Buffett Test 2: Increasing 'eps' Trend (FY2016 perspective): Preamble Part 2
Quote:
Originally Posted by
Snoopy
1/ 10:1 share consolidation. The recent share consolidation means that all previous share transactions must be 10:1 consolidated as well, to allow a 'like with like' comparison.
<snip>
3/ The takeover of TUA from the perspective of my analysis becomes an internal transaction.
62,119,212 (Shares issued at 25cents for the purchase of Turners) and 3,573,516 (Shares issued at 25 cents in lieu of Turners Group NZ's special dividend). (Note that the 'Shares issued to part fund the Turners Group NZ Limited takeover' 45,254,209 are not included in what I am doing because these shares were issued to TNR shareholders outside of the TUA structure, so these shares are not an internal transaction like the other two categories.)
The folowing is my reference table for determining the number of 'equivalent' TRA shares on issue, when making an 'eps' calculation. Notice that it is not as simple as moving the decimal point on the published figures (bullet point 1), because I have had to treat the absorbtion of TUA as an internal transaction (bullet point 3).
|
Number of Shares |
No. Shares EOFY2016 |
63,431,637 |
add Treasury shares bought back |
+109,366 |
less Shares issued under staff share plan |
-464,286 |
equals No. Shares EOFY2015 |
63,076,559 |
add Treasury shares bought back |
+73,063 |
less External Shares to fund TUA takeover |
-4,525,421 |
less Earn out from MISL acquisition |
-72,260 |
less Earn out from ECCC acquisition |
-695,530 |
less Institutional Investor Placement |
-1,890,000 |
equals No. Shares EOFY2014 |
55,966,411 |
less Convertible Notes transformed to Shares |
-11,000,000 |
less Earn out from MISL acquisition |
-60,200 |
less Earn out from ECCC acquisition |
-1,462,875 |
less ECCC acquisition options exercised |
-1,000,000 |
less Other share options exercised |
-13,409,884 |
less Institutional Investor Placement |
-1,637,820 |
equals No. Shares EOFY2013 |
27,395,632 |
add Shares cancelled |
+3,300 |
less Purchase of Mainstream Insurance Solutions Ltd. (05-04-2012) |
-50,000 |
less Purchase of EC Credit Control (12-11-2012) |
-2,800,000 |
less Share options exercised |
-461,632 |
equals No. Shares EOFY2012 |
24,087,900 |
At last we have the number of shares required to gain a meaningful 'eps' comparison over the years.
SNOOPY
Buffett Test 2: Increasing 'eps' Trend (FY2016 perspective)
Quote:
Originally Posted by
Snoopy
At last we have the number of shares required to gain a meaningful 'eps' comparison over the years.
Turners have had a fantastic record of increasing profits since coming out of the naughty corner in the finance company classroom. But they have had an almost equally impressive record of 'increasing the number of shares on issue' as well. Many of these shares have been issued with the ultimate intent of buying new businesses that 'bolt on' to the expanding TNR/TRA group. But if these acquisitions and/or the synergies generated are not 'eps' positive, that means the mum and dad shareholder will be going backwards in 'eps' terms. For this reason it is growth in 'eps', not growth in profit, that really matters to shareholders. So how has TNR been doing?
We are looking for a rising five year 'eps' trend. But one setback along the way is allowed.
|
FY2012 |
FY2013 |
FY2014 |
FY2015 |
FY2016 |
NPAT (DPC+TUA) (A) |
$1.737m |
$3.056m |
$4.606m |
$12.722m |
$15.517m |
Adjusted Shares on Issue EOFY (B) |
24.088m |
27.396m |
55.966m |
63.077m |
63.432m |
Earnings Per Share (A)/(B) {D} |
7.2c |
11.2c |
8.2c |
20.2c |
24.5c |
Share Price 31st March {C} |
n/a |
n/a |
n/a |
$3.20 |
$3.03c |
PE Ratio {C}/{D} |
n/a |
n/a |
n/a |
15.8 |
12.4 |
There was a hiccup in FY2014 as the company adjusted to its increased capital base. But otherwise the rising 'eps' trend is clear to see.
Result: Pass Test
SNOOPY
Buffett Test 1: Top three position in chosen market (FY2016 perspective)
'Scale' is very important in a business if you, as a new growing operation, are not going to be 'snuffed out' by low ball pricing from the established market players.
Turners Motor Group are New Zealand's largest retail car dealer, with branches in main centres all across New Zealand: Whangarei, Auckland ,Tauranga, Hamilton, Napier, Palmerston North, Wellington, Christchurch, Dunedin & Invercargill. As an extension of this network, Turners own the sub brand 'Buy Right cars' group that has eight Auckland locations. The goal is to be a 'one stop shop' nationwide, not just for buying a second hand vehicle, but also to supply the financing and insurance associated with each vehicle purchase. There are separate 'Trucks & Machinery' branches in Auckland, Hamilton, Tauranga, Wellington and Christchurch. Included in the car sales channels are the weekly 'Turners Auctions', which attract both retail and wholesale bidders. Many vehicles up for auction can be obtained pre-auction at a 'buy now' price.
Turners fully own three finance companies: Dorchester Finance (Auckland headquartered), Oxford Finance (Southern North Island - Levin based) and Southern Finance (Christchurch headquartered). Work is underway to bring all of these formerly separate companies onto a common computer platform. Although over 70% of their loan book is motor vehicle related, these finance companies also loan to the consumer, and do personal and business loans to the SME market.
Turners insurance may be found under the DPL Insurance banner. The 'Autosure' and 'Mainstram Insurance' brands offer general vehicle insurance, mechanical breakdown insurance and repayment protection insurance. Contributory factors to increased motor vehicle claims include:
1/ increased motor vehicle usage, with a clear correlation to cheaper petrol prices, and
2/ a higher incidence of wetter weather
'Pacific Life', 'Greenwich Life' and 'Dorchester Life' offer 'ordinary life', 'funeral plan' and 'stopgap redundancy' insurance.
The final 'arm' of the Turners operation is "EC Credit Control". "EC Credit Control" provides debt collection services, as well as credit management, credit reporting and terms of trade documentation to the SME market. EC Credit Control is the second largest provider in this niche in New Zealand, but operates in both NZ and Australia. Customers include the big banks. There are ambitions to grow the Australian arm of the business. The announced intention to list TRA shares in Australia, as a profile raising exercise, may have something to do with this.
So do Turners have scale? For selling cars - yes. For car insurance they are up against:
1/ Australian owned IAG [State & AMI (direct to customer), NZI & Lumley (via agents) and underwritten bank partners (third party brands, including ASB, BNZ, Westpac)]. IAG has a 66% market shares of the direct combined house/contents/vehicle market (2014 figures) plus 40% of the market sold through brokers.
2/ Australian owned Suncorp ['AA Insurance' (32% owned by AA, 68% owned by Vero/Suncorp), 'Vero Insurance' and 'Asteron' for Life Insurance] groups brands and underwritten partners (ANZ and Warehouse Money).
3/ "Youi" (nz staff number 420- all types of insurance) whose ultimate parent is South African based - "Rand Merchant Insurance Holdings Limited".
4/ NZ owned Tower Insurance (underwrites TradeMe Insurance)
'Autosure' was bought by Turners from Suncorp on 01-12-2016, but Suncorp will continue to underwrite the policies. Consolidating the brands, Turners must be close to being the number three insurance 'brand' player these days?
The EC Credit Control business has a strong position.
Overall Conclusion: Pass Test
SNOOPY