No it won't be weighted next year and there will be even more shares on issue at the half way point again next year when much of the $25m bonds convert to shares.
One positive if not two is that this stock will be coming close to Top 50 consideration as the free float increases and if the SP could increase a bit more may come into contention. If that is a good think one can debate, but at $3.02 I shall be buying a few more. Agree with others that a rights issue is far more equitable than a SPP.
A placement is where,in this case, broker UBS says they will place $25mil of shares to their clients.If they can't place them, UBS takes them.
SPP is to existing shareholders.
I rang Craigs this morning and said I would take X amount should UBS offer them any.I doubt they will,but you never know.Always pays to be "well positioned."
For this SPP, assuming everyone participates, do we all get an equal amount of shares? Will it be scaled based on how many TRA shares we already have?
The timing of the Hugh Green selldown at $3.35 a couple of months back a tad suspicious, huh???
Yes on page 2 or 3 and more on page 26 of the presentation.Extra dealership acquisitions, will offcourse lead to extra lending etc.
So the extra bank,plus the extra money from current bank,plus extra securitization,means extra fun.
Makes the extra $30mil being raised to very small,but it is capital,and that will support the extra fun.
This stinks . Small shareholders miss out again
Don't think the explanation is correct
The presentation says
Subject to demand, scaling to be pro rata based on shareholding as at the Record Date
If 1 shareholder owns 10,000 and another owns 1,000 then the 1st shareholder will get 10 times as many if pro rata applies
Bond debt covenants at the point of being breached? TRA have to move fast to satisfy those greedy backing bankers!
But there is a possibility here that large shareholders miss out as well. (I say possibility because I don't know if the existing large shareholders are either:
1/ taking part in the share placement OR
2/ underwriting the share placement
)
One reason for not doing a straight rights issue could be that one or more of the existing large shareholders does not support such an issue!
SNOOPY
The "margin of error" will be greatly affected by the quality and quantity of further either car yard acquisitions,or roll out of Buy Right cars.
Both the Turners and Buy Right brands make further roll outs easier.
TRA have the capital to develop their own sites,and with finance and insurance systems already in place, any new outlets should be profitable from their first day of trading.
Exciting times ahead.
I think there will be lots of demand and scaling will be pretty heavy:(
Their insatiable requirement for new capital, ($25m last year with new convertible bond issue), $30m now and conversion of existing bonds next year, another $25m if everyone chooses shares on redemption but only quite mediocre EPS growth is starting to concern this hound, as did the depth of the discount to current SP of this issue and going to the market before the election and having to have it fully underwritten, (I presume at significant cost) at first sniff gives this hound cause to reflect. Also concerning is the way in which a major shareholder exited their shareholding and the way the shares have been in a downtrend for some time. I read an article the other day, sorry haven't got a link and can't remember where I read it but the thrust of it was that used car stocks are very very high. Are more people buying new cars given the widespread proliferation of interest free deals being offered by Heartland through Holden and heavily discounted interest deals through Honda, Mazda and other brands ? Is this undermining the used car sector to some degree ?
The quite serious lack of liquidity in the shares is another area of concern as a bondholder and it is by no means a given that I will convert my bonds to shares at the end of their term next year as whilst a theoretical 5% discounted to VWAP sounds fine, it isn't if there's a woeful lack of liquidity when trying to sell down and that theoretical 5% discount could easily work out to be insufficient.
The low forecasted EPS growth leaves me pondering if this isn't just another mediocre company and certainly not capable of the 25% EPS growth some shareholders have been implying. Whilst headline profit growth looks good, EPS growth is hardly inspiring.
Its a fairly young reconstituted company too...I like to see them get some more runs on the board before repeatedly asking for more shareholder money. Trust is earned, not given, (at least as far as this dog is concerned).
Disc: Cautious and somewhat underwhelmed and unconvinced bondholder.
Beagle said - it is a fairly young reconstituted company
Heartland once was that
TRA at $5 in a year or two once they start delivering on what they say they will do.
The 25% eps growth I have been refering to has been based on "reputable" broker research,which was slightly over 25%.
With the placement this will not now be acheivable,however the capital raise will support a lot of growth,and a bigger free float of shares.The Hugh Green estate selling out, was no surprise to anyone who followed their ongoing family feud saga,and court appearances.
Turners business model is simple and easily rolled out in a fragmented market place.Their brands are well known and reputable.
eps growth will be dependant on either further acquisitions or roll outs.
Until these are announced I can't make an informed guess.However I expect there will be announcements in the not to distant future.
You know Dorcester used to be a two bit finance company,while Turners Auctions were a pretty good small company.
Today Turners Automotive Group is an excellent mid sized company,which is soundly directed,managed and financed,with a proven business model that is scalable.
Some of the placement shares will go to good homes,but the loose ones? I expect I am not alone waiting for them..!!!!
Fair enough Percy. Will give them the benefit of the doubt for now. Might even put my paws up for some under the $3.02 SPP plan. Bonds have been a losing investment for me so far. I hate losses. Share price performance on the market over the next few days will be interesting. I suspect people recently buying at $3.40 will have cause to lick their own wounds.
Winner - Mate, I wouldn't be holding my breath hoping for a 50% gain to $5 on this one over the next two years. Want gains like that ?, you'd be better off SUMwhere else where I'd rate your chances as excellent.
There is a huge difference between buying a fair company at a good price,and buying a good company at a fair price.
TRA is a very good company.They have improved every part of their businesses,property development,vehicle sales,finance,and insurance.
All the tickets they clip, are now very large and are growing steadily.
And the share price will grow too,as the market notes TRA deliver ,which in turn will see TRA's PE expand, much like HBL's did as they put more runs on the board.
Whether the share price is $4.50 or $5 in a couple of years we will have to wait and see.I will be happy with either.
"the markets are short term a voting and long term a weighing machine".
Beagle is currently observing the voting characteristics of the market ... stock not that popular at the moment. And to be honest - I can't remember too many capital rises (of good companies) where the SP didn't go for some time down to or even slightly below the issue level of the new shares. Synlait had less than a year ago a Cap rise for $3 - and this is where the SP went ... look where it is now!
I am pretty sure the TRA share price will (at least short term) drop down to (or close to) the $3 as well ... Obviously - underwriter will try to fight that prior to the closing date - i.e. wait until after that.
Percy describes the fundamentals - and I agree - long term the prospects of the company do look pretty good (unless they screw up terribly what they are doing and so far I don't believe that). Becoming the big fish in a growth markets with lots of small fish can only be good - and look at all these potential synergy gains!
What does this all mean? There may well be potential for some speculation - sell some before the CR and buy them back cheaper afterwards. Obviously - this only works if not everybody else tries to do the same thing - so, you better don't tell anybody ;);
Discl: hold (a reasonably sized parcel) and not too worried;
Thank you Craigs.
Thought it was a very long shot,so was pleasantly surprised to receive 43% of what we bid for in the placement.
I rang my broker this morning to place two orders,one at $3.08 and one at $3.05.That was when he told me we had received allocations.I then decided not to place any buy orders,and hold off to see what the market did,keeping in mind we can apply for the SPP.
So was a liitle surprised ,and pleased, to see three buyers, each wanting 5,000 shares at $3.18,$3.17 and $3.16.
No. Shares on issue EOFY2017 74,523,527 No. Shares Sept 2017 Placement $25m / $3.02 = 8,278,146 No. Shares Sept 2017 SPP $5m / $3.02 = 1,655,629 Post capital raising total No. Shares 84,457,302 {A}
Guidance for FY2018 is for NPBT of $29m - $31m
Guidance for FY2018 is for NPAT is NPBT x 0.72 = $20.9m - $22.2m {B}
Forecast 'eps' based on the number of shares at the end of the financial year is therefore {B}/{A} which translates to a range of:
24.7c to 26.3c per share
I know this doesn't take into account the 'weighted average number of shares' that Beagle asked for, but I have my reasons for not doing so.
The equivalent figure for FY2017 was:
$17.609m / 74,523,527 = 23.6cps
Using the end of year share measure, the projected NPAT 'eps' gain for FY2018 is: 4.7% to 11.4%. If we use Percy's yardstick of 'fair value' being when the PE reflects the growth, this means the 'fair value' projected share price for FY2018 is between:
4.7 x 23.6 = $1.11 (minimum)
11.4 x 23.6 = $2.69 (maximum)
I am not feeling much excitement looking at share price target figures like that.
{Further adjustment from (my post 1478) to come.}
SNOOPY
I ran the snout test over that depth. Three equal bids one cent apart. My nose to detect creative market making tells me that's a contrived bid by one interested party, possibly the underwriter ? My gut instincts tell me there's more juice in the new car market right at the minute with interest free or super low interest deals on no deposit on new highly fuel efficient vehicles with cutting edge technology...acknowledge my sense could be affected by our own buying tendencies but holding CMO to cover both bases :)
LOL indeed. Forced me to do my own quick EPS growth calculation forgetting about all this nonsense weighted average capital basis (because they issue shares so regularly its hard to keep up).
Last year $17.6m on 74.75m shares gives 23.5 cps.
This year $30m before tax gives $21.6m after tax on 84.4m shares = 25.6 cps. EPS growth keeping it simple at the mid point of forecast, (and assuming there isn't yet another placement before FY18 year end) is thus 8.9%. At $3.20 it trades on a prospective PE of 12.5....higher than CMO's PE. Hmmmm that's pretty interesting especially with the latter having a very well established long history of profit growth. The apparent bargain some might imagine...I beg to differ, its actually higher than many other car companies globally and in N.Z. Check Ford's PE listed on the U.S. market as one example and there are many others. Lets not forget that in many respects car sales are cyclical, they do well when the economy is doing well, interest rates are very low and funding to credit worthy customers is readily available and they do not do well in tough economic recessions or during a GFC.
At $3.02 it trades on 11.8 times forecasted FY18 earnings...looks more like fair value to me although still not a bargain by any means for a company with fairly strong cyclical characteristics. I will probably give the SPP plan a miss and buy more of SUM thing else.
Ford's ute selling like hot cakes. New 10 speed auto V8 Mustang coming will also be an exceptionally hot ticket item. (I have this earmarked as a possible acquisition for my own use). They have finally ditched their problematic DSG gearbox equipped Focus and are fitting them with proper convectional auto gearbox's.
Ford are behind with electrification but that's not the be all and end all as I've alluded to at some length in the electric car thread.
Mazda's new high tech petrol engine coming with all the benefits of a petrol and diesel engine looks interesting. I'm expecting very strong sales of Mazda vehicles.
Sound very well and conservatively managed company with a very very long track record of consistent growth.
Have had to discount my DFC valuation by 9% to allow for more shares ...now less than $3
Had another look at my numbers on CMO which at $7.70 is trading cum a 31 cent fully imputed divvy. At a theoretical ex divvy price on $$7.39 it is trading on a historical PE of 10.8. No formal forecast for FY18 has been issued but my expectations are for steady growth and I have them on a forward PE of just 10 with their long and highly credible track record of consistent growth compared to Turners with their much shorter history of growth on a forward PE of 12.5 at $3.20. Hmmmm..you guys can have my ones at $3.02. I will hold the bonds to their maturity next year and decide in due course whether to convert them of ask for the cash back.
I have some CMO too... but there is a caveat. What are the dealerships going to do once EV's are the norm... all that maintenance and WOF service money gone. Another is board succession... do they have any plans? Jim is getting a bit long in the tooth, still very good but do they have contingencies for further down the track. I may ask that question at the AGM.
My forward vision best guess mate is that we are at the very least a decade away from EV's becoming mainstream to a major degree and probably at least 15 years away from EV's outselling cars that include an ICE engine. After that they will still be maintaining all the former ICE engine vehicles and newer hybrids and EV's that will need regular checks and WOF's and will need very expensive new battery replacements, (with huge dealer margins) every 8-9 years or they become disposable items so volumes of new sales could increase. Had an interesting discussion with a MB salesman the other day, they're trying to build cars now that don't last as long. Turn up the wick on small turbo petrol engines so they don't last as long as a traditional naturally aspirated engine and fit a hybrid system that will require a battery replacement after about 10 years that's so expensive the vehicle becomes a disposable item...all in the name of fuel efficiency...a remarkable admission from a Mercedes-Benz senior salesman. Having personally experienced the woes of finite hybrid battery life I have no qualms about the volume of car sales going through dealerships in the brave new electric world and honestly believe that durability will only deteriorate and hence the replacement cycle will he shortened and annual volume of new car sales increased :t_up:
N.Z. Shareholders Association unhappy.
http://www.sharechat.co.nz/article/a...-placementhtml
Thanks for the reply Beagle. Fair points and point taken. I was starting to get twitchy fingers. The succession planning of the board still concerns me slightly so will be asking that question. Will you be down for the AGM? Its interesting.... like a family reunion with people like me stand out because I "don't belong" :) All in good fun though.
I have corrected the above mistake as noted by Winner and Percy. But the mistake was not made in the primary working of my past 'eps' projections: with maybe one caveat.
When I annualised my results for FY2017., note 18 from AR2017 on the subject of 'Buy Right' cars noted that.
"Group consolidated profit would have been $18.6m" (if Buy Right cars had been owned for 12 months).
I had assumed 'Group consolidated profit' meant NPAT. But further up on the page there is a comment
"The performance percentage is calculated by comparing the actual annual net profit before tax (NPBT) to the target annual NPBT included in the sale and purchase agreement."
If the metric is NPBT not NPAT, then the difference in consolidated group profit for the year, if "Buy Right Cars" had been owned for twelve months would have been.
$18.6m - $24.631m = -$6.031m
This means the profit from 'Buy Right Cars' would have been lower if that business unit had been owned for 12 months, not 8. At first glance this doesn't seem a likely interpretation. But is it possible that 'Buy Right cars' shelled out a lot of borrowed money pre-July to bring in cars from overseas that caused them to lose money in the April to July period? This explanation is plausible. But losing as much as $6m over 3 months doesn't sound likely to me. So I am backing my original judgement and annualised 'eps' projections. Nevertheless I think the wording of note 18 in the annual report is ambiguous on this matter.
SNOOPY
Annualising the 'Buy Right Cars' and 'Autosure' results into the FY2017 results, I get.
($17.609m + $1.026m + $5.426m)/ 74,523,527 = 32.3cps
Compare that figure to Turner's own forecast of the 24.7c to 26.3c per share figure for FY2018 and it looks like Turners are projected to be going backwards in underlying 'end of year shares on issue' eps terms. As a TRA shareholder, I will be very happy to be proved wrong on this point!
SNOOPY
Snoops - if you look at the cap raising presentation and the 4 months financials you can work out that buy Right and Autosure made $1.3m npbt, say $0.93m after tax
Annualised suggests only $2.8m NPAT in FY18 from these acquisitions
Seems at odds with the notes in the F17 accounts doesn't it
I do get the impression that they change presentation formats to sort of confuse punters. No wonder Jeremy wasn't that impressed after the riffing
I think it is fair to categorize TRA as a 'confidence' share. They are clearly well versed is seeking out and buying out 'add on' businesses that bolt on nicely to the 'multiple ticket clip' model. While they continue to do this there is no problem rolling out some new shares or bonds to pay for the acquisitions. However, if management were to lose the confidence of the share market, then the growth strategy would ground to a halt. Why? Because overall TRA does not generate enough cash internally to drive the growth strategy. A truly great company is one that is adept at generating cash, and sadly this new 'Turners' doesn't tick this box.
In fact as Beagle has noted, Turners are taking a lot more cash out of the market than they put back in via dividends and interest payments to bondholders.
Turners, going back to the Dorchester days has had very supportive major shareholders. Turners would have joined the finance company post GFC graveyard without these people. So I think it is unfair to criticise these people when most of the job is done if they want to now take some money off the table. Hugh Green Investments took around a 10% discount to the then market price to quit their holding. I don't think it is out of line to offer new institutional shareholders a similar sort of discount when buying in. When liquidity is not the best, this is the kind of discount a big block of shares attracts.
I expect growth will come from acquisition synergies, but I haven't seen enough of those synergies flow through to the bottom line yet. I remain 'confident' in the Turners management team. But not confident enough for TRA to become more than my second smallest NZX holding.
SNOOPY
One if the weird / interesting things about the 4 month financials is that old businesses have a npbt margin over 10% while new businesses in Autosure / buy Right is only 4%
Must be a story in there somewhere
The Synergy Trap: How Companies Lose the Acquisition Game by Sirower is a good read
I find thinking ahead helps me.
Think margins.
Develop a commercial property with Nationwide client.Big margin.
Sell a car/vehicle........good one off margin.
Auction car etc...........good one off margin.
Arrange Finance on either of the above.good ongoing margin.
Clip the ticket on MTF client's finance deal.Ongoing good margin.
Arrange Insurance on vehicle sold by either Turners or Buy Right Cars .Ongoing margin.
Arrange Insurance on vehicle sold by MTF clients.Ongoing margin.
So they make a good one off margin on vehicle sales,yet that sale generates finance/insurance profits for a number of years.
So we have to think is it best to make just a one off $1,000, or are you better to make the one off $1000 and the collect the interest and insurance on the same sale,ie another $200 a year for 3 or 4 years.Called clipping the ticket.
Each ticket TRA clips is getting growing,each vehicle sold generates ongoing profits for Turners.
Margins will vary, much like HBL make more on vehicle lending than reverse mortgages.
https://www.nbr.co.nz/subscribe/207737
New Australian institutions given preference to loyal Kiwi shareholders many of whom plan to sell in disgust.
No reason given for disadvantaging retail shareholders in the rush to raise new capital.
New Zealand Shareholders Association extremely disappointed and investigating.
Disc: Very pleased I only have the bonds.
Should be a lively agm on Wednesday...lol.
Selling at 3.02 is such a massive difference to the 180MA too. Most of the year the SP has been above $3.60 and looked like it was heading towards $4. Now after "good results and growth slightly above expectations" they are selling a heap at $3.02. Very disappointing and this has become another red arrow in my portfolio with MPG and TWR! Been a bloody awful run for me in the last 3 months after a very successful start to the year
I think you need to stand back and look at why you brought into TRA,and ask yourself these questions.
Is the business in better shape than when I brought in.?
Is the business model stronger than when I brought in.?
Does the business still have strong growth prospects.?
A no answer to any of the above, and you should sell and move on.
If you are like me, and answered the above with yes,sit back, ignore the noise, and enjoy the divies.
Jeez I hadn't realized the share price has collapsed 20% over the last 4 months
You'd think that it can't go much lower - Jeremy if you still believe the story hang in there
Sad looking chart at the moment - must be some obvious chart pattern to give an idea what might happen .....my guess a wavy line between 300 and 320 for several months mimicking what it was doing this time last year
Isn't the chart saying punters don't believe they are delivering on the promises
I have been away for a little over a week and imagine my surprise after reading Wednesdays announcement!
Well thank you for the lesson Mr Market :-)
When my Technical sell signal was triggered back in late June (price fell below $3.70), I wasn't listening.
When the death cross occurred in July, I wasn't watching.
When the share price failed to rally after crossing down through $3.50, I wasn't paying attention.
When there was relentless selling pressure in the 6 weeks leading up to this, I was in denial.
All these signals fell on deaf ears, as I believed that I knew better.
Well thank you Mr Market. You did your best to warn and educate me, but I didn't want to hear.
There is a positive out of this experience and that it is now a lesson (one which I will not forget).
Now I see the reason for all the continued selling and lack of buyers the last few months.
Now I see what the girl (management) I got friendly with and brought home at 3am last night, really looks like without makeup in the morning (how they really feel about retail investors).
Actions speak louder than words, and I read the TRA team's message loud and clear.
Will be an interesting AGM, as there are some good questions that should be put forward to management. This is the first real time I feel like they have dropped the ball (from a retail investor point of view).
No investment case left for me in this company. Solid downtrend and leaky boat for those in the club!
Will be price bound for ages IMHO between $3.02 and $3.35
A first rate honest post McGinty and SUM's it up well. Despite all the positivity from one or two on here the FACTS are this company's SP has been in a steady decline, there are hints of insider trading with the major shareholder selling out, directors were "too keen" ? to raise more capital in a real hurry, (the other hound suggested they were very close to breeching their covenant ratio's to bondholders and I am inclined to agree with him). I have read a very recent report suggesting used car stocks are at an all time high since the GFC, (apologies I cannot provide a link so you'll simply have to take me at my word) and I think things are not all as they seem at Turners. If I could get my theoretical $1.05 at maturity my bonds are worth I'd sell in a flash. If I was a shareholder I'd be selling.
As I posted earlier this week I DEFINITLY DO NOT not think these shares are a bargain at the current SP relative to CMO which I note has a vastly longer track record of steady growth and don't "stick it" to retail shareholders either with quick capital raises and I note that CMO shares trade at a significant PE discount to TNR, CMO FY18 PE 10.0 TNR FY18 PE 12.5.
I will definitely not be taking up any shares under the SPP plan as I have serious reservations the shares are even worth $3.02. I think in fact we may be right at the top of the cycle of immigration and they'll struggle to sell the volume of used cars, (and I think they are overstocked) if Labour get into power and cut immigration. I also think with the abundance of no deposit no interest deals on new cars which come with new car warranties and the latest technology as well as being more fuel efficient there could be a structural shift going on in the car market towards newer cars.
I think CMO are a far better bet than this company. If some headwinds become apparent I can see this going under $3.00, possibly into the mid $2 range which is why I won't be taking up any entitlement to shares under the SPP plan at $3.02 despite having a decent entitlement because of the size of my bond holding. The size of the discount to the VWAP that these new shares had to be issued at as well as the company choosing to underwrite them at significant cost suggests to me the company really needed the funds.
I note First N.Z. have issued a client note that was not complimentary to the manner in which these funds were raised and the New Zealand shareholders association are deeply unimpressed.
A company with very modest EPS growth prospects being run in a manner that could be considered in some respects to be counter intuitive to retail shareholders best interests ? Looking after the major shareholders perhaps ?
Beagles rating: SELL shares, hold bonds ( hold / accumulate CMO instead for quality exposure to this sector at more realistic PE).
Was there really a leaky boat here? TRA announced that they were listing in Australia to broaden their funding base. So why is anyone now surprised that they are offering shares to Australian institutions in a placement? Especially when you know that this 'funding diversification' could not have been achieved by going down the path of a conventional rights issue.
SNOOPY
Offcourse they will be buying further businesses.
When a business lays solid foundations,you can be certain all ratios will come.
I think I find it very easy to compare TRA with HBL.All the time doing the right things to develop their businesses.Knowing where they want to be in the market,and getting to those places very quickly.The results may take a little longer to come through,but they will.You were very dissappointed with HBL's REL acquisition, and wrote many posts saying what a dud it was.Turned into a great buy.Like HBL Turners have made no dud acquisitions.
Both HBL and TRA have directors who are savvy,and have plenty of skin on the line.I keep thinking where these businesses will be in three years time.Have you.?
I remain "well positioned" in both, and will be applying for more TRA via their SPP,again using our rainy day funds.
McGinty's post #1674 is a great reminder to us all of the warning signs we ignore at our peril. GLH.
(Disc; non TRA holder and happy)
Been on the ASX since July - no transasctions yet
But with all these new Australian investors and the drive to improve liquidity no doubt this will change
But if these Austrlaian investors who bought the other day are really keen on their new investment why would they sell anyway - liquidity to improve?
Maybe just one of those phrases you use to sound like you know what you are doing
At $3.02, TRA is on a projected PE ratio of between:
302/26.3 = 11.4
302/24.7 = 12.2
I don't think it is fair to categorize TRA as a dog. There is still a good business waiting to get out under the recent 'share'nanigans. But I think it is true that it is probably not a good idea to pay too much for the shares. The real question for investors must be 'what is fair value'?
$3.40, with the benefit of the capital raising hindsight, which to be fair was not transparent to the many who took shares at $3.40 for what appeared to be a 'generous discount', looks a bit rich to me. But $3.02? I am feeling a bit warmer towards that price. Yet there is a risk that $3.02 is not cheap enough.
SNOOPY
'Buy Right Cars' net profit margin
p18 of the Capital raising presentation says 'Buy Right cars' made a 4 month contribution of $1.4m to 'Operating Profit'. Annualise that and I get $4.2m NPBT. Take off tax at 28% and I get at NPAT contribution from 'Buy Right Cars' of $3.0m ($1m for 4 months {C}).
Now if we go back to p17 for the incremental revenue for 'Buy Right cars' I get:
$76.5m - $56m = $20.5m {D}
So I get a 'net profit margin' from 'Buy Right Cars', excluding corporate costs and intercompany revenue adjustments, of {C}/{D}:
$1.0m/$20.5m = 4.8%
'Autosure' net profit margin
p17 shows that the 'incremental increase' in insurance EBT profit (NPBT) from 'Autosure' was:
$2.3m - $0.5m = $1.8m
After tax:
$1.8m x 0.72 = $1.3m {A}
p17 shows that the 'incremental increase' in insurance revenue from 'Autosure' was:
$14.5m - $4m = $10.5m {B}
So I get a 'net profit margin' from 'Autosure', excluding corporate costs and intercompany revenue adjustments, of {A}/{B}:
$1.3m / $10.5m = 12.4%
Annualise the profit and I get an annual contribution from 'Autosure' to NPAT of:
($1.3m * 3) = $3.9m
I get $3.0m + $3.9m = $6.9m annualised NPAT combined contribution from 'Buy Right cars' and 'Autosure'.Quote:
Annualised suggests only $2.8m NPAT in FY18 from these acquisitions
Actually my impression is a close agreement.Quote:
Seems at odds with the notes in the F17 accounts doesn't it.
The notes in AR2017, which I used to compile my post 1478, show that the incremental gain in 'consolidated profit' was $1.026m (Buy Right Cars) and $5.440m (Autosure). However, 'Buy Right Cars' had been part of the group since the end of July (8 months of the financial year). Autosure was only added on the last day of the financial year (no profit contribution over FY2017) Annualising that 'Buy Right' figure raises the 'consolidated profit' from 'Buy Right Cars' to:
$1.026m x 12/8 = $1.539m
This means the change in annualised consolidated profit if both new business units had been owned for the full year was:
$1.539m + $5.440m = $6.979m
(Note that in my post 1661 I figured out that 'consolidated profit' means NPAT.)
That looks to be in very close agreement with the annualised FY2018 contribution from these business units in the Turners Capital raising presentation. Not much change between FY2017 and FY2018?
SNOOPY
Snoops - a few different meanings of 'profit' in Turners presentation
So take carevp what you assume to be npbt (esp at division level)
Prob thy do this on purpose to make life difficult for analysts like yourself.
I always thought 'operating earnings' meant EBIT. It does with some companies. But Turners use 'operating earnings' to mean EBT. Following that, it becomes an open question of how to take into account 'eliminations' and how to allocate 'corporate costs' to get the real picture of how well all the divisions are doing. The process is such a minefield, you could say there is no one 'right' answer. So rather than pursue the 'right' answer, I instead make it my goal to give a 'consistent' answer. And as long as readers understand the assumptions I have had to make to gain that consistency, that is my best realistic goal.
The specific point you raised Winner, was about the acquisitions having a lower profit margin than the existing business. We can work out what the various profit margins were for the first four months of FY2018. Four months probably isn't enough time to bed in the acquisitions. So whatever answer I get doesn't really 'prove' anything. Nevertheless it is a 'window' into the performance of the acquisitions in relation to the rest of the business. Time to finish the exercise.
SNOOPY
The information below is compiled from p17 of the capital raising presentation:
https://www.nzx.com/files/attachments/265725.pdf
Legacy Business: Net Profit Margin (First Four Months FY2018)
Note: excluded from the table below are the 'Buy Right Cars' and 'Autosure' acquisitions. Also no adjustment has been made for 'eliminations' and 'corporate costs'.
Operating Revenue {A} Operating Profit (NPAT) {B} Net Profit Margin {B}/{A} Automotive $56.0m $4.4m 7.9% Finance $11.3m $3.7m 32.7% Insurance $4.0m $0.5m 12.5% Debt Management $8.0m $2.0m 25% Total $79.3m $10.6m 13.4%
From my post 1685, 'Autosure' has a profit margin of 12.4% and 'Buy Right Cars' has a profit margin of 4.8%. This is evidence that the net profit margin for the acquisitions is below that of the legacy business. So Winner's assertion looks correct.
Delve into the net profit margin a bit deeper and you can see that 'Autosure' has a 'net profit margin' very close to that of the existing insurance business. But 'Buy Right Cars' has a net profit margin rather less than existing automotive. Yet IMO, over just four months, it is probably too soon to draw a definitive conclusion.
SNOOPY
Tomorrow is the much looked forward to AGM
In view of the cap raise will be learn anything new about their future prospects?
Buy Right Cars Ltd profit margin of only 4.8% shows the vulnerability of this business to changing economic conditions. If sales slow and stock turn decreases and holding costs increase it doesn't take much of a change to wipe that margin out and remember this company is trading in benign trading conditions with good economic growth, a higher than average currency, generation low interest rates and record ever immigration level's. I've done more than a few sets of car dealers books over my 35 years of bean counting and can't recall off the top of my head seeing margins that slim before, (mind you these are privately owned companies with very statute owners). Its a VERY tough and competitive industry with multiple failures on a regular basis. To put this 4.8% margin in context this is considerably less than the margin AIR New Zealand operate on and we all know airlines are cyclical business's vulnerable to changing economic conditions which is why we stick with a PE of 10, (cyclical).
Worries me a bit that Heartland are financing various brands of new cars like new Holden's at the moment on 0% deposit 0% interest. Sure customers pay full retail and HBL get their kick out of it but the moment that brand new car is driven off the dealers yard it has depreciated by ~ 25% and the loan in underwater by a commensurate amount right from the outset. Guess one simply has to have faith in HBL's credit assessment processes and people's reluctance to have their shiny new car repossessed. Cheap and easy credit...always a concern...risk everywhere isn't there mate !
My experience is very different,[no surprises there.!],good second hand car dealers enjoy fat profits,and those who joined together to form MTF,or started financing their own deals,went on to enjoy even fatter profits.
New car sales were a little different, as they were franchises,covered by the likes of Toyota and Ford, who were forever looking for market share.Meant slim profits on new cars,and dealers left trying to make money out of second hand car sales and parts.None ever seemed to make money in their service departments.Tractor sales also meant a lot of money tied up when farmers hid their wallets,which they often did.Being part of a franchise group, also meant opportunities for rolling out their business to other centres was limited.
The Turners model is the best I have ever seen,and easily scaled up.Property development,vehicle and equipment sales,finance and insurance.Total package.However I would not be surprised to see Turners try new cars too.They certainly have the channels to sell them.
You went on about this two years ago on HBL thread and never took a bit of notice of my replies.
Do your research as I did.Contact HBL and find out the facts.,which show both BHL and TRA have very low bad debts on cars.Something under 1% of defaults.Safer than house mortgages.
ps.HBL divie coming just in time to be recycled via TRA's SPP.
Incorrect Percy I do recall your replies and you mentioning that very few cars are actually sold on no deposit. Happy to bring this up as a discussion point at the annual meeting to check and see how business performance is tracking now in regard to this sort of lending as well as bringing up the donation to National, (should make for a more interesting annual meeting) :)
I look forward to the agm telecast...lol..
I know the answer to one question, and could not careless about the other....
If you are going to question directors over a matter,in this case a donation,under $100,000 ,in this case under $60,000 you really should question yourself whether you should be invested in the business or not.?
I like to question directors to get meaningful answers,ie how are their open for......products being received in Australia.? Will they open an Australian office, or keep running these open for.......products from NZ?.Are they receiving many applications for their higher rate mortgages?.Have they developed products for medical expenses loans via doctors or private hospitals.?
So don't waste your time on meaningless diversions,find out something useful, you can capitalise on.Unless you are like me and go to HBL presentations,and phone the CFO'CEO, you only get one chance to question directors,or speak to them a year at their agm.Don't waste it.
One of the things about life on the planet that puzzles me; Why do vehicle manufacturers and dealers cut their throats to do crazy financing deals rather than discount the sticker price for cash buyers?
One assumes that Heartland has recourse against Holden if a deal goes sour or are these deals are securitised with a discount to face value to compensate the bond holder for default risk?
Boop boop de do
Marilyn
PS. 0% down and 0% interest should attract ruthless defaulters like jackals to carrion.
No recourse.
Try going into a Holden dealer and walking out with a new car with no deposit.!
Then you will quickly learn the facts of life.
Good luck.!...lol.
ps.TRA do non recourse loans for MTF clients.
HBL do non recourse loans.
Problems? No.Why?Find this out and you can invest with confidence.
Both have under 1% debt problems.Most probably a lot lower than your old beloved CSB had.
That 4.8% margin I calculated is for the four months April to July Inclusive. It very likely includes cars paid for in Japan in July, to be shipped out to NZ for the peak September/October car buying season. Thus lots of stock on the books but the cars are not yet available for sale, with June and July being low sales months. That scenario would certainly depress the profit margin for a time. I am guessing that probably over 6 months and almost certainly over 12 months the net profit margin at 'Buy Right Cars' is significantly greater than 4.8%.
SNOOPY