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

[Snoopy]

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!

I have finally nailed this 'valuation' thing:

1/ Make up some numbers for a 'fair valuation'.
2/ Observe share price going down.
3/ Revise my valuation downwards after shareholders lose money, showing how foolish you all were to hold shares at that higher price in the first place - after the event.

My adjustment is not radical. I have just observed how good ideas do take time to implement. Examples include the delayed set up of the new Turners Sales yard at the Basin Reserve in Wellington and the time it will take to bring 'Autosure' to exploit cross market synergies. This means I think it is wise to use an additional 'time value of money' discount to take into account the execution time inherent in all new investments.

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%. On top of this I am attaching an additional 1% as a time value of money execution discount.

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

Gross Capitalised Retained Earnings Component = 10.8c / (0.105 x 0.72) = $1.43 (2)

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

$2.24 + $1.43 = $3.67

Thus at a market price of over a dollar less than this, it looks like TRA might (still) be worth accumulating!

SNOOPY

discl: did some accumulating myself last week at $2.77

[winner69]

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

So what you doing when share price is $2.60

[Ggcc]

And the value of the dividend keeps rising yet the capital people invested keeps dropping. It’s like giving money to receive your money back. Maybe TNR should be called an ATM (not A2 milk)??

[alex f]

6 very determined sellers, now down to 2.57. I wonder if the MFT hookup is a problem?. Can’t really understand the arrangement, lending the money, no recourse on the 3rd party dealers selling it, but Turners owns debt collection services. Car dealers make money selling cars (and finance) with no recourse, I’m sure they’ll present the loan client in the best possible light. Deals where they over value the trade and the price of the new car to get 100% finance. But in the contract it look as if it’s 70% financed with a 30% deposit paid

[Beagle]

See Beagles previous post. He might have dropped a bomb

More likely someone smells a rat with next weeks result. Leaky ship ?

[Beagle]

6 very determined sellers, now down to 2.57. I wonder if the MFT hookup is a problem?. Can’t really understand the arrangement, lending the money, no recourse on the 3rd party dealers selling it, but Turners owns debt collection services. Car dealers make money selling cars (and finance) with no recourse, I’m sure they’ll present the loan client in the best possible light. Deals where they over value the trade and the price of the new car to get 100% finance. But in the contract it look as if it’s 70% financed with a 30% deposit paid

Turners management made lite of this at the annual meeting but yes as posted recently I think the creative sort of shenanigans that some dealers and car buyers get up to is going to hurt Turners, this half, next half and the one thereafter. A certain percentage of people who take out finance had no intention at the time or loan origination to ever pay it back and non recourse has left the company vulnerable. Sure they have fixed this going forward but that doesn't stop the pain coming from these delinquent loans for the rest of their remaining term.

I should have known better than to hold shares in a downtrend. I listened to Percy's regular highly supportive posts and I should have listened to the TA.
I won't make that mistake in the future again. I halved at about $3.16 and halved down again at $3.00 but the quarter left should have gone already.

[minimoke]

Well, thats me gone. Stop loss triggered and cleaned out at $2.59. Carrying a real loss on this dog. Dividends DO NOT make up for capital losses. You got to draw a line somewhere and that line for me was reached today. Best of luck to other holders.

Bright light on horizon I now have some cash - so where to put it next?

[percy]

TRA's share price continues to fall on no news.
Next announcement is their half year to 30th September which will be on Tuesday 27th November.
Other company announcements.
ARG 13th November.We learnt TRA sold a property in September to ARG for $8.6mil that TRA brought 3 years ago for $4mil...
HGH 19th November presentation.Motor.16% growth in net finance receivables in 2018 financial year.
.................................................. ........13% annualised growth in quarter ending 30th September.
So HGH [motor] are enjoying good growth.We know 30% HGH motor is new cars and 70% is used cars.
Taking these two announcements into account, I am expecting a solid interim result from TRA on Tuesday,and confirmation their strategy is on track.

[couta1]

Well, thats me gone. Stop loss triggered and cleaned out at $2.59. Carrying a real loss on this dog. Dividends DO NOT make up for capital losses. You got to draw a line somewhere and that line for me was reached today. Best of luck to other holders.

Bright light on horizon I now have some cash - so where to put it next?

Lol, I couldn't use a stop loss on this one otherwise the price would go down another 10c.

[Beagle]

TRA's share price continues to fall on no news.
Next announcement is their half year to 30th September which will be on Tuesday 27th November.
Other company announcements.
ARG 13th November.We learnt TRA sold a property in September to ARG for $8.6mil that TRA brought 3 years ago for $4mil...
HGH 19th November presentation.Motor.16% growth in net finance receivables in 2018 financial year.
.................................................. ........13% annualised growth in quarter ending 30th September.
So HGH [motor] are enjoying good growth.We know 30% HGH motor is new cars and 70% is used cars.
Taking these two announcements into account, I am expecting a solid interim result from TRA on Tuesday,and confirmation their strategy is on track.

Its what they don't tell you that worries me. I suppose you'd like a good example ?...a bit like asking is the Pope a Catholic lol
Case in point, we had a national roadshow of rah rah rah all around the country talking up the company's prospects and all the while the company would / should have known the first quarter results were tough, a fact they only admitted too months later at the annual meeting. I asked them at one of those roadshow's in July how trading had gone in the first quarter and the response I got was extremely dismissive as though I wasn't entitled to ask for that information. There is a genuine question in my mind and warranted a genuine answer at that time, not months later.
Did they conceal the poor first quarters results so some shareholders in a privileged position, (as a result of all the hoopla generated by the national roadshow events) could sell down their shares at around $3.20 or are their accounting systems so poor they couldn't update shareholders on Q1 results at those roadshow events ?

You think that poor Q1 will show up in next weeks result ?