https://www.nzx.com/files/attachments/236809.pdf
Time to continue this cross threaded theme on impairment costs. Although Turners have released their FY2016, they have not yet released enough detail to allow me to perform impairment calculations. So the following information is compiled from note 15 in AR2015 (and note 13 AR2014), and refers to the previous two years.
Turners Group Date 'Stressed' Loans on the books (X) Net Financial Receivables (Impairments deducted) (Averaged Year to Year)(Y) (X)/(Y) Amounts Written Off (W) Gross Financial Receivables (Averaged Year to Year) (W)/(Z) EOFY2014 $2.960m $33.242m 7.85% $0.175m $39.241m 0.45% EOFY2015 $3.232m $90.277m 2.26% $0.244m $96.782m 0.25%
At Turners it seems that the loan quality is only revealed by how far past due a bill is. However, Turners do not use such a crude system as 'past due date' to judge whether a loan is impaired or not. While all loans 'past due for 90+ days' are classed as impaired, the converse is not true. In FY2015, for example there were $4.102m in loans 'past due for 90+ days' that were not classed as impaired. I have therefore defined 'Stressed Loans' in the context of Turners as follows:
Impaired Loans Past due for 90+ days
plus Not Impaired Loans Past due for 90+ days
plus Not Impaired Loans Past due for 60 to 90 days
less Specific Impairment Provision
less Collective Impairment Provision
The comparative Heartland figures are below.
Heartland Date 'Stressed' Loans on the books (X) Net Financial Receivables (Impairments deducted) (Y) (X)/(Y) Write Offs (W) Gross Financial Receivables (Z) (W)/(Z) EOFY2014 $41.354m $2,607.393m 1.59% $35.258+$3.260m $2.631.754m 1.46% EOFY2015 $32.824m $2,862.070m 1.15% $1.555m+$1.910m $2.893.704m 0.12%
Once again I must emphasise that Heartland and Turners both lend on cars and machinery, but Heartland do rather more than that. So the comparison should not be seen entirely to be 'like with like'. Nevertheless it is interesting to see the proportion of 'stressed loans' at Heartland is only about half that at Turners.
SNOOPY
The report is out and the extra detail has been released. So it is time to look again at the comparison with Heartland. Turners do not disclose sufficient detail for half yearly comparisons. So it is only meaningful to compare annual periods. And even then, because there are only three data points, none of this will stand up to any really rigorous statistical analysis. But let's do it anyway!
Turners Date 'Stressed' Loans on the books (X) Net Financial Receivables (Impairments deducted) (Y) (X)/(Y) Impaired Asset Expense (V) Write Off (W) Gross Financial Receivables (Z) (V)/(Z) (W)/(Z) EOFY2014 $2.875m $37.692m 7.63% -$0.532m -$1.452m $43.212m 1.23% 3.36% EOFY2015 $2.598m $143.365m 1.81% -$1.607m -$1.375m $150.351m 1.07% 0.94% EOFY2016 $1.580m $168.889m 0.94% -$1.041m -$1.041m $175.675m 0.59% 0.59% Total -$3.180m -$3.868m Average 0.96% 1.62%
Heartland Date 'Stressed' Loans on the books (X) Net Financial Receivables (Impairments deducted) (Y) (X)/(Y) Impaired Asset Expense (V) Write Off (W) Gross Financial Receivables (Z) (V)/(Z) (W)/(Z) EOFY2013 $48.975m $1,961.402m 2.50% -$22.567m -$13.660m $2,060.867m 1.10% 0.66% EOFY2014 $41.354m $2,566.039m 1.61% -$5.895m -$38.518m $2,631.754m 0.22% 1.46% EOFY2015 $39.066m $2,829.246m 1.38% -$12.105m -$4.891m $2,893.724m 0.42% 0.17% Total -$40.567m -$57.069m Average 0.58% 0.76%
UDC Date 'Stressed' Loans on the books (X) Net Financial Receivables (Impairments deducted) (Y) (X)/(Y) Impaired Asset Expense (V) Write Off (W) Gross Financial Receivables (Z) (V)/(Z) (W)/(Z) EOFY2013 $1,265.715m $2,161.193m 58.6% -$7.123m -$12.339m+$3.745m $2,198.653m 0.32% 0.39% EOFY2014 $938.949m $2,344.131m 40.1% -$11.733m -$18.633m-$3.300 $2,375.936m 0.49% 0.92% EOFY2015 $1,018.134m $2,429.695m 41.9% -$10.427m -$12.162m+$0.659m $2,421.224m 0.42% 0.47% Total -$29.283m -$42.030m Average 0.41% 0.59%
Comments to come.
SNOOPY
'Impaired Asset Expense' and 'Write Offs' should, over time, add up to roughly the same amount. Three years is really too short a time frame to look for this balance. Nevertheless, both Turners (+21%) and Heartland (+41%) have written off more than their impairment provisioning would suggest. This comparison is comparing just the last three years.
In the case of Turners, it has been so transformed that further historiclal comparisons are somewhat meaningless. In the case of Heartland we have 4.5 years of 'meaningful data' (better but more data will be welcome). This shows writes offs being 72% higher than impairments over that 4.5 year time period.
The big imbalance at Turners was in FY2014. FY2014 I would class as a 'transformative year' (A +240% increase in the receivables balance). Transformative years sometimes require larger than normal adjustments. Taking this out, I would say that Turners is on track to achieving a kind of balance between 'impairment expense' and 'write off's' that Heartland does not achieve. There is no real evidence that Turners are inflating profits by underprovisioning on their bad debts. This means it is not necessary to 'adjust' Turners profits to a long term sustainable level. IMO, The declared profits do this just fine.
SNOOPY
One correlation worth looking at is 'Average Write Offs' (normalised) verses 'Stressed Loans on the Books' (normalised). I have defined 'Stressed Loans' and 'Write Offs' to be mutually exclusive sets.
In percentage terms the 'Average Write Off' is about half that of the 'Average Stressed Loan Balance' in percentage terms for Heartland. By contrast, the 'Average Write Off' is roughly equal to the 'Average Stressed Loan Balance' in percentage terms for Turners.
Structurally there are a lot more motor vehicle loans at Turners rather than Heartland. So maybe motor vehicle loans are more likely to go bad? Or is this just another measure of how Heartland is likely underprevisioned in the bad debt department?
There is no particular evidence that 'Stressed loans' and 'Impaired loans' are correlated at all. But we had better assume they are. Because if they are not, this means that most impaired loans arise suddenly and unpredictibly. And who wants to invest in a company with a loan book that behaves like that?
SNOOPY
Goodness... what a fantastic acquisition!
https://www.nzx.com/companies/TNR/announcements/285582
I am making a few assumptions below. But nevertheless I expect the figures to be 'ball park'.
Buy Right Cars advertise 2,000 cars in stock. So 2,000 x $10,000m = $20m to be paid for stock.
$15.3m x 0.78 = $11.9m in the cash settlement for the business.
So total cash to be paid for the business is $31.9m
The remainder payment for the business excluding stock is: $15.3m - $11.9m = $3.4m to be paid in TNR shares. Assuming these are issued at $2.80 (roughly the moving average price for CY2016) , this means:
$3.4m/$2.80 = 1.2m new TNR shares will be issued.
EBIT increase forecasted at $4.1m under the first year of ownership.
$4.1m/1.2m = $3.40 EBIT per share for all of those new shares issued.
Operating profit (EBT) last year was $21.551m. Add back in the interest expense of $11.436m and I get an EBIT of $32.987m. No. shares on issue at last balance date was 63.431m (adjusted for post 10:1 consolidation).
Current EBIT per share was therefore:
$32.987m / 63.431m = 52cps
On a per share EBIT for FY2016 basis then, this acquisition looks rather spectacular!
SNOOPY