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

[Snow Leopard]

...and will help to getting the $15m target in 2 years. That (forward looking) puts DPC on a PE of 8.3 (15/493 =3 cps) If and it is still a big if DPC attains the profit of $15m and posts a 1 cent dividend I wonder what the share price will be?

Remember, as per previous discussion on this very thread, that the $14M - $15M guidance for 2016 is Net Profit Before Tax.
It looks highly likely that by FY2016 they will have used all their tax losses up.

Best Wishes
Paper Tiger

[Brain]

Paper Tiger, Percy,Noodles and Snoopy - Thank you for the replies Gentlemen.

Brain

[noodles]

Dorchester have stated they have enough money now to fund even more acquisitions without calling on shareholders again. Heartland cannot say the same.

SNOOPY

This is incorrect. Dorchester have stated that will require further a capital raising. Check out the CEO's address from the 2013 AGM

"That balance sheet will have the capacity to debt fund significant, but not all of the investment in acquisitions we would hope to make. However, we are conscious of
further dilution for all shareholders and our modelling shows relatively modest further
capital raising involving the issue of less than 100 million additional shares.
"

I don't think Heartland have made any such statements.

[blackcap]

Remember, as per previous discussion on this very thread, that the $14M - $15M guidance for 2016 is Net Profit Before Tax.
It looks highly likely that by FY2016 they will have used all their tax losses up.

Best Wishes
Paper Tiger

Ah yes thank you for that PT. I had sorta forgotten about that. It does make a difference in reported profit after tax but more importantly on the cash flow of the business.

[Snoopy]

We need to remember that the recent acquisition of Oxford was on a low PE and will help to getting the $15m target in 2 years.

From the 17th March press release:
"We expect Oxford Finance to contribute $3 million of earnings before interest and tax in the first year to 31 March 2015. Additional synergies will arise for Dorchester in areas such as insurance, IT and compliance costs although we have not factored these in to our acquisition pricing or forecast returns."
"The final purchase price will be between $11.3 million and $12.3 million depending on earnings of the business for the 12 months to 31 March 2015. The consideration for the acquisition will be paid in cash which will be funded from retained earnings and the proceeds of last year’s capital raising."

There is enough info in that press release to work out a 'P / EBIT' ratio but not a P/E ratio.

So how to work out the P/E ratio of the Oxford Finance acquisition? From my post 951, I see an underlying DPC debt of $24.184m and underlying assets of $78.747m at balance date. If the Oxford purchase price ends up being $12.3m, then the underlying debt goes up to $36.484m. A 50% increase in debt implies a 50% rise in the interest bill. Last years interest expense was $2.188m. So we are looking at an extra $1.094m in interest to fund the Oxford purchase. DPC is not forecasting paying any tax in FY2015, so the 'T' in EBIT is zero. Bringing all that together, we can now calculate the implied 'PE' ratio of the Oxford purchase:

$12.3m / ($3m - $1.094m) = 6.5

That looks cheap. But what about any underlying debt that Oxford has? Isn't that acquired by DPC too? Unfortunately we aren't told what underlying debt Oxford has. So I don't think we have sufficient information to calculate a PE acquisition figure. Would love to be proved wrong on this though!

SNOOPY

[Snoopy]

493,971,377 shares on issue,at 24.5cents gives a market cap of $121,022,987.
EPS 1.4 cents.PE 17.5 ,NTA 7.98cents .Not paying a dividend [or tax].
Paying over three times NTA for a finance company not paying a dividend [or tax] ,seems a lot to me!
You do not have the added safety of them being registered as a bank either.

I agree that on a superficial comparative basis DPC looks expensive. So is there something I have missed that could justify the high price? Take a look at the divisional break down of the FY2014 result, and look at the Finance division.

EBIT was $3,360m. Of course this doesn't take into account any 'corporate costs' (total -$3.879m) . I like to allocate these back into any divisional result on a 'fair allocation basis'. But how to do that?

As a first step I would adjust the corporate costs to remove the 'present value of optional convertible notes interest installments'. The convertible notes no longer exist so this item will not appear as a corporate cost in future years. I would also add back $2.179m in interest expense. My definition of 'Operating Profit' = EBIT. So I think it is very unhelpful of DPC to declare an 'operating profit' with interest expense already taken off. Making those two adjustments to 'Corporate Costs' I get a total corporate cost figure of just -$31,000.

DPC has given us a depreciation and amortization charge for each division. I propose this is a measure of how hard they are working their assets in each division in gross terms. So I would allocate 'Corporate Costs' amongst each division in proportion to depreciation and amoritization expense. I calculate a finance division allocation of corporate costs to be $10,140 on this basis.

So the FY2014 EBIT for the finance division is $3.360m - $0.01014m = $3.350m

We also are told the segment assets for the finance division total $37,953m at years end.

So EBIT /Segment Assets = $3.35m / $37,953m = 8.83%

Now compare this with the equivalent TUA finance division result:

TUAF FY2013 ($1.861m-$1.151m) / ($10.684m + $14.916m) = 2.8%

and you can see that Dorchester makes three times as much 'operating profit' as TUA does for doing essentially the same job on a similar sized loan book. Maybe the boys at DPC really do deserve that sharemarket investment premium?

SNOOPY

[Snoopy]

Percy,

Great to see you joining the conversation.

You will see that intangible assets increased significantly on the purchase of EC credit. In fact the net tangible assets of EC credit is around $1mill. Yet in the last six months they managed to make NPBT $2.358mill. So this type of business does not require an assets base to make a decent profit. EC Credit currently make up over half the NPBT for DPC.

In addition, you will need to add 2 years of profits($25mil+) to the NTA position (assuming no divi) for the FY16 return on assets.

So I don't think 37% return on assets will be accurate. It will be much lower. Also, I think you should only use this metric for the finance portion of the business. DPC are so much more than finance

I think I can offer some numbers on the earnings potential of the debt collection division. The divisional operating profit is shown as $3,501m for FY2014. Just like the finance division that I have just analysed, I believe you have to take off a share of corporate costs to get a true EBIT picture. For the debt collection division, this works out to be $11,310. so

EBIT (debt collection) = $3.501m - $0.01131m = $3,490m

We are told segment assets are $13,615m

So EBIT / Segment Assets = $3,490m / $13,615m = 25.6%

That is an astonishing rate of return, three times better than their own well performed finance business when measured with the same measuring stick. Not too far short of that 37% that Percy, perhaps only slightly optimistically, calculated. More evidence that the premium price that DPC trades at with respect to other finance companies is justified?

SNOOPY

[percy]

Thanks Snoopy.I have been a very naughty boy.I brought quiet a few more HNZ this morning.
I am watching DPC with the view of buying a small parcel,so I can get the printed copy of the annual report,to help me understand them. I seem to be able to "focus my attention" when I actually own some of a company's shares.At present DPC looks a bit weak on the charts,however I will most probably buy when they look a bit healthier.
Am well underwater with SCT.!!! lol.

[noodles]

So the FY2014 EBIT for the finance division is $3.360m - $0.01014m = $3.350m

We also are told the segment assets for the finance division total $37,953m at years end.

So EBIT /Segment Assets = $3.35m / $37,953m = 8.83%

Now compare this with the equivalent TUA finance division result:

TUAF FY2013 ($1.861m-$1.151m) / ($10.684m + $14.916m) = 2.8%

and you can see that Dorchester makes three times as much 'operating profit' as TUA does for doing essentially the same job on a similar sized loan book. Maybe the boys at DPC really do deserve that sharemarket investment premium?

SNOOPY

Snoopy,

You are not comparing apples with apples.

1. DPC puts there interest costs at the corporate level. TUA at the segment level. So to compare, you need to take out the 2179 in interest costs
2. You have taken insurance profit from the TUA figure, but not external revenue from the DPC figure. So to compare, you need to take 1310 off the figure


We are left with a profit of 3350 - 2179 -1310= small loss!

So TUA have a better finance division.

noodles

[Snoopy]

Snoopy,

You are not comparing apples with apples.

1. DPC puts there interest costs at the corporate level. TUA at the segment level. So to compare, you need to take out the 2179 in interest costs

So much for IFRS rules making all figures easy to compare :-).

I did add back in the $2.179m in interest costs though ( I needed to add this back to get Earnings before Interest and Tax) , and I also added back in the $1.669m one off charge concerning the wind up of the convertible notes.

So the "Corporate and Other" adjusted segment result worked out to be not 3.879m but:

-$3.879m -(-2.179m - $1.669m ) = -$0.031m, or just $31,000.

I did allocate a fraction of those costs to the finance division. But because it worked out to such a small number in context it made little difference to my calculated result when compared with the alternative of just using the $3.360m for the finance division result alone.

2. You have taken insurance profit from the TUA figure, ...

Yes that is correct. That is because insurance is part of the TUA finance division, and I am interested in the underlying profitability of the Turners loan book, excluding insurance.

but not external revenue from the DPC figure.

I left the other external revenue in to the DPC calculation, because it was still "finance income" and part of the "finance division". However because there are no notes released with the DPC accounts, I don't know what this 'other external revenue' is. I will be receptive to removing it if you can supply more information as to why I should do so.

So to compare, you need to take 1310 off the figure

Debatable?

SNOOPY