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

[BlackPeter]

Great way of getting rid of old cars - $4784 a year subs for a 2005 Suzuki Swift which can be bought for less than $5k.

So a strategic change of shifting the 'con' from selling 'ex-Buy Right' type bombs to the unwary to selling subs on bombs to the unwary?

Don't forget though that the "sub" does include insurance, licence and car maintenance while a purchase would not. From the FAQ:

The weekly price includes insurance, roadside assist, registration and routine maintenance. That’s pretty much everything, apart from fuel and road user charges of course!

Not clear to me what "non-routine" maintenance would be and who would pay for repairs (cam-belt, engine blow up), but if that's not the risk of the dealer, than the sub is worth nothing at all - i.e. pretty sure that the dealer would need to pay for these as well.

You certainly can't compare the value of an annual sub with the purchase price ...

[Balance]

Don't forget though that the "sub" does include insurance, licence and car maintenance while a purchase would not. From the FAQ:



Not clear to me what "non-routine" maintenance would be and who would pay for repairs (cam-belt, engine blow up), but if that's not the risk of the dealer, than the sub is worth nothing at all - i.e. pretty sure that the dealer would need to pay for these as well.

You certainly can't compare the value of an annual sub with the purchase price ...

The devil will all be in the fine print.

[Beagle]

I don't know for sure but I would has at a guess that the weekly figure quoted is for a 12 month subscription as it stands to reason that 3 months would involve more risk and administration. 2019 Kia Stinger is quoted as "from $483 per week" Lets assume that's a 52 week subscription and I can say that a friend of mine just bought one as a demo for $59,990. $483 x 52 = $25,116 per annum so the sub will eat up 42% of the initial capex in the first year. What a deal ! Sign me up right away LOL
My friend expects to get 10 years use out of his Stinger so over that timeframe would pay $251,116 in rental payments. Hmmmm

[Baa_Baa]

No point guessing, check the t&c’s at www.carly.co

[percy]

https://simplify.co.nz/subscription/...BoCBIkQAvD_BwE

Thanks for the link.
I had never heard of them.
We live in interesting times.

[Arthur]

For those in their early 20s insurance is expensive. It might actually be relatively cost effective. Could also be useful if you just need a car for a few months, say over the summer holidays.

[Arthur]

You can hire for a month in Australia. You could get a pretty flash car for about $1000 a month or a fairly basic one for $500, might be worth looking into for longer self drive holidays.

[percy]

Would also work well for a number of share traders.
When the market is up,drive a BMW/Merc,when the market is down swap for a Toyota or Nissan.
Wonder whether the Ferrari is avaliable.?

[Snoopy]

I am generally comfortable with a company having lots of intangible assets on the books provided:

1/ The assets were bought at the right price.
2/ The businesses that Turners acquired have continued to grow.

My one cause for concern is 'Buy Right Cars'. Turners management have acknowledged that it has not performed up to expectations and that the management has been replaced. There is over $10m in 'Buy Right' goodwill on the Turners books ($10.860m to be exact AR2018 p60). This is tested annually by the auditors, who check whether such value can be justified. So far all is hunky dory. But I did notice a divergence in the growth assumptions for this acquisition going forwards. See AR2018 p65. I tabulate these results against the equivalent assumptions from last year:

	Year 1 Forecast Cashflows	Year 2 Forecast Cashflows	Year 3 Forecast Cashflows	Year 3-4 Forecast Cashflows	Year 4 to 5 Forecast Cashflows	Terminal Cashflows
FY2017 Perspective	10%	7.5%		5.0%		2.0%
FY2018 Perspective		60%	8.0%		5.0%	2.0%

The note starts "The year 1 forecast cashflows were extrapolated". I think 'year 1' means the 'current reporting financial year', but am not 100% sure. If I am right then from an FY2018 perspective 'Year 2' means FY2019 (the current financial year). This model is telling us that Turners are budgeting for an increase in cashflows from Buy Right cars of 60% this financial year. That is an enormous increase, even for a company with the growth ambitions of Turners. It is particularly shocking when you realise that only 12 months previously, Turners were looking for an increase of only 7.5% over the same time period. No doubt part of the reason the 'Buy Right' growth rate is forecast to be so high is because FY2018 so was disastrous. Turners are starting from an unexpectedly low base. But even so I think it is a big ask.

The question is, what happens to the 'Buy Right' goodwill if this 60% growth is not achieved? Possibly nothing. But it is also possible that Turners will be facing a multi-million dollar goodwill write down. If it happens it will be a 'non cash item'. But it was real cash, not that long ago! The company might require some recapitalisation if the write down happens. This is a real 'extra risk' for shareholders going forwards IMO.

The rebranding of 'Buy Right Cars' has lead to the write off of $4.300m in intangible brand value. However, the rest of the intangible assets acquired with the purchase of 'Buy Right Cars' remains on the Turners books.

The amount of 'Buy Right' goodwill on the Turners books is still $10.860m (AR2018 p60). This is tested annually by the auditors, who check whether such value can be justified. But there is a divergence of growth assumptions for this acquisition going forwards. See notes in AR2019 p64 and AR2018 p65. I tabulate these results against the equivalent assumptions from AR2017:

	FY2018	FY2019	FY2020	FY2020-FY2021	FY2021	FY2021-FY2022	FY2022	FY2023
	Year 1 Forecast Cashflows	Year 2 Forecast Cashflows	Year 3 Forecast Cashflows	Year 3-4 Forecast Cashflows	Year 4 Forecast Cashflows	Year 4 to 5 Forecast Cashflows	Year 5 Forecast Cashflows	Year 6 Forecast Cashflows	Terminal Cashflows
FY2017 Perspective	10%	7.5%		5.0%					2.0%
FY2018 Perspective		60%	8.0%			5.0%			2.0%
FY2019 Perspective			14.6%		11.0%		9.3%	12.8%	1.5%

The note(s) start "The year 1 forecast cashflows were extrapolated...". I think 'year 1' means the 'current reporting financial year', but am not 100% sure. If I am right then from an FY2018 perspective 'Year 2' means FY2019 and 'Year 3' means FY2020 (the current financial year). This table is telling us that Turners were budgeting for an increase in cashflows from Buy Right cars of 60% over FY2019. The actual increase in revenue for 'Buy Right Cars' from FY2018 ($62.021m) to FY2019 ($63.546m) was an increase of 2.2%. This 'miss' seems disastrous, yet no effect on the earnings goodwill acquired has been recorded. But could it be that this 'missed FY2019 growth' has been reassigned to other future years?

FY2018 Cashflow Growth Assumptions (Years 2 to 6) : 1.6 x 1.08 x 1.05 x 1.05 x 1.02 = 1.94

FY2019 Cashflow Growth Assumptions (Years 2 to 6): 1.022 x 1.146 x 1.11 x 1.093 x 1.128 = 1.60

Some growth looks to be reassigned. But there does seem to be a lot less cashflow coming when compared to the forecast from FY2018.

Remember that as a brand, 'Buy Right Cars' no longer exists. I think that means that all of that $10.860m in intangible 'on the books assets' from the 'Buy Right' trading operation is now attached to those individual sales sites acquired in Turner's 'Buy Right cars' acquisition. No land was acquired with the 'Buy Right' acquisition (AR2018 p60). Does this mean that the $10.860m of goodwill is, by a process of elimination, attached to the leases on these 'Buy Right' properties? If so, doesn't that make this $10.860m of goodwill extremely vulnerable?

In FY2017 eight 'Buy Right Cars' retail sites were acquired across Auckland. If the $10.860m in goodwill was distributed equally across each site, then that means each site incorporates goodwill totalling:

$10.860m / 8 = $1.358m

Now consider the case of a lease ending or Turners just deciding they want to move to a better site. Would such a move mean that Turners would have to write of $1.358m in goodwill, even though they were ostensibly moving to a site with improved business prospects? I think it does. Turners make much of their ability to develop retail sites and pocket the development margin. Quite rightly so. But I don't recall Turners mentioning anything about the 'million dollar moving loss' that would be incurred when they eventually have to leave those old 'Buy Right' sites.

Under note 32 AR2019, the site lease terms are between five and ten years, with rights of renewal in accordance with market rates.

SNOOPY

[BlackPeter]

Remember that as a brand, 'Buy Right Cars' no longer exists. I think that means that all of that $10.860m in intangible 'on the books assets' from the 'Buy Right' trading operation is now attached to those individual sales sites acquired in Turner's 'Buy Right cars' acquisition. No land was acquired with the 'Buy Right' acquisition (AR2018 p60). Does this mean that the $10.860m of goodwill is, by a process of elimination, attached to the leases on these 'Buy Right' properties? If so, doesn't that make this $10.860m of goodwill extremely vulnerable?

SNOOPY

A very good question. The only intangible value still attached to this purchase is clearly the location of the once "Buy Right" sales outlets.

Though I am sure Turners might argue that "Turners" have a higher brand value than "Buy Right" (otherwise they would not have rebranded) - i.e. the non tangible value of these premises might have even increased miraculously by putting a more respectable brand on it.

Which means the the attached Intangibles might even have increased through the rebranding (assuming a Turners outlet is more worth than a Buy Right outlet). Turners might have found a new method to generate money out of nothing .... buy a crap brand for too much money and re-brand.

Their future opportunities must be endless ... and maybe I should consider a career in creative accounting ;