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

[blackcap]

Complain to NZX.
Years ago SCY company secretary upset NZCSD by sending them one annual report.
They asked for more.
He said sorry you only have one entry.
Name the others and I will send the correct number of reports.
We can't do that.
His reply was classic; "tough".

LOL of the day for me. That is one cool anecdote. Suck on thast NZCSD!

[Snoopy]

Turners Auctions (TUA) + Turners Limited (TNR/TRA)		FY2014	FY2015	FY2016	FY2017	FY2018
Modelled Dividend Paid {A}		$2.131m
No. Shares on Issue (TNR/TRA) {B} (*)		55.966m	63.077m	63.433m	74.524m	84.803m
Normalised Earnings Per Share		6.8c	19.4c	24.2c	22.5c	25.6c
Modelled Dividend Paid (cps) {A}/{B}		3.81c
Actual Dividend Paid (cps) (**)			5c + 4c	6c + 6c	7c + 3c +3c	4c + 4.5c +3c +3c

(*) The number of TNR shares on isssue at the end of the financial year has been adjusted retrospectively for the 10:1 share consolidation. To see how the number of TRA shares on issue was derived refer to my post 1414 "Buffett Test 2: Increasing 'eps' Trend (FY2016 perspective): Preamble Part 2.

(**) The actual dividends paid by TNR/TRA over FY2015 and FY2016 were unimputed. This was because of prior losses incurred under the DPC/TNR/TRA structure. However, in my modelling the TUA group was already combined with DPC/TNR/TRA. Previous year TUA profits wiped out those previous year equivalent DPC/TNR/TRA losses. Under this modelled scenario, those FY2015 and FY2016 dividends would have been fully imputed. That's because looking at the combined picture, those prior offsetting DPC/TNR/TRA losses never happened. Further note that all dividends have been adjusted retrospectively to account for the 23rd March 2016 10:1 share consolidation.

From the above table the 'five year average' dividend payout was:

(3.81c + 9c + 12c + 13c +14.5c)/ 5 = 10.46c (net)

Average Gross Dividend Yield (based on a 28% tax rate) is therefore:

10.46/(1-0.28) = 14.53c

Using a capitalized value gross interest rate of 7.5% (see thread An Investment Story - Geneva/Turners/Heartland, post 40), this translates to a fair value share price of:

14.53c/ 0.075 = $1.94

As previously noted, I no longer believe this valuation method provides a satisfactory technique for valuing Turners Automotive Group. This is because the retained earnings of TRA are employed in growing the business, and this valuation method ignores that contribution. So why do it?

If you were able to pick up some TUA shares at $1.94, this could be justified on a dividend return basis alone. That means any growth that shareholders would get going forwards would come 'for free'. However, I don't fancy my chances of picking up many TRA shares at that price. At today's closing price of $3.05, that means the price you pay for the TRA growth premium is:

$3.05 - $1.94 = $1.11

Is it worth it? That is the next question I will seek to answer.

Turners Automotive Group (TNR/TRA)		FY2015	FY2016	FY2017	FY2018	FY2019
No. Shares on Issue EOFY (TNR/TRA) (*)		63.077m	63.432m	74.524m	84.803m	86.555m (est)
Normalised Earnings Per Share {A}		13.6c	24.2c	21.8c	22.5c	20.1c (est)
Actual Dividend Paid (cps) {B} (**)		5c + 4c	6c + 6c	7c + 3c +3c	4c + 4.5c +3c +3c	4.5c + 5c +4c +4c
Normalised Earnings Retained {A}-(B) (cps)		4.6c	12.2c	8.8c	8.0c	2.6c (est)

(*) The number of TNR shares on issue at the end of the financial year has been adjusted retrospectively for the 23rd March 2016 10:1 share consolidation. To see how the number of TRA shares on issue was derived for FY2015, refer to my post 1413 "Buffett Test 2: Increasing 'eps' Trend (FY2016 perspective): Preamble Part 2.

(**) The actual dividends paid by TNR/TRA over FY2015 and FY2016 were unimputed. This was because of prior losses incurred under the DPC/TNR/TRA structure. However, in my modelling the TUA group was already combined with DPC/TNR/TRA. Previous year TUA profits wiped out those previous year equivalent DPC/TNR/TRA losses. Under this modelled scenario, those FY2015 and FY2016 dividends would have been fully imputed. That's because looking at the combined picture, those prior offsetting DPC/TNR/TRA losses never happened.

From the above table the 'five year average' dividend payout was:

(9c + 12c + 13c +14.5c + 17.5c)/ 5 = 13.20c (net)

Average Gross Dividend Yield (based on a 28% tax rate) is therefore:

13.20/(1-0.28) = 18.33c

Using a capitalized value gross interest rate of 7.5% (see thread An Investment Story - Geneva/Turners/Heartland, post 40), this translates to a fair value share price of:

18.33c/ 0.075 = $2.44

Last year, I stated that I no longer believed this valuation method provided a satisfactory technique for valuing Turners Automotive Group. This was because the retained earnings of TRA are employed in growing the business, and this valuation method ignores that contribution.

With the share price today trading some 10% below this equivalent $2.44 valuation figure -a figure based only on historical dividend payments-, one could interpret this to mean that the 'retained earnings' part of the profit generated has been squandered and for share valuation purposes should be considered worthless.

More specifically during FY2018 the setting aside of the last part of the earn out consideration for 'But Right Cars' ($1.9m) has cast some doubt on how successful this acquisition will continue to be. Furthermore the market does not seem convinced that the 'Autosure' insurance acquisition is adding value. Or perhaps these two acquisitions are adding value, but insufficient value to compensate for declines in other established areas of the business? However, you interpret the YOY share price decline, the market doesn't like what it sees. Whether there is any evidence that any profit decline for FY2019 is permanent or even real has not been established. I think given a more medium term outlook the market is wrong. IMO we will be looking at a case of 'sell the rumor', 'buy the fact' when the annual TRA result is released in June.

SNOOPY

[Mickey]

I hit my stop loss yesterday and sold at 2.20. I invest primarily for yield rather than for price gain but the gap between my entry point and the share price was widening and I wasn't prepared to average down to reduce that gap (until I can better understand what is happening) or to wait for the share price to recover (if it ever does). I was taught a valuable but costly lesson with NZR a couple of years ago on that. TRA fundamentals look solid but something isn't quite right here and so I redeployed my capital into another share paying similar yield that looked like it was near the bottom of its recent downward cycle (SPK).

Good luck to all holders. I'll be watching this one with interest and may look at re-investing once things stabilize.

[blackcap]

looks like Paul needs a new car?

http://nzx-prod-s7fsd7f98s.s3-websit...195/295855.pdf

[percy]

Perhaps a new Holden.?

[blackcap]

Perhaps a new Holden.?

A Calais model perhaps?

[percy]

A Calais model perhaps?

Maybe a cheap one with 800 klms on the clock,and a new motor.
10 year guarantee.?
ps mums the word.

[winner69]

Insiders selling ........hmmmm

Sell oeder still incomplete?

As they say buy when directors buy so is it sell when directors sell.

[winner69]

Byrnes did well. ,,,.got $2.33 for his shares (only 30,000 though)

[percy]

Insiders selling ........hmmmm

Sell oeder still incomplete?

As they say buy when directors buy so is it sell when directors sell.

The market agrees.
Have you sold your's.?

ps.On no news I am sitting on mine.
pps.Have you kept an eye on the new Wellington site.?