TUA - Turners Auctions. A Case Study.

[Snoopy]

Sadly those less savvy still believe TUA is just a boring car auction company in a difficult market, and ignore the dividends, even though TUA has outperformed the NZX50 for the last two and three years based on dividends alone!

Looks like Brian Gaynor is onto this story, with Milford Asset Management declaring a significant 5% stake. Milford are taking advantage of share price weakness as US based White River Partners continue to sell down their stake. I think WRP are making a loss on their stake in NZ dollar terms. But perversely, the way the $NZ has been rising against the $US, there is probably a profit there for the WRP United States based customers.
I wonder whether history will judge White River Partners or Milford Asset Management to be the goats in this TUA investment game?

SNOOPY

[percy]

Looks like Brian Gaynor is onto this story, with Milford Asset Management declaring a significant 5% stake. Milford are taking advantage of share price weakness as US based White River Partners continue to sell down their stake. I think WRP are making a loss on their stake in NZ dollar terms. But perversely, the way the $NZ has been rising against the $US, there is probably a profit there for the WRP United States based customers.
I wonder whether history will judge White River Partners or Milford Asset Management to be the goats in this TUA investment game?

SNOOPY

For my two penny's worth I do not think it will be Milford.
question. How many or what % do white River still own ? I sold out and have been regreting doing so, as I feel TUA are good operators and financing their own sales will certainly add to profits.

[J R Ewing]

For my two penny's worth I do not think it will be Milford.
question. How many or what % do white River still own ? I sold out and have been regreting doing so, as I feel TUA are good operators and financing their own sales will certainly add to profits.

Yes, financing makes good sense. Many car finance companies came unstuck during the GFC, I think in part because they were not great at valuing the asset for security purposes and got caught short if the loan turned bad. Turners have great expertise in this area and can easily realise the equity in the car in the event it needs to be repossesed.

[Snoopy]

This is an excellent example of the lack of correlation that can exist between company announcements and stock performance.

It shows the boundless optimism that some people can sustain in the face of unpleasant reality.

View it as an object lesson in the folly of buying into a downtrending stock and the inadvisability of "averaging down".

Change the time frame to 5 years or so and the 'averaging down' system has shown a rather different result.

Attachment 3081

I would hesitate to call TUA a long term investment, because I have only been invested for four years of my five year retrospective study period. Following my initial investment in the $1.70s, subsequent investments have been averaged out at a much more sensible $1.29. So despite doing everything wrong from a trading perspective, a major fraud within the company, the collapse of the the second hand car market amidst what is one of the worst global recessions in 60 years, how much money have I lost on TUA? None. I am actually showing a modest profit, ahead of the index over the period under study.

This is a textbook example of how investing in a beaten up company can lead to superior investment returns, no matter what the 'unpleasnt reality' seemed at the time.

Turning to my actual performance, while the subsequent acquisition prices have on average been good bets, the graph shows I would have done rather better if I had bought more shares when the price plunged to near its lows. I did buy some at 70c, but obviously I would have done better if I had bought more. Of course the graph never tells the full story. I had real doubts about the business model with the cost of Japanese car stock acquisition being so high and costs apparently increasing alarmingly. Nevertheless there was enough fat in the company, principally because of the very low company debt levels to get through this difficult time.

Overall assessment: Overall subsequent purchase price timing not very good (although I just explained why). Inital purchase of shares timing not very good. Yet thanks to averaging down TUA has been an above average performer for me.

SNOOPY

[Snoopy]

question. How many or what % do white River still own ?

White River Partners are fully cashed out of TUA now, I think. On a slightly different note, had a look at the Turners Auction Christchurch Site today. I can't see any obvious earthquake damage.

SNOOPY

[percy]

White River Partners are fully cashed out of TUA now, I think. On a slightly different note, had a look at the Turners Auction Christchurch Site today. I can't see any obvious earthquake damage.

SNOOPY

They should make some money selling damaged cars shortly.Were you in PW building.A trust I am involved in use Harmans,while I have used L.V North.Both 14th or 16th floors.I hope they do home visits as you will not get me in there.Are you OK.?
Turners building should be OK.I was in Bunnings ,next door,similar building,yesterday and all OK.

[Snoopy]

Modest result (NPAT $3.0m -8%) but probably strong cashflow through destocking has lead to a bumper but unsustainable final dividend (12cps). Shareprice jumped accordingly, but with PE at 12.5 (based on SP=$1.40) SP growth is probably over. Nevertheless a good income share to be held for the years ahead. I'm not selling down.

SNOOPY

[tim23]

Don't forget the special as well of 6c!

[Snoopy]

Don't forget the special as well of 6c!

I included the 6c special in my 12c final dividend. At a SP of $1.40 after the payout then the PE drops to 12.5 and the gross dividend yield becomes 11.7%, based on a a total dividend od 11cps. Seems ballpark right. I think SP growth is over, but this is a good income investor hold.

SNOOPY

[Snoopy]

Just a quick note on the AGM presentations.

Overall sales are down 7.5% in Q1, which I thought wasn't too bad considering inside that figure Christchurch sales are down 30% post earthquake. The Christchurch premises has become sub let to other associated businesses, which have had their own locations damaged or unaccessible in the earthquake. That will make up for some of that Turners Christchurch sales decline. It was good to see the Auckland premises has had a rent renegotiation with a reduction is area occupied for a cheaper price. This is the advantage of not owning your own premises. You can downsize in an illiquid property market. The overall vehicle market remains noticeably down from what was the norm three or more years ago. Turners are adjusting to this new 'normal'.

It was also good to see a move to national weekly auctions in commercial vehicles (April 2010) and motorbikes (February 2010) and planned regional auctions in other categories like and damaged vehicles: Palmerston North/Napier/Wellington by June 2011 Auckland/Hamilton/Tauranga/Whangarei in Q3 2011 and Christchurch/Dunedin in Q4 2011 using the 'local presence' but 'national sales process' model.

The number of second hand dealers in the market continues to decline which in turn means that Turners market share is becoming stronger. Overall I was quite happy with the way management are organizing themselves now after the admitted past mistakes.

We still have the possibility of corporate action when GPG sells their cornerstone holding, and plenty of dividend to feast on while that gets resolve. I was considering taking some profits on what I thought was an overweight position, but I have now reversed that thinking and will buy on any significant weakness. Selling now I don't think will prove long term smart.

SNOOPY