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18-09-2019, 08:45 PM
#5781
Originally Posted by winner69
Usual Todd waffle I think ..he’s pretty good at that
Really cool how he asked the audience whether they understood what he had just said .....and looking surprised he didn’t get an answer ...not even from the guy who asked the question who probably even more confused than what he was.
Todd's answer was crystal clear to me.
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18-09-2019, 09:01 PM
#5782
Originally Posted by percy
Turners retail will keep "originating" loan agreements.
Turners retail will keep earning an "origination fee," no matter if it is still with Turners' ownership, or someone else's ownership of Oxford Finance.
Sale of Oxford Finance would mean Turners no longer underwrite such lending,the new owner of Oxford Finance would.
Think HGH's Marac or MTF.Loan originators earn a fee.Turners retail will always earn a fee from whoever is their finance provider.
Yes, but I wonder what form those originating payments will be? A one off referral fee? Will Turners get to 'clip the ticket' every year? Will the loan ticket be a fixed fee or a proportion of the loan size? The answer to those questions might make quite a difference to Turners ongoing income stream from originating loans, and also the price they might get for Oxford Finance who would have to pay such charges..
Then Todd confused me with his example saying the origination fee would equally well be paid from UDC, Marac or whoever was looking after the loan. But I thought Turners had agreed to keep putting their vehicle loans through Oxford? If they sell Oxford, and there is no tied down long term deal to exclusively use Oxford for loans, that will again affect the price Turners might get for Oxford.
Originally Posted by percy
Looked very smart from my home office too..
Sensible investor asked about how new regs would affect them,which again received a full and frank answer from Todd..
And Todd said there could be some tighter emissions standards on the horizon, plus the electric vehicle subsidy / gas guzzler tax. See I was paying attention. But not all of Todd's answers were fully tied down to my long floppy way of hearing.
SNOOPY
Last edited by Snoopy; 18-09-2019 at 09:03 PM.
Watch out for the most persistent and dangerous version of Covid-19: B.S.24/7
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18-09-2019, 09:20 PM
#5783
[QUOTE=Snoopy;771969]Yes, but I wonder what form those originating payments will be? A one off referral fee? Will Turners get to 'clip the ticket' every year? Will the loan ticket be a fixed fee or a proportion of the loan size? The answer to those questions might make quite a difference to Turners ongoing income stream from originating loans, and also the price they might get for Oxford Finance who would have to pay such charges..
Usually a one off based on loan size.
Paid up front and accounted for straight away.
OK the fee would be paid by the new owner of Oxford,and the fee would be inline with what other financiers such as Marac and UDC pay their originators.
Yes the new owner of Oxford would tie Turners into an originators agreement.And I would not be surprised if the new owner turned out to be either HGH's Marac, or ANZ's UDC.
The point of any sale of Oxford is simple.Turners believe they can earn a better return openning more sites and selling more cars,with insurance,and finance [commission fee], than operating a finance company,[depending on the sale price of Oxford Finance].What none of us know is what Turners will accept,or what a buyer will pay.
Last edited by percy; 18-09-2019 at 09:34 PM.
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19-09-2019, 08:22 AM
#5784
What was Baker talking about when he said Turners had (recently?) put $28m of Equity into Oxford .....and then Todd had to tell him to shut up
“ At the top of every bubble, everyone is convinced it's not yet a bubble.”
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19-09-2019, 08:52 AM
#5785
Originally Posted by winner69
What was Baker talking about when he said Turners had (recently?) put $28m of Equity into Oxford .....and then Todd had to tell him to shut up
Most probably just "house keeping" keeping ratios correct.
I would not read too much into it,other than possibly helpful for when potential buyers are doing due diligence on Oxford Finance.
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19-09-2019, 08:58 AM
#5786
Originally Posted by percy
Most probably just "house keeping" keeping ratios correct.
I would not read too much into it,other than possibly helpful for when potential buyers are doing due diligence on Oxford Finance.
Something else for Snoops to unravel?
“ At the top of every bubble, everyone is convinced it's not yet a bubble.”
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19-09-2019, 09:05 AM
#5787
Originally Posted by winner69
Something else for Snoops to unravel?
Most probably have to wait for Turners next annual report,by which time Oxford Finance could already have been sold,which would make it a pointless exercise..
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19-09-2019, 12:59 PM
#5788
Oxford gets a $28m capital injection?
Originally Posted by winner69
What was Baker talking about when he said Turners had (recently?) put $28m of Equity into Oxford .....and then Todd had to tell him to shut up
Originally Posted by winner69
Something else for Snoops to unravel?
Here is a table for you to ponder Winner
Consumer Loan Book Size {A} |
$266.518m |
Ref AR2019 p60 |
Capital Required to back Loans {A} x 0.2 |
$53.303m |
Quote by Baker at AGM |
Finance Division Equity |
$276.356m |
Ref AR2019 p53 |
less Finance Division Liabilities |
$216.996m |
Ref AR2019 p53 |
less Doubtful Debts |
$25.247m |
Ref AR2019 p60 |
equals Residual Equity {B} |
$34.133m |
|
Equity Shortfall 0.2{A}-{B) |
$19.170m |
|
A $28m capital injection would more than make up for the shortfall, and allow for some loan book growth to:
($34.133 + $28m) / 0.2 = $310m
Note: The consumer loans grew as follows over the years:
|
2019 |
2018 |
2017 |
2016 |
2015 |
Consumer Loan Balance |
$266.518m |
$253.168m |
$180.908m |
$147.490m |
$127.008m |
This means that there should be enough headroom at Oxford for at least a couple of years growth without the new owner of Oxford having to put in more capital.
If you are selling a finance company and you want the best price, then you want the loan book to be as clean as possible. One way to do that is to withhold the doubtful debts from what you are selling. However, if by doing this your equity backing remaining in the finance business becomes insufficient, then a capital injection might be required. $28m would nicely fill this gap. Turners could, 'on paper' shift $28m of capital into Oxford, then -provided the sale price was over $28m- the cash position of the remainder of the company would not be disadvantaged. No real need to even tell the shareholders about it as once the sale goes through, that $28m of cash loaned is all paid back It does mean though that if Oxford is sold for $100m, the net cashflow into Turners as a result of the sale process would be reduced to:
$100m - $28m = $72m
Furthermore Turners might have a dirty 'residual loan book' of $25.247m to work through.
SNOOPY
Last edited by Snoopy; 19-09-2019 at 03:26 PM.
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19-09-2019, 01:39 PM
#5789
If you are selling a finance company and you want the best price, then you want the loan book to be as clean as possible. One way to do that is to withhold the doubtful debts from what you are selling. However, if by doing this your equity backing becomes insufficient, then a capital injection might be required. $28m would nicely fill this gap. The seller could shift $28m of capital into Oxford then provided the sale price was over $28m the cash position of the remainder of the company would not be disadvantaged.
SNOOPY
Don't know about you but I gave up on chasing my own tail a while ago and this little scheme seems suspiciously similar.
Problem loans have been growing overall and in the non recourse MTF referral part, alarmingly so.
At last years annual meeting they told us they'd changed their eligibility criteria 4 times during the year under which new loans were approved. It had a very experimental feel about it. I'm not surprised they are trying to sell their finance company because it reeks of doggy doo.
Ecclesiastes 11:2: “Divide your portion to seven, or even to eight, for you do not know what misfortune may occur on the earth.”
Ben Graham - In the short run the market is a voting machine but in the long run the market is a weighing machine
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20-09-2019, 09:23 AM
#5790
The Insurance Windfall Mystery: Part 3
Originally Posted by Snoopy
|
FY2019 |
FY2018 |
FY2017 |
FY2016 |
FY2015 |
Insurance Contracts: Change in Discount rate |
($0.207m) |
($0.120m) |
$0.164m |
($0.119m) |
($0.311m) |
Insurance Contracts: Difference between actual and assumed experience |
$5.745m |
$2.491m |
($0.552m) |
$0.062m |
$0.138m |
Life Investments Contracts: Difference between actual and assumed experience |
$0.266m |
$0.294m |
$0.420m |
$0.599m |
$0.696m |
Total Insurance Profit Contribution (after tax) {A} |
$5.804m |
$2.664m |
$0.032m |
$0.542m |
$0.523m |
Declared Turners NPAT {B} |
$22.329m |
$23.192m |
$17.609m |
$15.573m |
$18.069m |
Insurance Adjustment/NPAT {A}/{B} |
26.0% |
11.5% |
0.18% |
3.48% |
2.89% |
Insurance Return on Assets (NPAT) above Contract Liabilities |
$1.022m |
$0.823m |
$0.383m |
$0.307m |
$0.243m |
On 31st March 2017 the 'Autosure' vehicle insurance business was acquired. That means that FY2018 and FY2019 include results from 'Autosure', whereas previous years did not.
Of the declared insurance earnings of $8.577m (AR2019 page 90), only $5.099m of 'shareholder earnings' -before tax- occurred over FY2019. So how is it that Turners can claim a larger $8.227m worth of insurance earnings over FY2019 in the 'Operating Segment' earnings on page 53?
The only answer I can come up with is that Turners are claiming profits that actually belong to the likes of life policy holders as their own. I hope someone can tell me that I am reading these figures the wrong way. Because if I am right, then these 'insurance profits' (by implication for shareholders) claimed by Turners look very dubious.
I now wish to move on to Turners 'insurance positions' as recorded in the balance sheets of the last five years. A company offering insurance will be required to estimate their liabilities going forwards and maintain an asset base that has the capability to discharge those expected liabilities. The snapshot end of year balance sheet position of Turners in this regard I have tabulated below:
|
FY2019 |
FY2018 |
FY2017 |
FY2016 |
FY2015 |
Financial Assets at fair value through Profit or Loss |
$66.252m |
$53.378m |
$10.320m |
$18.455m |
$17.350m |
less Insurance Contracts Liabilities |
($51.785m) |
($48.378m) |
($42.874m) |
($9.489m) |
($9.280m) |
less Life Investment Contract Liabilities |
($7.484m) |
($7.127m) |
($12.847m) |
($15.629m) |
($16.378m) |
equals Funding Surplus |
$6.983m |
($2.127m) |
($45.401m) |
($6.663m) |
($8.308m) |
FY2017 looks to be an anomaly. This is probably because Autosure was acquired on the last day of the financial year (31-03-2017) and somehow the liabilities from that deal suddenly appeared on the balance sheet while the assets that supported those liability payments did not, at least immediately
If you disregard FY2017, we can see that the overall insurance deficit has been reducing to the extent that at last balance date there was a net surplus. But does this mean that we shareholders can now claim this 'surplus money'?
While the insurance plans are in deficit, Turners has an obligation to eventually close any funding gaps. I say 'eventually' because if the actual payment of an obligation is not due for several years, Turners can use their investment skills to grow their 'on the books' insurance capital to meet those future insurance liabilities by the time those liabilities eventually become due. Yet we know investment markets can go up and down. So just because we have an 'investment surplus' now, that does not mean that we will have an investment surplus when the associated payment obligations come due.
Turners have another way to generate 'insurance capital' and that is to raise premium charges by more than the expected payouts they will make. In 'insurance speak', I think the term for this is 'reducing the loss ratio'. So we shareholders could just take the 'insurance capital surplus' knowing that if the balance turns negative again we can just increase insurance premiums. I have to admit feeling a bit queasy over the ethics of that behaviour. The counter argument would be that if the net plan deficit were to remain, then we shareholders would be obliged to make up the difference by supplying new capital. So it is only fair that we should be allowed to take away our surplus capital when it is ostensibly no longer needed.
I am left thinking there must be insurance industry rules or at least 'principles of best practice' that resolve the issues I have raised in this post. The problem is I don't know where to find them! If anyone knows please post a link!
The Turners annual result accounts seem to represent the position of stakeholders, who include both 'policy holders' and 'shareholders'. Both of our interests appear to be mixed up. I have to assume that Turners are following any 'principles of best practice' in their accounts. To that end I am thinking that the table below is my 'best guess' as to what proportion of insurance returns can be legitimately and legally accessed by shareholders. Refer to AR2019 p86 to understand where I have copied these figures from.
|
FY2019 |
FY2018 |
FY2017 |
FY2016 |
FY2015 |
Insurance Return on Assets (NPAT) above Contract Liabilities |
$1.022m |
$0.823m |
$0.383m |
$0.307m |
$0.243m |
SNOOPY
PS To read the entire 'Insurance Windfall Mystery' series select 'Search This Thread', then 'Advanced Search' then put in my name as author (Snoopy) with 'windfall' as the keyword. They should all come up.
Last edited by Snoopy; 20-09-2019 at 11:43 AM.
Watch out for the most persistent and dangerous version of Covid-19: B.S.24/7
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