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  1. #5691
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    Quote Originally Posted by silverblizzard888 View Post
    Definitely an undervalued stock, particularly when the market currently values it for little or no growth, yet theres plenty of growth coming. They have 9 new sites opening in the next 2 years.
    They will be flushed with cash given they earn a great net profit, will be selling oxford finance and later EC Credit Control. Paying a 7% dividend and on top of that doing a share buyback, not to mention getting into car subscription that will utilize their assets in a more advantageous way. This should be a $4-5 stock on present earnings and potential, so I'd agree with the CEO this stock is terribly undervalued.
    Should be $4-5, yeah right and pigs should also fly.

  2. #5692
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    Quote Originally Posted by silverblizzard888 View Post
    Definitely an undervalued stock, particularly when the market currently values it for little or no growth, yet there's plenty of growth coming. They have 9 new sites opening in the next 2 years.
    Taking out all the one off property deals and one off insurance windfalls (my post 5575) I am looking at underlying 'eps' earnings of 15.4cps for FY2019. At Fridays closing price of $2.36 this equates to an historical PE of 15. To my way of thinking considerable growth will be required to justify a price of $2.36 as a PE of 15 definitely does not imply 'little or no growth' (for a retailer). There may be nine new sites planned to be opened in the next two years. But not all of these are greenfields expansions. Some are effectively upgrades of existing sites.

    They will be flushed with cash given they earn a great net profit, will be selling oxford finance and later EC Credit Control.
    There is a net $300m of bank borrowings on the balance sheet at EOFY2019. Selling Oxford finance and EC Credit may only reduce debt from 'concerning' to 'high'.

    Paying a 7% dividend and on top of that doing a share buyback, not to mention getting into car subscription that will utilize their assets in a more advantageous way.
    If the finance division is sold I would expect dividends to become more irregular. The predictable regular cashflow from all those finance deals would be gone. By my calculation the dividend now exceeds the underlying earnings of the company. I think future property sell downs may allow the dividend to be maintained for a while. But ultimately I think the dividend will have to be reduced.

    Another concern I have is that, capital requirements aside, 'car finance' has always been more profitable than selling the cars. And that is adjusting for backing all the residual finance business from Turners into 'Oxford Finance'. But I guess when Turners own the retail company and the finance company it is hard to distinguish between real underlying divisional profit and possible cross subsidisation (transfer pricing) between divisions. Is selling finance equivalent to selling the golden goose? The way the accounts are presented in the segmented breakdown by divisions suggests the answer is 'yes'.

    SNOOPY
    Last edited by Snoopy; 15-09-2019 at 07:49 AM.
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  3. #5693
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    We should respect silverblizzards view of Turners valuation

    After all he/she is in the top 5 in the picking competition ...doing heaps better than most of us

    Well done silverblizzard
    “ At the top of every bubble, everyone is convinced it's not yet a bubble.”

  4. #5694
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    Quote Originally Posted by winner69 View Post
    We should respect silverblizzards view of Turners valuation

    After all he/she is in the top 5 in the picking competition ...doing heaps better than most of us

    Well done silverblizzard
    Yes well done however TRA wasn't one of his/her picks.

  5. #5695
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    Quote Originally Posted by couta1 View Post
    Yes well done however TRA wasn't one of his/her picks.
    Perhaps Silverblizzard88 is looking ahead already for next year,getting "well positioned."
    Last edited by percy; 15-09-2019 at 12:59 PM.

  6. #5696
    2019 NZ Stock Picking Winner silverblizzard888's Avatar
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    Quote Originally Posted by winner69 View Post
    We should respect silverblizzards view of Turners valuation

    After all he/she is in the top 5 in the picking competition ...doing heaps better than most of us

    Well done silverblizzard
    Thanks Winner, just a bit more lucky in this competition than most, but I believe there a lot of good investors that the results in the competition won't reflect. Your efforts and contributions are always very respectable.

    Quote Originally Posted by percy View Post
    Perhaps Silverblizzard88 is looking ahead already for next year,getting "well positioned."
    Exactly Percy! Getting 'well positioned' for what I believe is a big capital inflow to the business and what I believe will be a large payout to current shareholders in the next 3-6 months.

    I'm expecting Oxford Finance to sell in the region of $60 million with majority returned to shareholders in one form or another, if not a big acquisition would make things interesting too. Oxford generate about 26% of the underlying earnings for Turners, so the impact vs capital returned isn't too bad.


    Regarding the debt of the company, there is a borrowings of $312 million (annual report), but you have to consider that Oxford Finance's loans amount to $254 million, and in total consumer and commercial loans amount to $291 million. So once Oxford is sold off, the borrowings don't actually look that bad.
    Last edited by silverblizzard888; 15-09-2019 at 02:54 PM.

  7. #5697
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    Agree with Snoopy..... why cut the hand that feeds you by selling Oxford finance and EC Credit.
    Last edited by etnom; 15-09-2019 at 07:28 PM. Reason: spelling

  8. #5698
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    Quote Originally Posted by winner69 View Post
    We should respect silverblizzards view of Turners valuation

    After all he/she is in the top 5 in the picking competition ...doing heaps better than most of us

    Well done silverblizzard
    No disrespect meant to Silverblizzard Winner, and I sincerely hope none was taken. It is just that when I see a superbullish post, I like to remind investors there is another window through which we can look at TRA. I hope Silverblizzard is right, because I am a TRA shareholder! But I think it was you who pointed out that hope is not an investment strategy.

    The quote below is from AR2019 p86.

    Quote Originally Posted by Snoopy View Post

    FY2019
    Insurance Contracts: Change in Discount rate ($0.207m)
    Insurance Contracts: Difference between actual and assumed experience $5.745m
    Life Investments Contracts: Difference between actual and assumed experience $0.266m
    Total Insurance Profit Contribution (after tax) {A} $5.804m
    Declared Turners NPAT {B} $22.329m
    Insurance Adjustment/NPAT {A}/{B} 26.0%

    I previously wrote:

    "I consider that $5.804m (for FY2019) not repeatable and a figure that should be removed from operational profits,"

    But I am not sure that my opinion on that score is right.
    The big issue I have with TRA's 2019 profits is the figure I have emboldened above. What does that mean? A partial explanation contained in the annual report is reported below.

    Quote Originally Posted by Snoopy View Post
    'Difference between actual and assumed experience'

    This term is further explained in AR2019 p93 under the heading 'sensitivity analysis'. The conceptual problem I have with this phrase is that it seems to encapsulate both things that are part of normal business practice and those that aren't. Specifically with the five sub-categories this phase apparently encapsulates:

    1/ Expense Risk: If your costs go up because of inflation more than you plan for then your profits will decrease - Rather obvious I think
    2/Interest rate Risk: Investment income will decrease as interest rates on the underlying fixed interest vehicles decrease. However, this can be offset by the capital value of underlying bonds increasing. - Not rocket science here
    3/ Mortality rates: Death triggering the cashing out of life insurance policies means lower profits (less premiums being paid) and reduced shareholder equity. - I question this one because, if I interpret this correctly, the shareholder equity paid out in settlement of a life insurance policy was always going to be paid out eventually. Thus calling it 'shareholder equity' smacks of taking someone's life insurance actuarially based entitlements and calling that 'company money'. Can an insurance company really claim a policy holders entitlement as their own?
    4/ Discontinuence: This seems to be used in the sense of people stopping payments towards their life insurance policy. Turners say this is generally negative. That makes sense if you consider that as a result of discontinuence Turners loses an income stream to invest. But how can they lose 'shareholder equity' if the money they were holding to support these life insurance policies was never theirs in the first place?
    5/ Market Risk: For fixed future payouts that are supported by market investments, if the market goes down then Turners may have to stump up cash to make up the difference. - That is a fair point. But markets tend to go up and down. So should annual investment volatility be included as a profit ingredient when the underlying profits or losses are accumulated and may not be paid out for years or even decades?

    In summary, while some 'Difference between actual and assumed experience' risks are immediate and legitimate to feed into annual profits, some are not. In particular the implied 'mixing of customers entitlement' with 'company money' should not in my view be any reflection of the operational performance of the business.

    My position on 'Difference between actual and assumed experience' adjustments has thus far has been to ignore them. But by doing so I could be ignoring genuine gains or losses that should accrue to shareholders.

    However, if I include them, then it seems I am including gains that will accrue to policyholders for which shareholders will have no ultimate entitlement. Thus no matter which of these two decision paths I choose to take I will end up with the wrong answer. And there is my dilemma.
    I think the $5.745m I am principally concerned about mostly (totally?) relates to 'Autosure'. This is because the equivalent life insurance policy figure is listed separately. I also think that $5.745m is an amount of money that Turners now have 'on paper' over and above what they thought they would have a year previously. But where has this on paper gain come from? And will it ever really be realised as cash?

    Because it doesn't relate to life insurance, I think we can ignore 'Difference between actual and assumed experience' points 3 and 4 when discussing 'Autosure'. For the remaining points:

    1/ We know that Turners have readjusted their 'Autosure' premiums to charge relatively more for European cars and less for Japanese cars. So could it be that the 'Autosure' insurance payout fund has swelled by $5.745m because Autosure have decreased their payout ratio?

    2 and 5/ These are both concerned with how 'changes in markets' affect insurance floats. 'Autosure' is relatively short term product, which means it is unlikely to be supported by equity market investments. That's because Equity Investments are too volatile to fund reliable short term pay outs. But what if TRA had had a really good investment come good over the year? Has putting the insurance float into a company internal property build and lease back deal provide the confidence that such deals can continue to be done into the future, for example? Could the $5.745m gain just be the result from a change in future earnings assumptions?

    SNOOPY
    Last edited by Snoopy; 16-09-2019 at 07:28 AM.
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  9. #5699
    2019 NZ Stock Picking Winner silverblizzard888's Avatar
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    Quote Originally Posted by Snoopy View Post
    I think the $5.745m I am principally concerned about mostly (totally?) relates to 'Autosure'. This is because the equivalent life insurance policy figure is listed separately. I also think that $5.745m is an amount of money that Turners now have 'on paper' over and above what they thought they would have a year previously. But where has this on paper gain come from? And will it ever really be realised as cash?

    Because it doesn't relate to life insurance, I think we can ignore 'Difference between actual and assumed experience' points 3 and 4 when discussing 'Autosure'. For the remaining points:

    1/ We know that Turners have readjusted their 'Autosure' premiums to charge relatively more for European cars and less for Japanese cars. So could it be that the 'Autosure' insurance payout fund has swelled by $5.745m because Autosure have decreased their payout ratio?

    2 and 5/ These are both concerned with how 'changes in markets' affect insurance floats. 'Autosure' is relatively short term product, which means it is unlikely to be supported by equity market investments. That's because Equity Investments are too volatile to fund reliable short term pay outs.
    I think this definition insurance companies use will help:

    The Difference Between Actual and Assumed Experience — Experience profits/(losses) are realized where actual experience differs from best estimate assumptions. Instances giving rise to experience profits/(losses) include variations in claims, expenses, mortality, discontinuance and investment returns. For example, an experienced profit will emerge when the expenses of maintaining all in-force business in a year are lower than the best estimate assumption in respect of those expenses"

    It more or less recognized premiums that were factored into claims, but not claimed and could be recognized as profits. Seems every insurance company uses this way of reporting both in NZ and internationally.

    The company does cite "IMPROVED INSURANCE LOSS RATIOS: Insurance claims loss ratios have improved from 78% to 72%."

    (A loss ratio is a ratio of losses to gains, used normally in a financial context. It is the opposite of the gross profit ratio. For insurance, the loss ratio is the ratio of total losses incurred in claims plus adjustment expenses divided by the total premiums earned.)

    Less losses more money able to be recognised as profits, seems simple enough.
    Last edited by silverblizzard888; 15-09-2019 at 10:44 PM.

  10. #5700
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    Quote Originally Posted by Joshuatree View Post
    When my friend bought their car from Turners recently they also took out $600 mechanical insurance, great ticket clipping there!
    On a high end European car (e.g. JLR, BMW or Mercedes) your friend might well end up having the last laugh. Obviously if it's a Toyota Camry Turners have clipped a good one.

    As a side note, during the last recession ('09 or '10?), I seem to recall many zero mile late model cars being cleared by auction at reduced prices. There was no "cash for clunkers" in New Zealand to keep inventory moving I suppose.

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