Autosure charge lot higher premiums for European cars, which cost between 3 and 6 times the cost of a Japanese car to fix.
Yes I see that in AR2019 p9.
Since the rest of the legacy insurance business seems to be winding down, I think it is a fairly accurate guess that all the incremental activity in insurance is due to 'Autosure'. The insurance revenue increase over FY2018 (the period after which 'Autosure was acquired) was (ref AR2018 p48):
$46.923m - $12.255m = $34.668m
This implies a loss in payout from dollar premiums, using the quoted loss ratio of 0.78, of:
0.78 x $34.668m = $27.041m
Accordingly the premium that remains on the books:
$34.668m - $27.041m = $7.627m
might be expected to go towards TRA profits over FY2018.
--------
A further increase in insurance revenue over FY2019 was generated (AR2019 p52).
$49.206m - $46.923m = $2.283m
So total 'Autosure' revenue over FY2019 was probably close to:
$34.668m + $2.283m = $36.951m
This implies a loss in payout from dollar premiums, using the quoted loss ratio of 0.72, of:
0.72 x $36.951m = $26.604m
Accordingly the premium that remains on the books:
$36.951m - $26.604m = $10.347m
Might be expected to go towards TRA profits over FY2019.
--------
Neither of the two contributions towards profits that I have calculated for FY2018 and FY2019 take into account the overheads of the Autosure insurance business. But if the administration costs at Autosure are roughly unchanged year on year, that means that any increase in 'retained premiums' should flow through to incremental profits over FY2019. The increase in 'retained premiums' between FY2019 and FY2018 is as follows:
$10.347m - $7.627m = $2.720m
Now compare that figure against the incremental increase in the 'Difference between Actual and Measured Experience' (AR2019 p86).
$5.745m - $2.491m = $3.254m
Those two increments are not exactly the same. But they close enough to suggest that 'Difference between Actual and Measured Experience' and 'Retained Insurance Profits' could be one and the same thing. The 'plus adjustment expenses' bit that you mentioned Silverblizzard, and is something I am not sure now to measure, could account for the difference? Yet if that were the case why would the change in adjustment expenses not be reflected in the 'Difference between Actual and Measured Experience' as well?
SNOOPY
Its hard to say what the details are for the expenses since the business is overlapping itself on many areas when it comes to overheads Snoppy. At the end of the day if the numbers look close enough, it should be good enough. Theres either trust that management have it right or they don't and if you don't trust management to get it right then it may not be a business you want to invest in.
If it sells at $100 million then thats amazing, much bigger value than I thought. Worth a top up indeed!
Some more touting $150m minimum for their finance arm.
I have not commented as my memory is letting me down.?
Farmers Finance was sold for something like 60% of receivables.
I think FPF was sold to FXL for similar.
According to Turners annual report pages 15 and 16 Finance receivables were $290.017 mil.
So 35% of receivables would be $101.5 mil.60% would be $174 mil.Take your pick.!..I would be happy with either.lol.
The attraction for a buyer would be access to Turners ongoing origination of loans,including the 419 active dealers selling Turners Finance.
At current sp of $2.39 Turners market cap is $204.475mil,so a good price between $100mil and $175mil would make things very interesting and rewarding for shareholders.
As side from a sale it has been interesting noting Turners equity ratio increased from 32.8% in 2018 to 34.6% in 2019.
With Turners turning over stock very quickly,and trading well I expect to see their equity ratio improving further. The only listed in NZ business I know of that enjoys better stock turns is Ebos,with something like 10 stock turns.
All very Interesting... FXL receivables as at FY19 was $2.64 billion... market cap $777m (was alot less this time last month actually, but share price risen dramatically recently from $1.40's to nearly $2)
= 29.4%
So using the FXL ratio, TRA's finance division (with receivables of $290m) would be worth $85.3m - like FXL, I feel this number undervalues TRA's finance division, but, like FXL, maybe this is all the market is willing to pay at this point in time... I suppose $85m is still a good chunk more than $60m, and I think wtih the way TRA is currently being (under)valued, Mr Market isn't even thinking TRA's finance division is worth $60m.
W69 my thoughts exactly.!
Turners have asked for expressions of interest.
I am sure Turners board know what price they would accept,and if they do not get that, they will hang onto it..
A sale would mean the Dorchester Pacific/then Turners original [finance business]goodwill [not on balance sheet] would be realised.
PS.Oxford Finance would make a good fit with HGH's Marac.
Taking over Oxford Finance, together with Turners' MTF shares [Turners are MTF largest shareholder] would give HGH the key to MTF's door.MTF originators would be keen on non-recourse lending from HGH,to replace the non recourse lending Turners stopped..So MARAC,Oxford,MTF.all part of HGH, interesting?
Thats what Todd also said (at the Tauranga presentation) the $100 mill figure andno give away price reduction necessary.
The UDC sale that fell through was 1.6 times net assets
Same multiple for Turners Finance would be $100m but then with ultra low interest rates since then multiples have possibly expanded.
All conjecture really as probably no buyers for what Turners think it’s worth ....we know how delusional the board is when it comes to ‘value’
Yes conjecture.
With Oxford worth $100mil plus in "our" opinion it is hard to see how anyone could call the board delusional.
I think "we"agree with them.Well I certainly do.
We must remember too the board have their skin in the game.
Any business I have ever owned I certainly knew its value,something any owner does.
More conjecture.
Think it was the usual "conjecture" posters here who came up with [the Baker Exit Plan].
The fact was when the Business Bakery boys went their separate way, Baker made sure he held onto his TRA holding,and if my memory is correct, actually increased his holding.
So many people posting conjecture ,they end up believing their posts.?..lol.
"Again,maybe the sum of the parts are more than the 'value' of the whole."
Seems that way,although it really is that recycled funds from some parts, will be more profitably used growing other parts.Best use of shareholders capital.
I know I often recycle capital,think most of us do.
I see where you have picked up the value of the Oxford 'Finance Book' to be $254m. From AR2019 p8
"Finance book (excluding Turners Finance) grew by 9% to $254m as at 31st March 2019."
That total of $254m are liabilities from a borrowers perspective, but they are 'account receivable assets' from a TRA perspective. If you go to the 'operating segments' section of AR2019 (p52), then total finance assets are $276.356m. My own modelling adjusts for 'inter segment assets' and also adds a proportion of the 'corporate and other assets. That increases finance assets to $313.931m. A similar adjustment to the 'Finance division liabilities' sees them rise from $216.996m to $241.726m.
This means net assets of the finance division are:
1/ $313.931m - $241.726m = $72,205m as a going concern business unit (with appropriate corporate management included) OR
2/ $276.356m - $216.996m = $59.360m looking strictly at the operational loan book, ready to 'bolt on' to another existing acquirer finance company structure.
That latter figure is close enough to your $60m Silverblizzard.
You are quite right about 'losing the debt' on a takeover of subsidiary 'Oxford Finance'. But at the same time, you lose the corresponding 'account receivables' assets as well. If 2/ is the actual sale scenario, then we will lose $60m more assets than we lose liabilities, but that will be 'made up' by the $60m in cash received. That $60m potential sale price you estimate looks like it would not improve the net debt position of the company at all. So where would the resources for a potential capital return come from?
SNOOPY
PS On an EBIT basis, I am modelling 'Finance' to make 48% of company profits.
Great detailed explanation! Excuse my narrowly written sentence that must have confused anyone reading it thinking I was linking the borrowings directly with the loans, when my inference was meant indirectly. What I mean precisely was that most of the borrowed money is used by Oxford to make their $254 million loans and the high level of borrowings would more or less relate to the financing parts of the business, while the rest of the other parts like the car and insurance businesses do not have as much debt as it may seem, hence when Oxford is sold, the balance sheet will look fine and any other debt is part of the ongoing concerns of the other parts of the business.
Maybe my way of looking at the balance sheet is a bit simple, but the biggest liability is the borrowings, which affirmed by the CEO is majority related to the financing business without that there are not many other liabilities that need urgent attention. The sale proceeds of Oxford would mostly be available to be returned to shareholders if management deemed so. If management are running a highly leveraged situation, then what explains the high dividend payout and share buyback it would seem like a bit silly to do to risk their jobs and the company.
I have compared Turners Balance sheet assets/liabilities page 33 with segement assats/liabilities page 53.
Taking the finance assets/liabilities out of the balance sheet I end up with total assets of $377,826,000 and total liabilities of $186,993,000.
Add other reserves of $452,000 and Retained earnings of $19,527,000 I end up with shareholders equity of $186,993,000 which means shareholders equity would improve from current 34.6% to 49.5%.
However should Oxford Finance sell for $100mil plus there would be a further $40mil to be added to shareholders equity.
Turners is a very complex business which breaks one of my rules in investing.
Not sure if there's a webcast for tomorrow's ASM, couldn't find details from their announcement.
Balance Sheet less Finance Segment equals Oxfordless Entity (+ $60m from Oxford Sale) Oxfordless Entity (+ $100m from Oxford Sale) Agree with Percy? Assets (A) $654.182m $276.356m $377.826m + $60m Yes Assets: $100m Oxford Sale (C) $377.826m + $100m less Liabilities $427.808m $216.996m $210.812m No equals Total Shareholder Equity {B} $226.374m $59.360m $167.014m + $60m Shareholder Equity: $100m Oxford Sale {D} $167.014m + $100m less Other Reserves $0.452m $0.452m less Retained Earnings $19.527m $19.527m equals Shareholder Equity $206.395m $207.035m Equity Ratio {B}/{A} 34.6% 51.9% Equity Ratio {D}/{C} 55.9%
$167.014m + $19.527m +$0.453m = $186.993mQuote:
Add other reserves of $452,000 and Retained earnings of $19,527,000 I end up with shareholders equity of $186,993,000
I see where you get your number from Percy, adding back the other reserves of $0.452m and retained earnings of $19.527m at the bottom of the balance sheet on page 33. However, I don't think you need have added those two figures onto the shareholders equity, because they were already in there before you did it!
Or from 34.6% to 51.9%? Either way though, anything with equity ratio of around 50% is not a low debt company.Quote:
which means shareholders equity would improve from current 34.6% to 49.5%.
And the equity ratio would improve to 55.9%. With these very low interest rates, there could be a case for a one off 'cash' capital return if Oxford finance is sold for that optimistic $100m figure. But equally likely is that after struggling with high debt, Turners will bank the money and use it to expand their retail footprint. An equity ratio of 55.9% is not low, and the car retail business remains volatile.Quote:
However should Oxford Finance sell for $100mil plus there would be a further $40mil to be added to shareholders equity.
SNOOPY
Page 53 shows finance assets 276,356 and taking away liabilities of 216,996 leaves 59,360 which is what finance division is in their a/cs or close to the $60 mil we all thought finance was in their books at.So back to page 33 we now know the finance division is nett $59.360.So should a sale of the division go through at $100 mil we have to find a home for $40.64mil, a bit more than the $40 mil I stated.As far as I am concerned it goes straight to the bottom line,as per my previous post.
I would also point out I think the existing equity ratio at 34.6% is adequate,considering how quickly Turners manage to turn over their stock.
Whether or not a sale happens does not really concern me,however I can see the board's point that the recycled capital can be put to more profitable use.
It would also make the business easier for our "Brain" to understand...lol.
That’s amazing ...sell finance arm and it’s likely shareholder equity increases and will be even mor3 above market cap.
Sort of says that market currently thinks the car selling division is not worth anything
Or have I misread percy and snoopy posts
Just go on facts you/we know about Turners selling cars.
Your Wellington Pop-Up site holds approx 55 cars.Sold 47 cars in July.
New New Plymouth site holds approx 155 cars.With out any advertising sold 135 cars in July.
We also know Whangarei relocated site is going gang busters.
Joshuatree advises us Tauranga site is too small.
Tomorrow we should hear how well relocated North Shore site is trading.
All the time remember in the next two years Turners are looking to open a further 8 new sites.[was 9 however North Shore site is now trading].
The market valuing the car selling division as almost worthless just highlights why one Turners is a great investment going forward
Look forward to watching tomorrow’s meeting
https://www.nzx.com/announcements/341081
Here are webcast details...
Turners Automotive Group Limited (NZX/ASX: TRA) is pleased to advise that the Company’s 2019 annual meeting of shareholders to be held tomorrow commencing at 10.30am will be webcast.
The link to the webcast is as follows: https://www.youtube.com/watch?v=OUplB-b8yK8
If you are calculating an equity ratio it is not incorrect to say that the extra $40.640m (which you and I both rounded to $40m) 'goes straight to the bottom line'. But it also goes 'straight to the top line' because the extra $40m is both new incremental shareholder equity AND a new incremental asset.
Shareholder Equity Ratio = (Shareholder Equity) / (Total Assets)
SNOOPY
Very nice top or bottom,up or down or just sideways.I would just accept it anyway I could, and be very happy.
$40mil extra wealth,realised should they sell finance for $100mil.More if they received more.W69's $159 mil would be extremely well received.Nice.[$59 mil extra on top of my $40mil to be accounted for].lol.
Your brain might be moving too fast for this ol' dog to follow Winner.
But the way I see things......
1/ The shareholder equity of (Turners - Oxford) will have increased due to the cash payment received from the Oxford Finance buyer (let's say they paid $60m to Turners) BUT....
2/ As a result of the sale, a net: $276.356m - $216.996m = $59.360 (Let's call it $60m) of shareholder equity has been lost by (Turners-Oxford).
That means there is effectively 'no change' in the equity held by (Turners-Oxford) .as a result of selling Oxford Finance for $60m.
NOW, IF Oxford Finance is sold for $100m THEN there is a net $40m gain to (Turners - Oxford). THEN a $40m equity gain will make the net asset backing of (Turners - Oxford) go up. But the reason for this increase is because someone thinks the finance division is worth more than 'book value'. Now what does this say about the car division? I would have thought 'nothing'. (Note that doesn't mean the car division is worth nothing, just that the sale of the finance division says nothing about the value of the car division). So your point Winner has gone way over my head , I am afraid :-(
????
SNOOPY
Snoops - I’m just bamboozled by your and percy’s big numbers
However what I think I was saying that in round numbers finance might be worth $100m to $150m and if you put a value on the insurance and credit businesses you possibly get $200m in total for the non-car businesses
Turners market cap is about $200m .......so what value is the market putting on the car selling business?
Maybe you’ve both over bamboozled me and I’ve got over excited and the finance business is really only worth $60m
You guys might be interested in the divisional profitability for FY2019 as served up by my own spreadsheet. Note that Turners call 'Earnings Before Tax (EBT)' 'Operating Profit'
EBT As Declared EBT A.R Finance Adjusted EBT C&O Apportioned Automotive Retail $18.274m $14.451m $4.815m Finance $11.112m $14.935m $12.635m Credit Management $6.321m $6.321m $5.525m Insurance $8.227m $8.227m $6.024m Corporate & Other ($14.885m) ($14.885m) Total EBT $20.048m $20.048m $20.048m
1/ Turners retain a finance book inside the Automotive business. To truly see divisional profitability, I believe this should be removed and transplanted into the Finance division. This is what I have done in the second column.
2/ I have allocated 'Corporate and Other ' expenses amongst the divisions in proportion to their divisional revenue. I use 'divisional revenue' as an allocation tool, because I believe the more dollars that are involved in any particular deal, the more attention is required from management. This adjustment has produced the third column.
This is what concerns me about the plan to sell the 'finance division'. Looked at this way it is -by far- the most profitable division of Turners. But what this table does not show are any 'transfer pricing ' effects.
When Turners own both the finance company and the car sales company, it must be very tempting to 'knock a few dollars' of the retail price and gain them all back again with a finance deal with interest set at a suitably high rate. With the finance company sold, this tactic won't work for Turners. So I wouldn't be surprised to see Turners firmer on their prices while turning the screws on the new owners of Oxford finance to help 'seal the deal'. Thus the divisional profitability that I have worked out above may not be indicative of what is to come.
If / When a sale of Oxford Finance is announced, equally important as the price will be the 'referral fee' terms on each deal that is due to Turners, and the structure of those 'referral fee' kick back payments going forwards.
SNOOPY
Its been in play and on the market now for many, many months. Could it just be that nobody will pay a normal valuation because its riddled with problematic delinquent debtors at ratio's, (using thorough due diligence and independent detailed sampling of loans) far in excess of Turners management's estimates ?
You'd think with funding costs at 100 year lows and those lovely big juicy interest rates Oxford Finance charge their punters the loan book would be a goldmine and banks or other finance companies would be desperate to take it off their hands and a frenzied bidding war would erupt. But as the months tick bye reality bites that one assumes when there's up to 14% delinquency ratio in some parts of the book and rapidly deteriorating even further, that really sucks the wind out of their sails.
It’s not just selling the profitability, for a one time sugar hit, it’s selling a big ongoing revenue stream as well. One wonders what TRA are doing trying to sell the silver and how that plays out for shareholders accustomed to above average returns. No surprise the SP is weak only propped up by the buy-back scheme, for as long as that lasts.
I am still haunted by the dismal face of despair put on by the late great Sir John Anderson , the second greatest banker that New Zealand has ever produced (*). As the PGW Chair, he fronted up to PGW shareholders and told us that the well capitalised and well supported by investors PGW finance division (the PGW golden goose) was only worth its 'asset backing' and was to be sold to Heartland.
(*) The greatest banker NZ has ever produced was of course on the other side of that deal, Heartland's soon to be knighted Sir Jeffrey Greenslade!
I understand Todd talking up the $100m valuation for Oxford. It is a negotiating tactic. But I reckon the wisdom of Sir John from beyond the grave might yet carry some kudos here!
SNOOPY
It is simple :
If someone wants to buy the finance side at the price Turners want they will sell it.
If not they will hang onto it.
I barked up such a storm last year I went "horse" lol.
Not planning on attending tomorrow.
Turners directors think the shares are worth north of $3.20, per last year's annual meeting. The market says otherwise and I am sure the gulf between what they want for Oxford and what its really worth is just as wide so they'll keep owning it and delinquent loans will keep rising this year just like they did last year.
The banks have taken up some of those Oxford loans Beagle! Isn't that what rolling up 'like loans' and flogging them off to the banks as 'securitized loans ' was all about? IIRC from last years road show, this was how Turners were getting around their shortages of capital, recycling their capital for what is a capital intensive business (doing the loans). So why has the focus this year changed to selling off the whole finance division? Why can't we just roll up those securitized loans for capital efficiency like we did last year? There is a curly question for someone to ask tomorrow at the AGM!
SNOOPY
That latter sentence is not my experience. The PGW company owned pension plan was topped up by $10.274m over FY2019
Lump sum contributions to defined benefit plans: $10.274m. (from cashflow statement)
Effect of top up on Annual Profit:: $0
Somehow the insurance scheme there was completely ring fenced away from the underlying company profit.
So how do you explain the table on p86 in Turners AR2019 titled "Surplus after taxation from insurance activities arose from"?Quote:
The company does cite "IMPROVED INSURANCE LOSS RATIOS: Insurance claims loss ratios have improved from 78% to 72%."
(A loss ratio is a ratio of losses to gains, used normally in a financial context. It is the opposite of the gross profit ratio. For insurance, the loss ratio is the ratio of total losses incurred in claims plus adjustment expenses divided by the total premiums earned.)
Less losses more money able to be recognised as profits, seems simple enough.
In that table is says that out of a total surplus after tax of $6.990m, only $1.022m is in excess of insurance contract and investment contract liabilities. I read that as shareholders are only allowed to book $1.022m of those insurance profits for themselves.
SNOOPY
Exactly. Either the finance division is the big golden egg laying goose the books try to tell us, or it just looks that way and the board knows more than what the books say.
If it is the healthy golden egg laying goose option, than Turners board would be stupid in trying to sell it.
Do we think the Turners board is stupid? Some of them might appear arrogant and lazy, but stupid - no, I don't think so.
So, I guess the question is - why do they try to flog of the golden goose? Is it really just because it is too hard for them to focus their mind in between of all these exciting car racing events and car shows on something that boring as finance? I guess - they took the pay rise to monitor this complicated division, didn't they?
Good news ....a really good F20 earnings guidance (upgrade) today
Some will say we knew all along ...others will shake their heads in disbelief and ask themselves ‘what did I not see’
...all while share price surges up
Hope Byrnes not chairing the meeting today ....I’d be going for the stop button if that happens
I can't see an upgrade...?
http://nzx-prod-s7fsd7f98s.s3-websit...109/307874.pdf
Must be coming out in a separate announcement
Winner just teasing. A chocolate for the first taking the bait ;):
Attachment 10772
Good they remind us that 90% of punters are aware of Turners
So for every 100 punters buying a car 90 know about Turners but only 5 actually buy from them (OK make it 6 as they growing market share)
Doesn’t seem right
At the agm today so hopefully leave here a believer...
Well start on positive note, Grant is present at the meeting.
That’s cool 44 watching on YouTube
Martin Berry (Director) sounds lot better exciting than other two before.
Digital sales the future. Data analytics, AI. Disruptive innovation, growth in subscription model, 10% of household income spent on sub services. carlys bring the tech and expertise for sub based service into NZ mkt this year.Buyers will buy online and turners will deliver the car to their door.
150,000 visits to turners site last month
Martin was good. Looking forward to a chat with him after
Bakers a bit embarrassing, Todds great.
Meeting done the trick ....share price surging
Hope it’s not just the believers buying more but rather new punters coming on board ..esp those seduced by the modern way of doing things
Well yes, roughly 20,000 shares changed hands during the meeting - and 443 of these shares have been sold at the 5 cent premium you mentioned. Amazing show of confidence ...
But yes, Martin Berry was a great presenter. Didn't talk though about the risks inherent in any big IT implementation (I think historically it is 20 % which go well).
I was as well surprised that they currently don't seem to know which cars the markets want ... if they need to buy and implement big AI systems to find out.
Share price hit 250 ...that’s good
Much better ASM today compared to last year's one and bit more purpose in their intent which was missing last time.
Being quite involved In machine learning tech, it’s a diff beast, there’s always better and more analytical tools available than the ones purchased yesterday so it’s not as easy as putting a tick box to say yes we do AI. They probably have some analytics out there but there’s always better and more refined data analytics available. Most old companies use resource hungry tools like Splunk or ELK while more of the newer ones are taking advantage of the smaller startups doing great things in this space.
As I missed the agm I really appreciated being able to watch it on You Tube.Thank you Turners.
I thought the meeting was very positive, with clarity of purpose being made very clear.
Share pricevup 5% so far today ...that’s good
Punters will have to pay a lot more next week to join the party
Turners into a new age company with all this IT / analytics .....might even be valued as one
This collaboration / tech stuff done no harm to the thl share price ....so looking good for Turners
Yippee . a close of 260
Highest close since last November
I can now call my 'investment' in Turners successful ....even if not as successful if it had got to 323 as it was meant to after the half year announcement
Could be the best thing since sliced bread now
Look at the volume though Winner. Tiny number of shares being bid up. And the 'big' trade at $2.60 was not even a marketable parcel. I reckon it is bots chasing up their own trends. AGM said all divisions trading 'ahead of budget' and 'ahead of last year'. But no more detail, We could yet get a slow down. And it sounds like a big wad of cash is going to consultants to ramp up the Turners digital strategy. So 'trading ahead of budget' doesn't necessarily mean a profit increase if corporate costs balloon in parallel.
I watched the AGM movie. Grant Baker repeatedly stated he was 'committed' to the business and that it was the only 'active' investment he had at the moment. He didn't sound like a guy about to hang up his management driving gloves. He also said that of all the business he has invested in, he has enjoyed Turners the most because he liked discussing cars all day. He said he had owned 170 cars in his life, Sounds like an addiction. Do you still think is looking for an exit Winner? Mind you he said that picture of him as a child was was inside his fathers brand new VW in 1957. So Grant must be approaching 65. Looks well preserved though. I would have guessed he was at least ten years younger. Maybe Turners will be his 'semi-retirement' interest?
I thought director Martin Berry's speech on forward looking trends in car retailing was particularly interesting. The idea of Turners having the 'brand', 'capital' and 'customer base' and chasing after start ups to provide the 'technology', 'platform; and 'expertise' makes sense. But it does sound like some of these technology start up investments, like CL8 and those that follow, may end up as dead ducks. ' Failure will be tolerated' is a mantra familiar to tech investors. But whether the somewhat more conservative yield investors that are attracted to Turners will feel the same will be something to watch.
SNOOPY
I'm still squirming !
Better for a closing price to be up 20 than down 20 but yes Snoopy the VWAP is only +4 for the day.
I just realised its my biggest holding (as I've been selling down some others) so the portfolio did well today (even if this stock is still a loser for me - hence the squirming).
A price rise like this on top of recent movements off lows could be the Turnering point
Did I mention the bullish gartley from Mar to August.
If nothing else 260 is a great starting point for tomorrow
And the chart looks cool now,
Percy ...I reckon next divie will be 5 cents in light of those fantastic sales numbers that Todd went on about.
Was always going to be that way with no Beagles in attendance!
Funny you should mention that Winner. IIRC Todd told us they were still going to write loan business but they weren't sure they wanted to accept the risk of new bad debts. It left open the position that Turners might have to ring fence some of their existing bad debts to get an Oxford Finance sale through. But maybe I was reading too much into what Todd said or didn't say...
SNOOPY
Turners retail will keep "originating" loan agreements.
Turners retail will keep earning an "origination fee," no matter if it is still with Turners' ownership, or someone else's ownership of Oxford Finance.
Sale of Oxford Finance would mean Turners no longer underwrite such lending,the new owner of Oxford Finance would.
Think HGH's Marac or MTF.Loan originators earn a fee.Turners retail will always earn a fee from whoever is their finance provider.
Usual Todd waffle I think ..he’s pretty good at that
Really cool how he asked the audience whether they understood what he had just said .....and looking surprised he didn’t get an answer ...not even from the guy who asked the question who probably even more confused than what he was.
Apparently Todd’s tie stood looked pretty impressive on the big screen down at the bowling club.
Yes, but I wonder what form those originating payments will be? A one off referral fee? Will Turners get to 'clip the ticket' every year? Will the loan ticket be a fixed fee or a proportion of the loan size? The answer to those questions might make quite a difference to Turners ongoing income stream from originating loans, and also the price they might get for Oxford Finance who would have to pay such charges..
Then Todd confused me with his example saying the origination fee would equally well be paid from UDC, Marac or whoever was looking after the loan. But I thought Turners had agreed to keep putting their vehicle loans through Oxford? If they sell Oxford, and there is no tied down long term deal to exclusively use Oxford for loans, that will again affect the price Turners might get for Oxford.
And Todd said there could be some tighter emissions standards on the horizon, plus the electric vehicle subsidy / gas guzzler tax. See I was paying attention. But not all of Todd's answers were fully tied down to my long floppy way of hearing.
SNOOPY
[QUOTE=Snoopy;771969]Yes, but I wonder what form those originating payments will be? A one off referral fee? Will Turners get to 'clip the ticket' every year? Will the loan ticket be a fixed fee or a proportion of the loan size? The answer to those questions might make quite a difference to Turners ongoing income stream from originating loans, and also the price they might get for Oxford Finance who would have to pay such charges..
Usually a one off based on loan size.
Paid up front and accounted for straight away.
OK the fee would be paid by the new owner of Oxford,and the fee would be inline with what other financiers such as Marac and UDC pay their originators.
Yes the new owner of Oxford would tie Turners into an originators agreement.And I would not be surprised if the new owner turned out to be either HGH's Marac, or ANZ's UDC.
The point of any sale of Oxford is simple.Turners believe they can earn a better return openning more sites and selling more cars,with insurance,and finance [commission fee], than operating a finance company,[depending on the sale price of Oxford Finance].What none of us know is what Turners will accept,or what a buyer will pay.
What was Baker talking about when he said Turners had (recently?) put $28m of Equity into Oxford .....and then Todd had to tell him to shut up
Here is a table for you to ponder Winner
Consumer Loan Book Size {A} $266.518m Ref AR2019 p60 Capital Required to back Loans {A} x 0.2 $53.303m Quote by Baker at AGM Finance Division Equity $276.356m Ref AR2019 p53 less Finance Division Liabilities $216.996m Ref AR2019 p53 less Doubtful Debts $25.247m Ref AR2019 p60 equals Residual Equity {B} $34.133m Equity Shortfall 0.2{A}-{B) $19.170m
A $28m capital injection would more than make up for the shortfall, and allow for some loan book growth to:
($34.133 + $28m) / 0.2 = $310m
Note: The consumer loans grew as follows over the years:
2019 2018 2017 2016 2015 Consumer Loan Balance $266.518m $253.168m $180.908m $147.490m $127.008m
This means that there should be enough headroom at Oxford for at least a couple of years growth without the new owner of Oxford having to put in more capital.
If you are selling a finance company and you want the best price, then you want the loan book to be as clean as possible. One way to do that is to withhold the doubtful debts from what you are selling. However, if by doing this your equity backing remaining in the finance business becomes insufficient, then a capital injection might be required. $28m would nicely fill this gap. Turners could, 'on paper' shift $28m of capital into Oxford, then -provided the sale price was over $28m- the cash position of the remainder of the company would not be disadvantaged. No real need to even tell the shareholders about it as once the sale goes through, that $28m of cash loaned is all paid back It does mean though that if Oxford is sold for $100m, the net cashflow into Turners as a result of the sale process would be reduced to:
$100m - $28m = $72m
Furthermore Turners might have a dirty 'residual loan book' of $25.247m to work through.
SNOOPY
Don't know about you but I gave up on chasing my own tail a while ago and this little scheme seems suspiciously similar.Quote:
If you are selling a finance company and you want the best price, then you want the loan book to be as clean as possible. One way to do that is to withhold the doubtful debts from what you are selling. However, if by doing this your equity backing becomes insufficient, then a capital injection might be required. $28m would nicely fill this gap. The seller could shift $28m of capital into Oxford then provided the sale price was over $28m the cash position of the remainder of the company would not be disadvantaged.
SNOOPY
Problem loans have been growing overall and in the non recourse MTF referral part, alarmingly so.
At last years annual meeting they told us they'd changed their eligibility criteria 4 times during the year under which new loans were approved. It had a very experimental feel about it. I'm not surprised they are trying to sell their finance company because it reeks of doggy doo.
I now wish to move on to Turners 'insurance positions' as recorded in the balance sheets of the last five years. A company offering insurance will be required to estimate their liabilities going forwards and maintain an asset base that has the capability to discharge those expected liabilities. The snapshot end of year balance sheet position of Turners in this regard I have tabulated below:
FY2019 FY2018 FY2017 FY2016 FY2015 Financial Assets at fair value through Profit or Loss $66.252m $53.378m $10.320m $18.455m $17.350m less Insurance Contracts Liabilities ($51.785m) ($48.378m) ($42.874m) ($9.489m) ($9.280m) less Life Investment Contract Liabilities ($7.484m) ($7.127m) ($12.847m) ($15.629m) ($16.378m) equals Funding Surplus $6.983m ($2.127m) ($45.401m) ($6.663m) ($8.308m)
FY2017 looks to be an anomaly. This is probably because Autosure was acquired on the last day of the financial year (31-03-2017) and somehow the liabilities from that deal suddenly appeared on the balance sheet while the assets that supported those liability payments did not, at least immediately
If you disregard FY2017, we can see that the overall insurance deficit has been reducing to the extent that at last balance date there was a net surplus. But does this mean that we shareholders can now claim this 'surplus money'?
While the insurance plans are in deficit, Turners has an obligation to eventually close any funding gaps. I say 'eventually' because if the actual payment of an obligation is not due for several years, Turners can use their investment skills to grow their 'on the books' insurance capital to meet those future insurance liabilities by the time those liabilities eventually become due. Yet we know investment markets can go up and down. So just because we have an 'investment surplus' now, that does not mean that we will have an investment surplus when the associated payment obligations come due.
Turners have another way to generate 'insurance capital' and that is to raise premium charges by more than the expected payouts they will make. In 'insurance speak', I think the term for this is 'reducing the loss ratio'. So we shareholders could just take the 'insurance capital surplus' knowing that if the balance turns negative again we can just increase insurance premiums. I have to admit feeling a bit queasy over the ethics of that behaviour. The counter argument would be that if the net plan deficit were to remain, then we shareholders would be obliged to make up the difference by supplying new capital. So it is only fair that we should be allowed to take away our surplus capital when it is ostensibly no longer needed.
I am left thinking there must be insurance industry rules or at least 'principles of best practice' that resolve the issues I have raised in this post. The problem is I don't know where to find them! If anyone knows please post a link!
The Turners annual result accounts seem to represent the position of stakeholders, who include both 'policy holders' and 'shareholders'. Both of our interests appear to be mixed up. I have to assume that Turners are following any 'principles of best practice' in their accounts. To that end I am thinking that the table below is my 'best guess' as to what proportion of insurance returns can be legitimately and legally accessed by shareholders. Refer to AR2019 p86 to understand where I have copied these figures from.
FY2019 FY2018 FY2017 FY2016 FY2015 Insurance Return on Assets (NPAT) above Contract Liabilities $1.022m $0.823m $0.383m $0.307m $0.243m
SNOOPY
PS To read the entire 'Insurance Windfall Mystery' series select 'Search This Thread', then 'Advanced Search' then put in my name as author (Snoopy) with 'windfall' as the keyword. They should all come up.
[QUOTE=Snoopy;772077
Turners have another way to generate 'insurance capital' and that is to raise premium charges by more than the expected payouts they will make. In 'insurance speak', I think the term for this is 'reducing the loss ratio'. So we shareholders could just take the 'insurance capital surplus' knowing that if the balance turns negative again we can just increase insurance premiums. I have to admit feeling a bit queasy over the ethics of that behaviour. The counter argument would be that if the net plan deficit were to remain we shareholders would be obliged to make up the difference. So it is only fair that we should take away our surplus capital when it is ostensibly no longer needed.[/QUOTE]
"Insurance speak"."Reducing the loss ratio".
a] By carefully knowing the different repair costs for various vehicles Autosure can better match premiums.I have previously posted that fixing European vehicles cost 3 to 6 times as much as Japanese vehicles.Four wheel drive are also a lot more expensive to fix than two wheel drive...[data].
b] By assessing whose liability the repairs are.A lot of times the vehicle may have been sold with an existing problem.So it is the dealer's responsibility to repair, rather than Autosure's.
c] Making sure the vehicle has been serviced as per the Autosure policy.
Received with thanks:)
Turners continues to deliver strong dividends
Ah, yes gotta love those fully imputed divvies.
Turners CEO, Todd Hunter, said: “Turners continues to deliver strong profits and ranks in the top 10 NZX companies for gross dividend yield. Based on a share price of $2.60 the dividend yield is in excess of 9% reflecting great value for yield and growth investors particularly against the backdrop of an increasingly low yield environment. 1Q trading conditions were robust and all business divisions tracking ahead of budget and ahead of FY19 at end of Q1.”
Pedantic Peat lol
This news;)
Tueners Dunedin got For Lease signs all over it
Relocating to new huge site....or closing down?
Relocating to a new huge site near the "Forbar stadium".
The excitement continues,as we know new and relocated sites trade "gangbusters".
Was announced in their Roadshow presentation.Also page 27 AGM presentation.You must have missed them..Not like you.Luckily you have me here to help you....lol.
Yes awesome.
But wait there is more.
Nelson and Timaru can expect to see a Turners branch hopefully in the not too distant future.2021.
Enjoy your holiday happy in the knowledge Turners are working hard for customers and shareholders .
Final decision Oxford Finance not being sold. Guess no one else thought it was worth a $100 million.
https://www.nzx.com/announcements/341658