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

[BlackPeter]

Shares seem very sound value to me. Compelling metrics, strong tailwinds in the sector and if they can pay 20 cps fully imputed next year that's a forecast FY22 gross yield of 8.8% at $3.15 with the bonus of quarterly dividend payments. I'm a happy holder.

Based on the mid point of their FY21 forecast that's ~ 29 cps share so FY21 PE is just 10.9 !

You are right - the PE looks compelling, assuming the earnings are sustainable.

Question is - are they, and for how long?

[winner69]

Beagle - you forgot about the $4m/$5m cost savings - to reset the cost base or something

I reckon there will be a profit upgrade in near future

[Beagle]

You are right - the PE looks compelling, assuming the earnings are sustainable.

Question is - are they, and for how long?

Good question and I think Winner has reminded us of a very salient point regarding that below. For my money I see extremely low interest rates persisting for many years, a recovering economy, high level's of demand for personal transportation (as opposed to public transport) and I think Turners advertising with "Ollie" hits the mark very nicely. https://www.youtube.com/watch?v=pfKxektzbFA
I think they can grow the Turners brand.

Beagle - you forgot about the $4m/$5m cost savings - to reset the cost base or something

I reckon there will be a profit upgrade in near future

Excellent point looking in to FY22 and beyond and yes, another profit upgrade wouldn't entirely surprise me.

[LaserEyeKiwi]

Worth checking out the latest earnings report for anyone on the fence about Turners and whether the earnings are sustainable. They have diversified their revenue sources a lot over the last few years, much more than just selling used cars now with stable recurring earnings coming from their Finance, Insurance and credit management operations.

[Rawz]

Beagle - you forgot about the $4m/$5m cost savings - to reset the cost base or something

I reckon there will be a profit upgrade in near future

Yes they have left that big mammoth building in Penrose and now have smaller yards with what look like temporary/ quick build office buildings on it. Similar story with when they had that big building next to the motorway on the North Shore (though I think that building was exited a little while back now).

The rents on these smaller yards must be 20% of what they were paying. And now that I think about it more yard space, to sell more cars..

[BlackPeter]

Worth checking out the latest earnings report for anyone on the fence about Turners and whether the earnings are sustainable. They have diversified their revenue sources a lot over the last few years, much more than just selling used cars now with stable recurring earnings coming from their Finance, Insurance and credit management operations.

I didn't went back through various reports - but from memory - TRA was always a Finance and Insurance company which happened to sell as well some preloved cars (with focus on making money with insuring and financing them). Don't forget - this was Dorchester Pacific which happened to buy Turners Auctions.

Are you sure that the income ratio between these areas did significantly shift?

Just to clarify my position: I used to hold TRA and was quite excited about their past strategy to be a one stop shop for car buyers. Well, we know what happened to that ... and at the moment I am not quite sure what their long term strategy is. Finance will be good as long as interest rates and unemployment rates are low. My crystal ball is cloudy, but I have never seen these two parameters being low for ever ...

Ah yes - and both Turners as well as Dorchester used to have good as well as (some very) bad days. Always easy to forget the less pleasant things in the past ...

[wagwan]

Looking at this one, but do not currently hold

Anyone have thoughts or opinions on:

• Relatively high intangible asset base relative to equity? Based on FY21 half year numbers, NTA ~$64m ($0.74 / share), so fairly large premium
  
  • Recognise that by nature this share is a play at ability of business to turn stock and generate cash
  
  
• Fairly high leverage, based on rough EBITDA of $68m for FY21, Debt : EBITDA is ~4.6x

Encouraging given business model that operating cashflow appears strong at ~$0.33 / share, and also comfortably covers dividends.

Significantly lower stock holding at FY21 half year encouraging as would suggest stock is turning quickly, which essentially is the crux of sales side of business.

Provisions revised down at Sept 2020 (6.1% of gross finance receivables) compared to March 2020 (7.0%)

Taking mid-point of revised NBAT guidance ($34m), less circa $9.5m for tax, NPAT $24.5m = 28.5 cps.

60-70% payout of NPBT corresponds with ~$22m (65%) = 25.6 cps dividend potentially (~8% yield)

[Rawz]

Looking at this one, but do not currently hold

• 
  
  
• Fairly high leverage, based on rough EBITDA of $68m for FY21, Debt : EBITDA is ~4.6x

Does that include their BNZ warehouse loan facility which is used to loan out via Turners Finance arm? By memory when i first did my research early 2020 the debt looked high but when you excluded the loan facility for their customer finance part and looked at what debt Turners actually had to run the business it was modest.

[Sideshow Bob]

As an aside, I know a car yard owner, who last time spoke to him:

- Getting stock was hard
- Sales were better than ever
- No negotiation on price, or had increased prices to allow for negotiation.
- Almost all sales on finance.

[BlackPeter]

As an aside, I know a car yard owner, who last time spoke to him:

- Getting stock was hard
- Sales were better than ever
- No negotiation on price, or had increased prices to allow for negotiation.
- Almost all sales on finance.

High car prices and almost all sales on finance sound like an outstanding combination for a finance company to run (as soon as times turn tough) into problems with bad debt.

Anyway, but short term certainly sounds good for a car dealer, and who knows - maybe the bad times will never return :