You must know the statement by now perc....
Old age and cunning will out whit ?????
You must know the statement by now perc....
Old age and cunning will out whit ?????
Time to be sensible " Chaps "
Wait for the real figures ... OK ??
My thought in a nut shell..
Your shot :-)))
I just love today's announcement;"Profit ahead of forecast and guidance."
Look forward, with confidence to the 30th May's full year's result.
As a very small shareholder, but potentially a much larger shareholder if I convert my bonds, I am cautious. There is a big incentive here for management to massage the results to induce bondholders to convert. Not saying TNR has done this. Just saying that you should drill down ionto those results, looking at the provisioning, rather than take this announcement at face value before committing.
SNOOPY
Compared to this time last year TNR is undervalued (not arguing it is, just comparatively) With this time last year the price being $3.15
In the year since net profit has grown 12% (19m - 21.4m) Id suggest there's also been a decent debt reduction with operational revenue expected to be much higher in FY16
Holding.
It will be interesting to see the profit guidance for this financial year.
The share price doesn't reflect it but this is a company that performs with ongoing consistency,
providing cautious guidance and exceeding it, under promising and over delivering.
I like where it's headed.
Subject to whether any one-offs need to be stripped from the $21.4M for a fair comparison, the growth comparison should be $14.1M ($19M stripped of one-offs) to $21.4M. However, as Snoopy cautions, never mind the width, feel the quality.
On the face of it NPBT of $21.4M translates to fully-taxed NPAT of $15.4M. $15.4M divided by 63.5M shares gives a trailing EPS of 26.3 cps.
At the upper end of the board's payout ratio of 50-55%, full year dividends for FY2016 would be 13.3 cps. The 2016 final would terefore be 7.3 cps, imputed at about half of the full imputation rate according to earlier advice. Full imputation is to apply for FY 2017 and beyond, when quarterly dividends are to be paid.
I think it is too early to say that. Last year Southern Finance was acquired for on 31st July 2015. So that subsidiary did not contribute a full years worth of profit to TNR in FY2015 (YE 31st March). The underlying TNR business was not comparable on a year on year basis
SNOOPY
The acquisition of TUA by DPC was a game changer for DPC,now TNR.
Not only did they take over a fantastic business, which has gone from strength to strength,but they gained channels for their financial products,,ie vehicle/equipment lending and insurance.
That is how I read it too Percy. At first I was skeptical when they announced that they were looking at taking over Turners, because I thought they would be too big and cumbersome and stop DPC's agility. But what you say makes sense and I think Paul Byrnes saw that too (after all he did have a position on the Turners board) and now DPC or TNR can reap the benefits, many of them synergy but also like you say complementary. I will be continuing to purchase under $3.
Note, in 2012-2013 DPC went to 37 cents (or $3.70 post consolidation), but they are now in a far superior shape than then.....
I think Percy sold out,but bought back in later, a change of heart I think. But why not its a good company with tight management.
https://www.nzx.com/files/attachments/235119.pdf
More acquisitions, more business building, more steps in the right direction.
People starting to buy up to 305 again expecting some decent results out on Monday, can't see the sp dipping under $3 after mondays results.
https://www.nzx.com/files/attachments/236507.pdf
Seems like a solid report, revenue up 76% looking towards more acquisitions this year.
A lot to like about the results.
The business is in great shape.
The succession of Todd Hunter taking over from Paul Brynes is positive,as is the fact Brynes will be on retainer for a couple of years,looking for further acquisitions.
Adding more products to the insurance suite will gain momentum with TNR's sales channels.
The online "Cartopia" and digital loan approval system "AutoApp" means TNR are customer focussed.
The increase divie and the fact we can start to look forward to "fully imputed" divies is welcome.
Attachment 8090
Says it all really. Still waiting for the market to catch up to a growing business.
Looking at those numbers makes me want to keep accumulating at these prices too!
Sorry the image is so terrible all, for those that can't see.
2012/13 had a net loss of 100k with a shareprice of $2.80
2014/15 had a net profit of 19 million with a shareprice of $3.20
2015/16 had a net profit of 21.6 million with a shareprice of (currently) $2.97
So either the sp was hugely overvalued then..... Or it's hugely undervalued now.
I'd suggest a mixture of both but under $3 tnr seems like a steal!
An excellent presentation.
Again a must read for any shareholder, or anyone looking to invest in TNR.
Would some kind person please post the link to it.
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
Added to my holding at $3.10.
Before Acquisition (Historical): EBIT/ No. Shares = $32.987m/63.431m = 52.0cps
After Acquisition (projected): EBIT/ No. Shares = ($32.987m+ $4.1m)/(63.431m +1.2m) = 57.3cps
So yes, I agree with your assessment of a 10% normalised EBIT improvement Winner.
Turners seem very free about taking on debt. Yet, if they can keep increasing their eps, who is to say they are wrong in doing so?Quote:
Does the bit about the bank funding being agreeable to Turners mean they taking on debt?
Last year debt was funded on average at 4.97%.
I previously wrote:
-----
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
----
Therefore, the debt funding cost for the above should be:
$31.9m x 0.0497 = $1.6m
Take $1.6m from the forecast incremental EBIT and I get EBT of $2.5m. With tax at 28% that gives an incremental NPAT of $1.8m.
NPAT (Actual) FY2016 was $15.517m
NPAT (Forecast) FY2017 is $15.517m + $1.8m = $17.317m
So forecast eps is: $17.317m/ 64.631m = 26.8cps
At $3.20, this gives a PE of: 320/26.8 = 12.0
And this is assuming a static year for all the rest of the business! $3.20 looks not overpriced I think, given the trajectory of the company.
SNOOPY
discl: shareholder, bondholder
How are we going on the bonds Snoopy? Are you still happy you took them in exchange for you old Turners shares?
If you do the calculations black knat, I have been both 'in the money' and 'out of the money' at various times. I don't bother doing the calculation any more. Because the whole point of owning the bonds, as opposed to the head shares, is to virtually eliminate the downside risk while enjoying a higher yield than the shareholders. And the price for that is - probably - I miss out on some of the upside risk.
So yes, I am very happy to have taken the bonds for most of my TUA shares. But I am equally happy to have my 'token' DPC/TNR shareholding at the same time!
SNOOPY
I am not sure TNR shareholders fully appreciate how brilliant the acquisition of the old Turners Auctions business has been for them (us). The last pre-takeover published full year result for "Auctions & Fleet" were published in the FY2013 financial year (ended 31st December 2013).
Turner's Auctions Underlying 'Fleet & Auction' Result (ye 31/12/2013) EBT Auctions $2.853m EBT Fleet $2.064m EBT Total $4.917m Remove Interest Earned Contribution -$0.553m EBT Total Underlying $4.364m less tax at 28% $1.221m NPAT $3.142m
It is very interesting to compare the above 'Fleet & Auction' result with the equivalent figure in the FY2016 TNR report. Note that
1/ 'Fleet & Auction' assets and liabilities for FY2013 have been reduced to 93.32% of the published figures of the whole TUA group, because 'Fleet & Auctions' represent 93.32% of the business by revenue.
2/ 'Fleet & Auction' assets and liabilities for FY2016 have been adjusted to remove eliminations and reallocate corporate and other assets and liabiliities in proportion to divisional revenue.
Assets Liabiliities Shareholder Equity Interest Expense NPAT ROE Auctions & Fleet (FY2013) $53.2m $35.8m $17.4m $0m $3.142m 18.0% Auctions & Fleet (FY2016) $99.8m $65.6m $34.2m $3.23m $4.44m 13.0%
On paper the ROE performance has deteriorated. However, 'Auctions & Fleet' have taken on a substantial interest bill since FY2013. Take that out and ROE has actually improved. Another way of thinking about this is to see that the new TNR management, by introducing debt to Finance & Auctions, has been able to pull capital out of that business and redeply it elsewhere within the Turners group. On an overall group basis, that 'Auctions & Fleet' capital is working much harder. Smart man, that Paul Byrnes!
SNOOPY
The numbers you run Snoopy are fantastic to read through and reinforce my thoughts on TNR, thank you!
I'm so confused at how the SP is still sitting around $3 after constant good news like this.
Ther is currently an arbitrage play going on with TNR and TNRHA. Those TNRHA bondholders will soon have an opportunity to acquire shares at an absolute maximum price of $3, and probably a bit less (we get a 5% discounted to the weighted average closing share price over July and August). So why would those shareholders want to pay over $3 now, when in a couple of months we coulld get those same shares cheaper? I imagine this has something to do with current TNR head share price behaviour!
SNOOPY
TNR, I think is best considered as a 'hybrid' company. The successful 'Auction & Fleet' business will distort comparisons with other more pure finance companies. So 'Auction & Fleet' needs to be taken out for financial company yardstick comparisons. Do that and the 'deconstructed' TNR business is represented in the table below
TNR for FY2016 Assets Liabiliities Shareholder Equity Interest Expense NPAT ROE Auctions & Fleet (FY2016) $99.815m $65.582m $34.233m $3.23m $4.44m 13.0% Finance, Insurance & Collection Services (FY2016) $262.488m $166.909m $95.579m $8.21m $11.08m 11.6% Divisional Total (FY2016) $362.303m $232.491m $129.812m $11.44m $15.52m 12.0%
SNOOPY
Turners settles on Buy Right Cars.
As Todd Hunter said "the acquisition further grows Turners control of customer origination transactions enabling additional volume into the finance and insurance business.
What he did not say,yet we know it,sourcing cars from Japan and retailing them is very profitable also.
A perfect bolt on acquisition,with Turners clipping the ticket all the way from Japan, to the final owner driving down the Southern motorway..
Turners, the financial services firm, has bought a one-hectare industrial site in Wiri for $4.8 million to extend its footprint in South Auckland
http://www.sharechat.co.nz/article/d...r-4-8-mln.html
Interesting that they buy their own land rather doing business with someone like PFI. Didn't think that was fashionable in todays world, although I am pleased to see the reasoning...
"Acquisitions of strategic property sites are becoming an increasingly important part of the growth strategy for Turners to allow for further footprint expansion as the business grows, and to achieve stronger control over property overheads," Turners said. "As part of this strategy, Turners have previously purchased properties in South Auckland and Christchurch."
The folowing information is more than most shareholders want to know. But it is background information that feeds into the published table above, and which I intend to use again. The first column is taken from the Segmented Information as presented in the annual report.
Divisional Asset Allocation FY2016 Assets Elimination Assets Reallocated Corporate Assets Reallocated Auctions & Fleet $83.09m 15.96% $57.81m 27.55% $99.81m Finance $218.51m 41.96% $152.04m 72.45% $262.49m Corporate & Other $219.11m 42.08% $152.45m Sub Total $520.71m Eliminations -$158.42m Total $362.30m 100.00% $362.30m 100.00% $362.30m
SNOOPY
Divisional Liability Allocation FY2016 Liabilities Elimination Liabilities Reallocated Corporate Liabilities Reallocated Auctions & Fleet $62.63m 22.97% $53.40m 28.21% $65.58m Finance $159.39m 58.45% $135.89m 71.79% $166.91m Corporate & Other $50.67m 18.58% $43.20m Sub Total $272.68m Eliminations -$40.19m Total $232.49m 100.00% $232.49m 100.00% $232.49m
SNOOPY
Divisional EBIT Allocation FY2016 EBT Revenue EBT Corporate Reallocated (A) Interest Expense Liabilities Corporate Interest Expense Reallocated (B) EBIT: (A)+(B) Auctions & Fleet $10.009m 67.68% $6.166m $2.626m 28.21% $3.226m $9.392m Finance $17.220m 32.32% $15.385m $6.685m 71.79% $8.210m $23.595m Corporate & Other -$5.678m $2.125m Sub Total $21.551m Eliminations $0m Total $21.551m 100.00% $21.551m $11.436m 100.00% $11.436m $32.987m
SNOOPY
One year on and my fears were not realised. As far as the old Turners Auction business is concerned, profitability has improved so much that the extra earnings stream has allowed more money to be borrowed against those increased earnings. This in turn means more money can be lent from the finance division, because the whole group asset base is working harder. And that benefits the whole Turners group!
SNOOPY
I am changing my analysis this year so that the financial statistics that I am evaluating are applied only to the financial division of the company.
I am applying a 'banking covenant' to a non-bank. While not a legal requirement for TNR, this is to enable a comparison with other listed entities in the finance sector (real banks like Heartland for instance ;-) ), so please bear with me. The data below may be found in the 'Consolidated Statement of Financial Position' (AR2016, p26).
Tier 1 capital > 20% of the loan book.
(Turners Group (Finance Division) has only Tier 1 capital for these calculation purposes.)
Tier 1 Capital = (Shareholder Equity) - (Intangibles: less Turners Auctions Intangibles) - (Deferred tax: Assume finance division using up deferred losses)
= (0.7245x$129.812m) - ($105.338m -$45.600 -$22.859) - $0m
= $57.170m
The money to be eventually repaid to the company (assets of the company) can be found as assets on the balance sheet. This is the sum total of:
1/ 'Financial Assets at fair value through profit or loss': $18.455m
2/ 'Finance Receivables': $167.598m
3/ 'Receivables and deferred expenses': 0.7179 x $8.505m
4/ 'Reverse annuity mortgages': $9.374m
For the FY16 year these come to $201.532m
$57.170m > 0.2 x $201.532m = $40.307m (true)
=> Pass Test
SNOOPY
Hi Snoopy, you do great work, thanks but for the non accountants do you see this company as a hold or buy. I am finding it very hard to find any value in the NZ market.
In recognition of TNR being a hybrid company, I am no performing the EBIT to Interest expense test on the finance section of TNR only (my post 1257).
Updating for the FY2016 financial year (ended 31-03-2016)
The underlying interest expense is shown under note 7 (AR2016) to be $11.436m. Of this ( $11.436m x 0.7179= ) $8.210m can be applied to the finance division.
The underlying EBT for the finance division may be found in the same post.
(EBT +Interest Expense)/(Interest Expense) = [$15.385m+$8.210m]/$8.210m = 2.87 > 1.2
=> Pass Test
SNOOPY
The ducks do seem to be lining up for TNR Voltage. Year on year statistics are improving and the old TUA business has been absorbed and is being put to good use. As to whether it is a buy or not, well that is the ultimate purpose of all this work. At the moment my financial symphony is unfinished, but I am liking the tunes that I have got so far :-). Of course I may have a slight advantage over you, because I can buy my TNR shares for a capped maximum price of $3 (being a bondholder).
You also should bear in mind that the aggressive acquisition program of TNR is largely being funded by a booming car and equipment market. If this were to suddenly reverse: a whole lot of vehicle loans were to go bad and TNR were forced to sell inventory at below cost to shore up the balance sheet, then the outlook for the company might not be so rosy. Not saying this will happen. Just saying this so that you know where the risks in investing in TNR might lie.
SNOOPY
Thanks for all the hard work you provide Snoopy. My interest in TNR is probably not big enough to warrant such robust analysis. I do like their business model and think that their acquisitions to date have been very astute. I am often wary of first acquiring for the sake of diversification but to date TNR acquisitions have been EPS accreditive and on very modest PE's.
Ever thought about working as an analyst for one of the broking houses?
Having visited turners recently I notice quite a shift. It is really like a big second hand car yard now where most cars can be purchased immediately. The stock looks like a lot of cheap stuff imported and sold at retail price. Perhaps this is where the market is.
To ensure liquidity over the next twelve months, management has the ability to move resources between divisions. So despite this measure being of primary interest in sizing up financial companies, I believe it is more correct to study the TNR group as a whole. The current account information that I seek is in the FY2016 annual report, but it is scattered. Let's see what happens when I bring it all together again.
Financial Assets 0-12 months Reference Cash & Cash Equivalents $13.810m AR2016 p26 Financial Receivables Contractual Maturity $75.735m AR2016 p46 Reverse Annuity Mortgages $1.366m AR2016 p48 Note 16 Total Current Resources $90.911m (addition) Financial Liabilities 0-12 months Reference Current Liabilities $115.679m+$10.984m AR2016 p37 Total Current Liabilities $126.663m (addition)
What we have here is an on paper 'theoretical' current shortfall of:
$126.663m - $90.911m = $35.752m
I say 'theoretical' because I have based this forecasted cashflow deficit on contracted maturity of financial receivables and historically negotiated repayment of bank borrowings. In fact many of these 'contracted receivables' can be rolled over, if a new car is bought on finance to replace the old one (for example). It is also true that the planned repayment of bank borrowings can be renegotiated and retimed. This means that the actual cash deficit will very likely much less than the $35.752m that I have predicted, if it exists at all.
However, if any of the shortfall remained, the difference could be:
1/ Much reduced if most/all of the TNRHA bonds, maturing on 30th September 2016, are rolled over into shares. This would be the equivalent of injecting up to $23.189m (AR2016 Note 24) of new cash into the company, while simultaneously reducing debt by the same amount.
2/ Selling $14.156m in stock from the Turners Fleet/Auction side of the business.
3/ Retaining half the expected earnings over the twelve month period 1st April 2016 to 31st March 2017. This is stated company policy, which based on the last six monthly period would see cash reserves boosted by: 0.5 x $8.162m x 2 = $8.162m.
4/ Increase borrowings from the banks, under variations to the current banking syndicate deal (amount undeclared and unknown, so I will leave this out of my analysis).
The test I am asking TNR to meet is a follows: Over the twelve months from balance date:-
[(Contracted Cash Inflow) + (Other cash Available)] > 1.1 x (Contracted Cash Outflow)
=> ($90.911m+$23.189m+$14.156m+$8.162m) > 1.1 x $126.663m
=> $136.418m > $139.329m (this is false)
The theoretical shortfall of $2.911m represents:
$2.911m/$167.598m = 1.74% of the end of year loan book balance
In summary, not a good result, but rather better than last year. The equation would have worked if it wasn't for the 10% margin required. So a 'fail' against a tough standard, but a close 'fail'.
SNOOPY
All part of the 'retail transformation strategy' Voltage. The old wholesaler, to which the Mum and Dad dealer went to get their stock, is a very secondary part of the business these days.
I don't think they would want me Blackcap. Turners is one of those shares that I don't believe any of the broking houses deems worthy of coverage. 'You and I' are the analysts I'm afraid :-(.
SNOOPY
Some work to be done by our own Sharetrader resident Turners analysts....
TNR recently brought a "highly visible" corner site in Wiri for $4.8mil for their fast growing Truck and Machinery business.
Questions;
1/In a couple of years time what will be the "market value" of the site,taking into account Turners will develop the site.
2/Do you think TNR will just book an unrealised profit in their accounts,taking the difference between cost and market valuation.[the market valuation will take into account the tenant is a "national" business],or do you think TNR will sell it and lease it back,and book the development margin ?.
3/If they sell it what will be their profit margin?.[I do not expect they will own the property unencumbered].
4/Do you think when they see how much profit they can make property developing with them as a " national" tenant, we will see them upgrading further sites?
I don't count myself as a property expert, but I'll give this a crack.
This siteQuote:
TNR recently brought a "highly visible" corner site in Wiri for $4.8mil for their fast growing Truck and Machinery business.
Questions;
1/In a couple of years time what will be the "market value" of the site, taking into account Turners will develop the site.
https://www.google.co.nz/maps/@-37.0...7i13312!8i6656
looks to be the Keith Andrews Misubishi Fuso Site, coveniently next door to the existing Turners Auckland 'Trucks & Machinery' site. It consists of a large expance of tarmacadam and an urban barn, in which to execute the paperwork side of the business - and service vehicles. The value of the site, I would guess be determined by whatever alternative use the site and buildings might be put to. If Turners develop the site, then that development my not suit other alternative uses. So as a general 'rule of thumb', I would guess that development by Turners will not 'add value'. Nevertheless, I do expect the value of the land will track the movement of Auckland industrial land in general.
Turners (old Auctions) do not make their money dealing in property. IIRC they sold off almost all of their properties to reduce debt several years ago. If they retain this property, then yes any increase in value should flow through to the balance sheet at revaluation time. I'm not sure if this would happen every year though. Probably more like every three years?Quote:
2/Do you think TNR will just book an unrealised profit in their accounts,taking the difference between cost and market valuation.[the market valuation will take into account the tenant is a "national" business],or do you think TNR will sell it and lease it back,and book the development margin ?.
The other option as you say Percy would be to develop the property, work out how much they are prepared to pay in rent, then draw up a multi year lease agreement and sell the property. Accordingly the property would be valued on the expected cashflows from the lease deal. You could think of that process as 'booking a development margin', if you chose to think of it that way.
No Idea, as not an expert in the Auckland industrial property market!Quote:
3/If they sell it what will be their profit margin?.[I do not expect they will own the property unencumbered].
Years ago I remember Restaurant Brands selling off all their properties. At the time they claimed that the increased lease costs would be roughly matched by a reduction in depreciation charges that would have been a cost had they continued to own the properties. Since that time the depreciation tax rules for property has changed, interest rates have reduced, and I expect the price of Auckland industrial land has risen substantially. So I am no longer sure that 'sell and lease back' is a cash neutral decision. Hopefully some of the property gurus who frequent this forum can enlighten us?
No, because I don't think Turners (old Auctions) still own their sites as a rule.Quote:
4/Do you think when they see how much profit they can make property developing with them as a " national" tenant, we will see them upgrading further sites?
SNOOPY
Smiths City and The Warehouse made a great deal of money developing their own sites.A great deal.
Then setting the rental and on selling the properties.
The value in any property I believe is "the tenant".
In SCY and WHS they were "national" tenants, and so the properties sold at a premium.
Turners will have this option.
Very good use of not a lot of capital.
Just another case of TNRs clipping the ticket.
Turners have to operate from somewhere. So buy and develop a new site develop it then sell it on with a cast iron ten year lease contract signed? Yes I agree that Turners could attract a premium if such a package was put out to tender. Time will tell. Nevertheless I think its a oncer, because the rest of those Turners outlets are largely sold already. Ngai Tahu are already doing nicely out of Turner's white shed in Detroit place in Christchurch!
SNOOPY
Turners is free to negotiate with its parent bankers on what is a suitable level of funding for the company. It seems inconceivable that they would negotiate their own loan package in a way that would put their own 'funding core' at risk. So we can use the information we have combined with a 'rule of thumb' to calculate an appropriate sized funding core.
The table below has taken items from the balance sheet (marked (1)). I have written the table with all the pieces adding up to a whole. However, the table has largely been constructed in a reverse way. That means starting with 'the whole' then figuring out a way to allocate 'the whole' to the separate constituent pieces.
Assets Liabilities Shareholder Equity Finance (Not Underlying) $94.892m (3) - $85.403m (4) = $9.489m (6) Underlying Finance $167.592m (1) - $81.506m (5) = $86.090m (6) Finance Sub Total $262.488m (*) - $166.909m (*) = $95.579m (2) Auctions & Fleet $99.815m (*) - $65.582m (*) = $34.223m (2) Balance Sheet Total (All) $362.303m (1) - $232.491m (1) = $129.812m (1)
Calculation (3) allows us to work out the core assets not related the underlying finance contracts of the business (everything else apart from the receivables book) by simple subtraction. The finance company 'rule of thumb' for their core is to ensure that:
(Non-Risk Liabilities)/(Non-Risk Assets) < 0.9
From this, we can work out that the Non-Risk Liabilities must be no more than:
(Non-Risk Assets) x 0.9 = $94.892m x 0.9 = $85.403m (which is answer 4 above).
Simple subtraction and addition is then used to work out the rest of the numbers in the table.
So what's the point of this so far?
By working out the minimum size of the business core (as measured by assets and liabilities), that means we can measure how well the rest of the business is set up to do the customer lending, the bit that actually generates the profits for the Turners Finace division. This is done by looking at the assets and liabilities left outside the core.
Implied Available Financing Gearing ratio
= (At Risk Liabilities)/(At Risk Assets)
= $81.506m/$167.596m
= 48.6%
Generally you would want to match your 'At Risk Liabilities' with your 'At Risk Assets'. This particular match looks acceptably conservative. But how does it compare with other listed finance entities? Rather better than the 65.6% that I have calculated for 'Geneva Finance' as it turns out. In practical terms this means that Turners has the capacity to expand their finance business loan book at a greater rate than Geneva, without issuing new capital. Not saying I wouldn't buy Geneva. But on this measure TNR looks better, which is probably why it trades on a higher PE than Geneva.
SNOOPY
For a direct comparison with last year, I will look at the 'margin' of the whole business
Margin = NPAT / Revenue
= [($21.551m-$5.949m) - ($0.200+$0.070m)] / $171.195m
= 8.9%
This much lower figure than last year can be largely explained by the normalisation of the tax bill.
Separate to the "Margin' is the special statistic for finance businesses, the 'interest margin'. Turners is very definitely a 'hybrid business'. So to compile the table below I have taken 'Turners Auctions & Fleet' out of the equation.
Interest Margin (Finance business only)
EOFY2016 EOFY2015 Average Cash/Cash Equivalents (Part1) $7.600m $3.700m $5.650m Cash/Cash Equivalents (Part2) 0.5951 x $6.210m 0.5889 x $8.639 $4.392m Finance Receivables $165.598mm $142.827m $155.213m Reverse Annuity Mortgage $9.374mm $13.253m $11.494m Total $176.749m
Interest Margin = [(Interest Received) - (Interest Expenses)] / [Average Cash Earning assets for Year]
= [$29.631m -0.7179x$11.436m] / $176.749m
= 12.1%
That interest margin is extremely high, more than double that of Heartland and even higher than Geneva Finance. Perhaps one reason it needs to be higher is what happens if a loan goes bad. Selling a second hand car may not get Turners their money back, whereas selling a Reverse Mortgage property , or a herd of cows, means a much better chance of the finance company behind those loans getting their capital back.
SNOOPY
Over the last couple of years I have specialised in creating a lot of 'financial information' surrounding 'Turners'. However, although 'interesting' I have decided it is not that useful. The trouble is, a jumble of numbers on its own is just that, a jumble of numbers. What is needed is a cohesive thread to draw it all together, a 'story' if you like. Tell a story and suddenly the numbers have context and an overall meaning.
So here is the 'story' I intend to tell around TNR.
There are three characters in this story,
1/Geneva Finance (GFL),
2/Turners Limited (TNR) and
3/ Heartland Limited (HBL),
listed in terms of decreasing perceived risk. The characters are not equal. But they all operate in the New Zealand finance market. All at one stage took deposits from the public, but only HBL does this now. TNR is 'the one in the middle'.
The first statistic in this story is PE ratio. Investors need to know this, because they need to know how much Mr Market is currently prepared to pay for these companies' earnings. A company with more 'future potential' should command a higher PE ratio. Now, what might 'cause' a higher PE ratio?
ROE (return on shareholder equity) is a measure of how efficiently a company can deliver earnings from a given resource of equity. The higher the ROE, the more efficiently the company is using its capital. Net Interest Margin is another measure of efficiency. But this applies only to financial entities, and that doesn't include the adjunct Turners Limited Auction and Fleet business. A third measure of efficiency is the underlying gearing of the loan book. Put simply every finance company has an underlying shell, upon which is superimposed funds borrowed from a 'parent bank' (and/or depositor and [customers) and 'funds loaned' to customers as 'financial receivables'. With the underlying shell stripped out, investors can get a feel for how far the 'funds loaned' base is leveraged on the 'funds borrowed' base.
There are a couple of ways to present profits in an overexaggerated way. The first is to underestimate the impaired asset position. I look at the declared impaired asset position in relation to the total loan portfolio, including impared assets, to get a feel for this. The second way is to borrow to the hilt on your capital base. My preferred indicator for this is MDRT of 'minimum debt repayment time'. This is a number that answers the question: If all profits were poured back in to repaying debt, how many years would it take to pay off that debt?
To summarize:
1/ P/E ratio measures value.
2/ 'ROE', 'Net Interest Margin', and 'Underlying Gear of Loan Book' are three ways to measure why a higher than average P/E could be justified.
3/ 'Impaired Asset Position' and 'MDRT' are two measures to look at whether the accounts as presented are believable and long term sustainable.
With characters introduced, and the story outline told, it is time for the comparative battle to commence.
SNOOPY
Note: The continuation of this post now has its own thread:
http://www.sharetrader.co.nz/showthr...ners-Heartland
Note that:
1/ The financial year (FY) ends on 31st March for Turners and Geneva, and 30th June for Heartland.
2/ Geneva results have been adjusted for the recent 7:1 share consolidation.
3/ Turners results have been adjusted for the recent 10:1 share consolidation.
4/ Turners results for FY2015 taxed at 28% (the future rate) for better YOY comparison.
Normalised Profit Shares on Issue eps Share Price PE Ratio Heartland FY2015 $47.55m 469.890m 10.1cps $1.10 10.9 Heartland FY2016 Turners FY2015 [$19.006m-($0.010+$7.058)m] x 0.72 63.077m 13.6cps $2.70 19.9 Turners FY2016 $15.517m-($0.200+$0.070)m 63.431m 24.0cps $3.10 12.9 Geneva FY2015 $2.194m 70.435m 3.1cps 25c 8.0 Geneva FY2016 $3.529m 70.435m 5.0cps 48c 9.6
The table makes it clear that Turners generally trades on a PE ratio higher than Heartland Bank or Geneva Finance. Can such a premium be justified?
SNOOPY
PS: the continuation of this post now has its own thread
http://www.sharetrader.co.nz/showthr...ners-Heartland
Hey Snoops
This a good idea
http://www.sharetrader.co.nz/showthr...211#post632211
Etnom, I have transferred my answer to your enquiry onto the 'new' TNR thread, from the old TUA thread (TUA had no bonds). In fact the bonds were created to partly fund the takeover of TUA.
There has been a 10:1 TNR share consolidation since my above referenced post. In the old money, this means the current share price of $3.10 is equivalent to 31c with reference to the above quoted post of mine.
I can't find much fault with the performace of TNR management since the TUA takeover date. In PE terms today I consider TNR at $3.10 neither cheap nor expensive. Of some concern going forwards is the interest rate margin of the finance arm of the business, I calculate as 14% for the year just gone. My concern is that it may be too high to be sustainable! Compare that with the lower 11% margin at smaller and less credit worthy Geneva and you wonder when borrowers from Turners will wake up. However, from a shareholder and bondholder perspective, long may this continue......
I have decided to convert 2/3 of my bonds to shares, to add to my very modest existing shareholding, and cash out the rest. I may seek to purchase more TNR shares on market should the price fall back.
I am also considering the new 6.5% bond offer for the rest of my payout. Two years ago I wouldn't have touched such an offer from a second tier lender like TNR at such a low interest rate. But the way interest rates have gone, maybe 6.5% for two years is attractive? The problem is a second tier lender may not fare so well if market conditions change. So I would want to limit what I put into such a bond as an amount I could afford to lose. Liquidity in the old TNRHA bonds on market was poor. So I think holders of the new bond have to be prepared to be there for the full two years.
SNOOPY
Thanks Snoopy. Your detailed analysis and comments these past few years have been very helpful and taught me how to look at and do the basic maths. Much obliged for your time and patience in sharing.
Hi Snoopy,
Re the new Turner Bonds.
Thanks for your analysis and comments re Turners. Appreciated.
I was wanting some more shares to add to my modest holding, but the price had increased beyond what I wanted to pay for them
So I am considering buying some of the bonds - 6.5% return for two years is not unattractive - and hopefully I either get my money back or better still, they convert to shares in two years time.
Regards
RTM
Dividend junkies are going to love this.....
TNR
15/09/2016 09:05
DIVIDEND
NOT PRICE SENSITIVE
REL: 0905 HRS Turners Limited
DIVIDEND: TNR: TNR - Dividend Announcement
15 September 2016
Company Announcement
DIVIDEND
The Board of Turners Limited has declared the first quarterly dividend of 3.0
cents per share, fully imputed. The record date will be 23 September 2016,
with a payment date of 30 September 2016.
This is the first fully imputed dividend that Turners Limited has paid as it
is now in a full tax paying position.
CEO Todd Hunter said "We are very pleased to be able to deliver imputed
dividends to our shareholders, and our first quarterly dividend. We have had
a positive start to the FY17 financial year, with the company trading above
budget and well ahead of prior year."
The company announced at the Annual Meeting yesterday that they expect the 6
months profit before tax to be $11.6m, which is 14% ahead of last year's
interim result.
ENDS
Yes quarterly fully imputed dividends are most welcome in our household.!
I did find the section "addressing the value gap" in the agm presentation interesting.
I had forgotten that TNR shareprice had underperformed the market for the past year or two.It was brought home to me last night, when I was trying Google Finance charts,rather than Yahoo Finance charts I somehow put in TNR comparing them with HBL and was very surprised.So TNR have a lot of catching up.I am sure now they have put their mind to it they will.
Also the net proceeds from the latest bond issue, will provide them with a healthy [over $24mil] for acquisitions.
I was holding myself at the ready yesterday morning,waiting to see if there was any buy catalyst in the agm presentation.Low and behold all the shares on the offer were sold before the agm started.!!
I saw no real reason to buy,so did not do so.We already have a reasonable holding.
I will remain at the ready, incase the share price weakens off slightly,when bond holders convert their bonds to shares at a discount, and sell the shares to realise their profit.
Totally agree with you that TNR have done everything right.
Hmmm they say boring is good..and produces an ability to fly under the investors radar.. but not everyones radar....TNR shareprice is nearly flatlined (<10% trading movement), has a small step up trend (series of mid to low $2.80's lows replaced by a series of mid to low $3.00's (Support Lines) The last 5 weeks there has been bullish accumulation activity pressures which increases the chance of the share price breaking the $3.15 resistance. The volume is low (exception 13th / 14th July and yesterday were above average) which makes this an illiquid stock, therefore adding some extra trading risk compared to others .eg HBL
There are no indicators on my chart for a reason (apart from the OBV) .. flatline prices creates unreliable indicator signals..If one must use indicators the oscillator type are the preferred option.
Bank stocks in general....ATM my mind is focused on the 2 main trading banks (ANZ WBC) which have downtrended -25% for 18 months now and looking like a "bottom" could be near ...HBL also trended down over the same period of time but in July it turned and rallied to a new high..TNR downtrend started at a similar time too but it has not move up either..
Looking at the basic fundamentals it seems the Major banks downtrend has created a negative sentiment to the level that comparing risk with AA and B banks it seems the market sector is currently fundamentally upside down..
The AA banks have a lower PE ratio, higher yield rate than the B banks ..so investors at the moment are taking TNR and HBL as a less risky investment...This either assumes the B rated banks TNR and HBL with PE Ratios of 13 and 14 respectively are expensive or ANZ and WBC both around 12 are cheap....In my personal view financial sector historically run at low PE Ratios ANZ WBC run at average of 12 so HBL TNR look expensive and growth must be assured to sustain their 13 /14 PE's.
http://i458.photobucket.com/albums/q...2014092016.png
Thanks Hoop.
The important differences that I can see between HBL/TNR and ANZ?WBC are;
1] Both HBL/TNR will achieve eps growth of over 10% while ANZ?WBC will see little if any growth.
2]Both HBL/TNR have strong balance sheets and have no need for further capital,while ANZ/WBC have needed to strengthen their balance sheets by either selling off parts of their business,as well as/or raising capital.
3] Both HBL/TNR have very have very small bad debt writeoffs,while ANZ/WBC have worries with Aussie mining,retail,manufacturing,housing and NZ dairy exposure.
4]Both HBL/TNR are lot smaller companies,whose business models are better suited to online/digital growth,while ANZ/WBC are hampered by large expensive branch networks.HBL are seeing huge growth with their online products,in particular "open for business".I expect TNR will see the same sort of growth with Cartopia.
The market is waking up to HBL/TNR ,and charts comparing them to ANZ/WBC should be worth watching over the next year or two,as both HBL and TNR gain more market acceptance to their growth business models.
Yeah it seems the market is factoring in the changes...
HBL has rallied back...Percy do you think, smaller companies react quicker therefore become sector leading indicators..Is HBL a sector leader and is TNR due to rally?.. Could the sector majors ANZ WBC be laggers and follow later on?
Yes smaller companies are quicker to react than bigger companies,and enjoy higher growth rates should their business model be what the customers want.
ANZ/WBC, with their big branch network are like a super tanker trying to change direction,compared to HBL/TNR being speedboats,so I think they will be laggers.They will have to try and follow at some stage.
The market places both HBL/TNR operate in are changing very quickly.Both seem to have the business model to take advantage of thes changes,and profit the most, by having the products the market wants,by being ahead of the field..
HBL.I really don't know whether the dividend is driving HBL's sp, or whether the market is realising their online/digital products are ahead of the other lenders.Yet their online/digital offers the quickest growth model for lenders.
TNR are really taking buying a car to a new level with their Cartopia model.Sell the car,finance and insure it,and give a 7 day money back if the buyer is not satisfied.I would buy a car from them using Cartopia.
A plumber driving along the road after having his quote accepted needs finance to pay for equipment needed for the job.Spends a few minutes arranging finance on his phone,rather than trying to make an appointment to see his bank,when it suits his bank.
You need to buy Mrs Hoop the nice car she deserves.Rather than spending hours looking at car yards or doubtful sellers online, you find a suitable car via Cartopia. Brought,financed,insured all in a matter of minutes.What car dealer can compete?.
Six months ago I purchased an import from Turners as the first NZ owner. The car came with a full AA service and AA check, plus it was a grade 4 plus import ex Japan with a full Japanese service record. I reckon I paid $8k to $12k less than through what other dealers were asking for the particular model, and am very impressed. The car has been faultless. The TNR service and experience was first class. Not only does TNR have the financial clout you mention, it also must be a huge importer, which gives TNR huge buying power to secure the best deals.
Thank you for your post.
I think your first hand experience is confirmation Turners are ahead of the field.
The Buyright acquistion will further add to their buying power.
It will also add opportunities to add finance and insurance bolt ons in due course.
Perhaps Turners may expand the BuyRight brand to other centres.?
If we accept Hoop's calculation that both TNR and HBL are now on a similar PE of 13-14, well above the big 'A' grade banks, I have to say
"What value gap exists for TNR?"
The earlier higher rating for TNR (on an earnings basis) was in anticipation of a return to a more normal level of profitability and the anticipation of imputation credits. Both of these events have now happened. So PE ratios have reduced to more 'normal' levels (still high in historical finance industry terms).
The TNR share price will only grow if earnings per share grows. Many of the TNR acquisitions have come with the issue of new shares. If the percentage incremental increase in profit from an acquisition is not greater than the concommitant increase in shares as a result of the acquisition, then the share price of TNR will not grow! This is how 'financial maths' works. Over the past four years it looks like the shareholder capital has increased by around 400% (slide 8 AGM presentation). The vast majority of this increase is new capital fed into the business by conversion of bonds to equity, or just issuing new shares as part of making acquisitions.
It is not uncommon for a share with very high expectations to underperform the market when the real financial value of these expectations finally sees the light of day.Quote:
I had forgotten that TNR shareprice had underperformed the market for the past year or two.
I would be much happier if TNR stopped worrying about any perceived 'value gap' and just got on with running the business. Granted they may have to explain the 'hybid nature' of this 'finance' company to new analysts. But if they just got on with runninng the business well, meeting and slightly exceeding their own budgeted projections, then Mr Market will take care of any 'value gap' in time. Admittedly TNR managment do seem to know how to run their core business well.
SNOOPY
P.S. Vote Labour! Not really sure why except the more people in the wider population that feel they are doing well the more vehicles TNR should sell. This comment seems to fit with the random nature of discussion developing.
From today's announcement;
New Bond Issue.......................................$25.56 mil
Capital Raise............................................$ 12mil
Conversion of 2014 Bonds..........................$17.4mil
................................................TO TAL......$54.96mil
What does this mean?..................................FUN.!
Do you think that was what was holding the price down Percy? I am guessing a lot of these "bond" holders were not long term DPC shareholders even though DPC also was largely Turners. So there is some validity to that statement. I guess Snoopy's angst over the last 2 years whether to invest or not in "DPC" may be representative of old Turners shareholders. So that could well be the case. Being lazy here, but when did the bond holders get shares on their statements? So how long have they had to sell?
Please excuse me for not being exact,but I think the "old" bonds converted 30th September,and I take it the "new" two year bonds have just been issued.I say that, as a Trust I help out on applied for bonds.I rang the broker yesterday and The Trust got what was applied for,but I had not seen a contract note.
Yes ,there was a margin there, which I think was taken advantage of,which kept the sp down.
We now have two brokers researching TNR,FNZC,and today Craigs published research. This coverage should bring TNR's story to a wider number of investors.As we know the story is compelling, we remain "well positioned."
A recent buy for me, few great value NZ stocks left but this is one.
A nice quote from Craigs report:
We prefer TNR relative to other small NZ industrial stocks, given its defined growth strategy
which, if executed, could see the stock transform into a mid-cap. Additionally, TNR’s growth
options are mostly internal driven and focused on making share gains in its core sectors - which
are large and fragmented. This is quite different to other NZ industrial small caps whose
investment cases are highly exposed to both economic and commodity price cycles.