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

[Marilyn Munroe]

discussion by Beagle about new safety import restrictions

The newer the car the safer it is and poeple want the best car they can afford.

Therefore if the Government wants ordinary Kiwi jokers to drive safer cars it should make it as easy as possible to upgrade their old bangers by not introducing regulatory hurdles.

Unfortunately this would mean the tea drinkers and biscuit nibblers who come up with regs in the Ministry of Transport would have nothing to do.

Boop boop de do
Marilyn

[Snoopy]

Finally I refer to the EC Credit unredeemed voucher release to P&L, amounting to $0.7m. Turners mentioned this as a significant abnormal (HYR2019 p22), as it was $700,000 less than the equivalent squaring up of the book over FY2017 - actual value $400,000 for the year (AR2018 p13). If you regard the FY2017 year as 'normal' and the FY2018 as 'abnormal', then my normalised adjustment looks appropriate. But truth be told, I do not really understand what an 'unredeemed voucher release' is. I have figured out it is debt collection industry jargon, and that it contributes to profits at the EC Credit division. But what is it? And why is it different to normal debt collection profits? If anyone can answer that question, once again I am all ears!

Got off my doghouse and went to the EC Credit website:

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Easy Debt Collection Process

EC Credit control uses a quick voucher system to lodge a debt that you need to be recovered. It’s a simple process to fill out the voucher and send it in, or you can even do it on-line. EC Credit control has 24×7 access to its lodging system so you can lodge it immediately at a time that’s convenient to you.

Up Front Costs

Loading a voucher will only be a single set fee to start the process. So no matter how often we contact your client you won’t be charged any additional fees. If EC Credit control can’t collect your debt then there will be no commission fee charged.

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It looks like these 'vouchers' are one off debts sent in by customers, as opposed to a 'debt collection book' that EC Credit works through. So if:

1/ you want a debt repaid, and send in a voucher to EC Credit to that effect AND
2/ EC Credit collects that debt for you BUT
3/ you forget that you asked EC credit to collect that debt in the first place so the voucher is not redeemed.
4/ Does this mean that EC Credit can simply keep your money as a unredeemed voucher?

It seems hard to believe that EC Credit could be that unethical as to just keep the money of the customer who initiated the request, or that there are enough EC Credit clients about that are so forgetful.

But what other explanation might there be? Are we just talking about a EC Credit "banking that set up fee" without collecting the debt and any associated commission?

I don't think anyone took up this 'baton' of mine from January. So with the ultimate objective of making a better normalised profit result estimate, I will have another go at explaining the situation as I see it.

These 'vouchers', or 'contracts to collect debts', or 'EC Voucher Liabilities' (as described in HYR2019 p22) , are not individually initiated by Turners division 'EC Credit'. They are jobs that are independently tacked onto the EC Credit job sheet by others (third party customers). I am guessing what EC Credit is saying is that they have no control as to how easy these jobs are to collect. If more of these jobs become uncollectable, then this cannot be necessarily seen as a reflection on EC Credit's performance, because they had no say in whether the collection of these debts were even a realistic proposition in the first place.

If this interpretation is right, then 'unredeemed vouchers' mean those 'unable to be processed' one off debt collection jobs independently logged in by EC credit customers. This is a cost to EC Credit in that they have put resources into collecting the debt, but no money (save for the one off debt registration fee) has been recovered. Can these type of jobs, or at least the lack of recoveries from them, really be classified as 'abnormal'? Since 'EC Credit' is in the account collections business, I have my doubts....

SNOOPY

[kiora]

I don't think anyone took up this 'baton' of mine from January. So with the ultimate objective of making a better normalised profit result estimate, I will have another go at explaining it.

These 'vouchers', or contracts to collect debts, are not initiated by 'EC Credit' in the sense they are jobs that are independently tacked onto the EC Credit job sheet by others.. I am guessing what EC Credit is saying is that they have no control as to how easy these jobs are to collect. If more of these jobs become uncollectable, then this cannot be necessarily seen as a reflection on EC Credit's performance, because they had no say in whether the collection of these debts were even a realistic proposition in the first place.

If this interpretation is right, then 'unredeemed vouchers' mean those 'unable to be processed' one off debt collection jobs independently logged in by EC credit customers.

I had some issued.Now unredeemed.
A discount in advance that I had no need for and didn't use?

[Snoopy]

I had some issued.Now unredeemed.
A discount in advance that I had no need for and didn't use?

Can you expand on your answer kiora? Have you used the "EC Credit voucher" service? TIA

SNOOPY

[Snoopy]

	Profit FY2018	Profit HY2019	Annualized Profit FY2019	Reference
As declared	$23.360m	$12.885m
less Retrospective impairment provision adjustment	0.72 x ($1.212)m			My post 3980, this thread
less Property sale gain Wiri		($3.400)m		HYR2019 p22
less earn Out payment for Autosure to P&L		($0.800)m		HYR2019 p49
less Revaluation Investment Property gain	($0.820)m			AR2018 p51
less Gain on Sale of Property, Plant and Equipment	($1.000)m			AR2018 p51
less EC Credit unredeemed voucher release to P&L	0.72 x ($0.700)m			AR2018 p13, HYR2019 p22
less MTF Shareholding revaluation	($0.612)m			AR2018 p67
less reduction in 'Buy Right Cars' earn out provision to P&L	($2.600)m			HYR2019 p49
less Insurance and Life Investments Contract Adjustments	($2.664)m			AR2018 p51 and p76
equals	$14.287m	$8.685m	$17.370m

	Shares on Issue FY2018	Shares on issue HY2019
	84,802,812	89,480,000
Normalised Annualised Business eps	16.9c (FY2018)	19.4c (FY2019f)

At the current share price of $2.40, I have] TRA on a forecast normalized PE ratio of 12.4 for FY2019. Underlying eps growth for the year should be 15%.

	Profit FY2018	Profit FY2019	Reference
As declared	$23.360m	$22.719m
less Retrospective impairment provision adjustment	0.72 x ($1.212)m		My post 3980, this thread
less Revaluation Investment Property gain	($0.820)m	($0.830)m	AR2018 p51, AR2019 p55
less Gain on Sale of Property, Plant and Equipment	($1.000)m	($3.607)m	AR2018 p51, AR2019 p55
less Gain on NZTA acquired leasehold premesis		($3.393)m	AR2019 p55
less MTF Shareholding revaluation	($0.612)m	$0m	AR2018 p67, AR2019 p71
less reduction in already budgeted 'Buy Right Cars' earn out provision to P&L	($2.600)m		HYR2019 p49
less Insurance and Life Investments Contract Adjustments	($2.664)m	($5.804m)	AR2018 p51 and p76, AR2019 p86
add Impairment of 'Buy Right Cars' Brand		$4.300m	AR2019 p31
equals	$14.791m	$13.385m

	Shares on Issue FY2018	Shares on issue FY2019
	84,802,812	86,888,064
Normalised Annualised Business eps	17.4c (FY2018)	15.4c (FY2019)

At the current share price of $2.31, I have TRA on an historical normalized PE ratio of 15.0 for FY2019. So much for the accuracy of my 'forecast' made in January :-(.

Notes

1/ I have changed my mind on normalising for the EC Credit unredeemed vouchers for unexpected change over FY2018. I now think it is just part of the ups and downs of the normal business of doing business. I do reserve my right to my mind back again should any of you shareholders manage to convince me that I am wrong ;-P.

2/ Reading the Half Year 2019 report again p22, I am a little unclear on the effect of the sale of Wiri. In paragraph 1, Turners are booking a

"$3.4 gain on the sale of an Auckland property"

Yet in paragraph 2, Turners say that revenue includes

"$3.4m from the sale of the property in Wiri."

Those two quotes taken together imply that 'Revenue' equals 'Profit' which doesn't seem right. Can anyone confirm exactly what did happen with Wiri ? I think my potential misinterpretation of this may have put my 'forecast' estimate out.

From the subsequent annual result, it looks like $0.830m was made on what was probably the Wiri sale, even though it was not specifically identified as such. I have assumed this figure is the correct one to use in normalising my FY2019 calculation.

3/ Details of the MTF shareholding revaluation through profit and loss are taken from AR2018 p67. If we go to page 52 of the 'MTF Annual Report 2018', 'Turners Finance' held 1,895,891 shares at the MTF 30th September balance date.

The valuations of the Turners MTF holding at TRA balance date imply the following MTF share price(s) at the TRA balance date(s) (31st March):

MTF share price 31-03-2017: $3.008m / 1.896 = $1.59
MTF share price 31-03-2018: $3.620m / 1.896 = $1.91

The change in the valuation of MTF shares held over that year was:

$3.620m - $3.008m = $0.612m

This doesn't quite align with the 'valuation gain on (all) investments' of $0.590m on AR2018 p51. But it is close enough to suggest that the revaluation of those MTF shares is the most important component of that.

Curiously if we look at the equivalent page in AR2019 (p71) the change in the value of the MTF shareholding is not mentioned. Yet it does say that Turners is still a shareholder in MTF. Can anyone explain why the change in the value of the MTF shareholding seems to not be reported on over FY2019?

4/ I leave the most significant part of my 'profit normalisation' until last. Have a look at AR2019, note 34c, part of the insurance activities notes.

	FY2019	FY2018
Change in Discount rate	($0.207m)	($0.120m)
Difference between actual and assumed experience	$5.745m	$2.491m
Life Investments Contracts: Difference between actual and assumed experience	$0.266m	$0.294m
Total	$5.804m	$2.664m

Now go to note 7, p55 in AR2019 and you will see that the $2.664m figure is reported as a 'Fair value gain on Contingent Consideration' for FY2018. Yet the equivalent figure for for FY2019 is missing, no doubt subsumed in the new expanded for this year Insurance divisions wider profits. I consider that $5.804m not repeatable and a figure that should be removed from operational profits, just like in FY2018. I don't know why Turners seem to have changed their policy on this but I am calling them out. Take out that $5.804m gain from the Turners Insurance arm operating profit (declared $8.227m for FY2019) and you will find how profitable the underlying insurance division really was in FY2019.

SNOOPY

[winner69]

Snoopy - thats not very good is it

Just as well every body likes those abnormal items

[kiora]

As per today's email from EC Credit
A nice little business

EC Credit Control - App now on the Xero Marketplace
Hi XXXX

We recently let you know that our connection to Xero was live and that you can use it to make loading debts with us as hassle-free as possible.

Today, we wanted to let you know that the app is now listed on the Xero App Marketplace. You can find it here https://apps.xero.com/nz/search/app/ec-credit-control

[Beagle]

Great you finally got your snout around this my furry friend and as suspected the normalised eps is nothing flash. A PE of 15 for a company that's reducing normalised earnings is not good at all. I normally use a PE of 8.5 for a no growth company when the risk free rate is 4% but with the current extremely unusual situation of 10 year N.Z. Govt bonds trading very close to 1% I could stretch this to a no growth PE of 11.5 if I was feeling generous. Still... 11.5 is a long way short of 15 and no growth is putting it mildly, normalised eps is going backwards although I am sure others will have a completely different view and include some of the matters you've excluded from normal earnings and arrive at a different conclusion. I also think Colonial motors is more than a little expensive at this time so its a very good sector to avoid at this point in my opinion.

[Snoopy]

As per today's email from EC Credit
A nice little business

EC Credit Control - App now on the Xero Marketplace
Hi XXXX

We recently let you know that our connection to Xero was live and that you can use it to make loading debts with us as hassle-free as possible.

Today, we wanted to let you know that the app is now listed on the Xero App Marketplace. You can find it here https://apps.xero.com/nz/search/app/ec-credit-control

OK kiora, so you are an EC Credit customer? Would you care to give us a 'consumer review' of how it works for you? TIA

SNOOPY

[kiora]

No I haven't used ECC but their offering seemed good to me
Maybe some else has