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

[LaserEyeKiwi]

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 ...

Last half year earnings:

Automotive Retail: $7.8 million profit (up 6%)
Finance: $7.6 million profit (up 18%)
Insurance: $4.5 million profit (up 74%)
Credit: $3 million profit (down 17%)

yes, the automotive retail operations feed the Finance & Insurance operations customers, but in the event of a downturn in automotive retail for whatever reason, the other segments don't have the same fall in earnings as their revenue is predominantly from recurring revenue from pre-existing customers.

[winner69]

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)

I wouldn’t worry about those intangibles ....without it they don’t have a business as mainly cost of ‘acquiring’ Turners and that credit division. The intangible value has stood the test of time so pretty OK

Currently trading at just over book value so not expensive.

Being a mix of finance and trading companies I don’t think debt:equity is a good view of leverage.

Equity ratio of finance/insurance divisions pretty respectable.

[Biscuit]

According to their annual report, they only make about $500 on a vehicle sale. Makes you wonder how small dealerships survive.

[Biscuit]

The board and leadership team looks the same as the way I buy trousers - find a couple that fit and look ok and buy a half a dozen the same - not much into diversity are they?

[Rawz]

The board and leadership team looks the same as the way I buy trousers - find a couple that fit and look ok and buy a half a dozen the same - not much into diversity are they?

LOL

[wagwan]

I wouldn’t worry about those intangibles ....without it they don’t have a business as mainly cost of ‘acquiring’ Turners and that credit division. The intangible value has stood the test of time so pretty OK

Currently trading at just over book value so not expensive.

Being a mix of finance and trading companies I don’t think debt:equity is a good view of leverage.

Equity ratio of finance/insurance divisions pretty respectable.

Thanks, makes sense re intangibles.

Leverage was from a Debt:EBITDA lens, not equity though? I'd think EBITDA a fairly suitable measure of leverage for at least the trading business.

[wagwan]

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.

Good point, will look into

[BlackPeter]

Last half year earnings:

Automotive Retail: $7.8 million profit (up 6%)
Finance: $7.6 million profit (up 18%)
Insurance: $4.5 million profit (up 74%)
Credit: $3 million profit (down 17%)

yes, the automotive retail operations feed the Finance & Insurance operations customers, but in the event of a downturn in automotive retail for whatever reason, the other segments don't have the same fall in earnings as their revenue is predominantly from recurring revenue from pre-existing customers.

So - automotive retail pays roughly 1/3 of the earnings, finance pays roughly one third and the reminder pays the balance. This is as it used to be in TRA (and TNR before that) since I can remember. No changes - nothing got safer, less safe or more diversified.

I would not worry about loss of earnings in the automotive sector. The thing to worry about would be increasing unemployment / interest rates (turning into bad debts) or the board deciding to speculate with investing shareholder funds into new business or going overseas.

BTW - how is this recently acquired car rental business going?

[Grimy]

Not confirmed, but NZAI -New Zealand Automotive Investments, who own 2 Cheap Cars (who import about 8% of all used cars) tipped for a NZX listing.

[sb9]

Not confirmed, but NZAI -New Zealand Automotive Investments, who own 2 Cheap Cars (who import about 8% of all used cars) tipped for a NZX listing.

You're right..

https://www.nzx.com/announcements/367756

Nature of Business: NZ Automotive Investments (NZAI) is an integrated used automotive group operating throughout New Zealand via two divisions: Automotive Retail and Vehicle Finance. The company’s purpose is to help Kiwis afford great cars. Operating under the “2 Cheap Cars” brand, its Automotive Retail company is a major used vehicle seller in New Zealand with 12 dealerships across the country. NZAI’s Vehicle Finance company operates under the “NZ Motor Finance” brand. It was established in 2019 to diversify earnings and provide a further growth opportunity for NZAI.
Directors: Karl Smith (Chair), Charles Bolt, Michele Kernahan, Tracy Rowsell, David (Yuseke) Sena, Eugene Williams
Details of Issue: The Quotation is solely a compliance listing. There is no public offer of NZ Automotive Investments Limited Ordinary Shares.
Quoted Securities at Date of Listing: 45,554,500
Reference Price: $1.30 NZD
Tick Size: $0.01
Auditors: Grant Thornton New Zealand
Solicitors: Lowndes Jordan
Registrar: Computershare Investor Services Limited
Settlement Status: NZCDC Settlement System
Profile Document Dated: At or before the day of listing, expected to be 25 February 2021
Expected Commencement of Trading on the NZX Main Board: Thursday, 25 February 2021, at 10:00am