. I am using this example to show that there is no difference between the fate of the tangible assets and the intangible assets. Intangible assets on a balance sheet are an historical construct. There is nothing to say that some years down the track that there is any difference between the value of the tangible and intangible assets in terms of their respective worth. So I wouldn't worry about the split of intangible to tangible assets on the TRA balance sheet.

It is not correct to say that if business conditions deteriorate the value of TRA's intangible assets will go down. Because even in a downturn the intangible asset value will only reduce if the business conditions deteriorate to below the level set way back at the time the original business unit was purchased. The Turners Auction business was purchased at very cheap multiples at the bottom of the independent advisors fair valuation range. Since then profits from selling cars have sky rocketed. So even if car sales profitability fell by -say- 40% from here in a recession, I would expect no change to the intangible assets on the TRA books relating to that business unit.

Short summary: You have very little to worry about with most of those Turners Automotive Group intangibles, IMO.

SNOOPY

Thanks for this one. Was enlightening for me.

[percy]

Trust the Napier team deliver on finding a great car for "Aunty Jean."

[couta1]

I reckon I'll be nearly skiing as fast this arvo as the SP is currently falling.Lol.

[Beagle]

I reckon I'll be nearly skiing as fast this arvo as the SP is currently falling.Lol.

A pig dog with fleas and mange is more attractive than the SP.

[percy]

Going to make for a very interesting agm.
I voted for everything,except the increase in directors' fees, which I voted against.
The light at the end of the tunnel has turned out to be an approaching train...lol.

[RupertBear]

A pig dog with fleas and mange is more attractive than the SP.

Geez Mr Beagle are you still holding the sp and chart is looking uglier and uglier, I am feeling like getting out when I did was the right decision atm, phew

[Beagle]

Geez Mr Beagle are you still holding the sp and chart is looking uglier and uglier, I am feeling like getting out when I did was the right decision atm, phew

I halved my holding at $3.16 and halved the remaining half at $3.00 on the way down. No argument that TA is as described above in post #2839.

It is notable that despite yesterday's solid 2% market bounce all this pig dog wants to do is to keep biting shareholders.