2CC - 2 Cheap Cars Group

[Basil]

I seem to remember you said much the same things about Turners when I started to invest in them,including director Paul Byrnes and Chairman Grant Baker.
Some very personal attacks on Baker when he preferred to pick up his new Ferrari ,rather than attend the TRA's agm in person..
NZA have a strng board and a very capable CEO.

Not right for the Chairman not to attend the annual meeting for that reason.  Paul Brynes looked like a fish out of water taking the hospital pass Chairing that meeting.  He looked deeply uncomfortable to say the least.  Turners have come a very long way since those days.

As noted by Turners, import restrictions around emissions standards which really affect the bottom end of the market where 2 Cheap cars operate, have now come into force seriously affecting lower value imports so whatever they are basing their guesses on for FY24, most will take them with a grain of salt.
A strong board...yeah right, they haven't even been there for a year yet after the entire existing board resigned less than a year ago.  Founder has now set up shop in direct competition.  Gosh there must be a serious sized axe to grind there.

People might be interested to note it's extremely illiquid too.  According to MS Money average daily trade volume is just ~ $24,000 worth.
Good luck with it.  It's not for me as I have no need or desire to speculate on penny dreadfuls these days.

[lorraina]

Thought you would have seen 41% of their sales are EVs and Hybrid.
Michael Stiassny...Well who is more experienced.?
Paul  Millward;Mr Millward will join NZAI from DB Breweries Limited (Heineken NZ) where he has enjoyed a 12-year stellar career, most recently as Sales Director NZ since 2017. In this role, Millward was a member of the executive leadership team, responsible for a team of 130 staff and revenue of circa $750m. Under his leadership, market share, return on sales and EBIT margins all increased significantly.

Prior to joining DB Breweries, Millward gained extensive experience in sales and finance roles in FMCG, retail and medical businesses not only in New Zealand, but in England, America and Denmark.

Mr Millward has a proven ability to lead and develop successful teams and build relationships with customers. He also brings a sharp commercial focus to building brands and market penetration.

NZAI Chair, Michael Stiassny noted Millward's appointment, saying, "The Board is pleased to welcome Paul to NZAI. He is focused, ambitious and his sales, marketing and leadership experience in the fast-paced world of FMCG will translate well to the automotive industry. We are confident he will bring exceptional strength to the NZAI team."

Mr Millward joins NZAI on 9 January 2023. Following a thorough handover, Interim CEO Gordon Shaw will rejoin the NZAI Board as an independent director.

Mr Millward will join NZAI from DB Breweries Limited (Heineken NZ) where he has enjoyed a 12-year stellar career, most recently as Sales Director NZ since 2017. In this role, Millward was a member of the executive leadership team, responsible for a team of 130 staff and revenue of circa $750m. Under his leadership, market share, return on sales and EBIT margins all increased significantly.

Prior to joining DB Breweries, Millward gained extensive experience in sales and finance roles in FMCG, retail and medical businesses not only in New Zealand, but in England, America and Denmark.

Mr Millward has a proven ability to lead and develop successful teams and build relationships with customers. He also brings a sharp commercial focus to building brands and market penetration.

NZAI Chair, Michael Stiassny noted Millward's appointment, saying, "The Board is pleased to welcome Paul to NZAI. He is focused, ambitious and his sales, marketing and leadership experience in the fast-paced world of FMCG will translate well to the automotive industry. We are confident he will bring exceptional strength to the NZAI team."

Liquidity.Not an issue.I have bought good holdings for the wife and myself since I started buying in February.

[Basil]

At least they're only down ~ 80% since listing in 2021 whereas MFB with the hugely experienced Tony Carter is down ~ 90%.  Suppose that's something although comparing this 2021 listing with that one is setting a very low bar.

[lorraina]

I am more focussed on what their divies will be in a year to 18 months time.
Should I be right I would expect Eugene Williams will have sold out,and the share price will double or triple.

[Basil]

How many millions of shares has he still got left to sell ?

[lorraina]

14,607,018 at 9th June  32.065% of the shares on issue.
From 1st June to 9th June he sold 554,417.
So plenty of liquidity currently.

[Basil]

Does this sum it up lorraina ?  Have I missed anything ?   Between jobs and bored this morning I decided to look further into this can of worms.
We have a terribly disaffected former major shareholder who still holds nearly a third of the shares and has a pattern of selling down at almost any price, just this month has driven the price down from 31 cents to under 27 cents average in most recent sales, see page 2 of this announcement http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/NZA/412839/396247.pdf setting up in business in competition using a name very similar to 2 Cheap cars, so there's major new competition.  Turners are very cautious on the outlook for FY24 but despite this the new competition and the removal of Govt subsidies for second hand hybrid cars with effect from 1 July, a major part of their business, NZA are somehow extremely bullish on their outlook?  WOW that's quite remarkable.

If they somehow pull that miracle off or look like they might do so after the interim report, how is the share price not just going to stay under inordinate pressure for the foreseeable future as Eugene cashes in more of his chips to set up more branches in direct competition?

Are they heading to court to sort out the name issue, gosh from press articles I have seen the two names of the competing business's look extraordinarily close.  How does that not end up in court and the lawyers getting hundreds of thousands, (a million+?), of fees with an uncertain outcome ? Even if they do get awarded damages can Eugene pay them without dumping his remaining shares at any price ?

So just to recap on 2022, almost the entire board resigned, the CEO resigned, and the auditors resigned.  In 2023 the CFO has resigned and is leaving after the notice period on 30 June 2023.  Their bankers also quit.  They are moving to a commercial facility with "Finance Now" rather than a bank and claim this is cheaper and Finance now understand their business.  Hmmm

Looking at trading results, the new CEO is quick to highlight strong Q4 trading in FY23 but omits, not even in passing to mention the massive tailwinds in this sector in that timeframe from 10,000+ cars that were flooded in Auckland and elsewhere that needed to be replaced, (my wife's car was one of them).

I can't see any official commentary of any kind by the company on how (what appears to amount to a commercial war between major shareholders) is playing out and affecting the company?  Why not ?

The new CEO who started in January 2023, while experienced in other fields appears to have no experience whatsoever in the vehicle industry.  How is that not a concern ?

Massive uptick in profitability projected for FY24 but no mention of how the removal of customer credits for hybrid vehicles (Govt clean car incentive scheme changes 1 July 2023) will impact things?
The lead-up to this change and removal of tax credits for hybrid vehicles is sure to be bringing forward hybrid purchases to this quarter but that won't last and we'll have a temporary vacuum after that.  (For example, I am so incredibly impressed with Mrs Hounds new latest model Kia Sportage I am thinking about buying the sister company Hyundai Tuscon hybrid which is eligible for a tax credit of just on $2,900 if brought on or before 30 June 2023.  (May test drive later this month)  No tax credit after that date.  I would probably buy the Kia Sportage hybrid instead, but it hasn't been released in N.Z. yet.

Really struggling to see your investment case here?  This is not an attack on you.  I'm just curious why you think this all works out well?.  I don't think I can ever recall in over 40 years of investing a more fulsome set of C Suite, Boardroom and Auditor resignations and then major shareholders at war to boot.  Its certainly an "impressive" series of ructions.

Its been interesting to look at this.  Quite a spectacular train crash by anyone's measure.  Whether they can get the business humming along is anyone's guess given all the issues, but this is definitely in the highly speculative category as far as I am concerned. 

As for their FY24 forecast...I think MFB are quite bullish on their growth prospects too and I think that sums up how skeptical one may be prudent to be.
Some interesting links below.

https://autotalk.co.nz/breakdown-of-trust-2-cheap-cars-mass-resignations-confirmed/
https://autofile.co.nz/founder-slams-departing-directors-
https://www.stuff.co.nz/business/124285063/owner-of-2-cheap-cars-applies-to-join-nzx
The way they have done business before https://www.laneneave.co.nz/news-events/2-cheap-cars-fined-nearly-500k-for-short-changing-consumers-on-marketing-claims/
The retail branch war commences with new car yards being opened up by Eugene in very blatant and direct competition.  Almost certain to end up in the courts and then be appealed, potentially more than once and potentially this may drag on for years.... https://www.rnz.co.nz/news/business/490935/2-cheap-cars-stakeholder-opens-competing-business-with-similar-name-adjacent-to-car-yards

I reckon minority shareholders best chance to make a quid here is to try and act as a go between mediator between the parties, avoid all the vast legal fees and endless courtroom drama's and get everyone to hug it out and make up.  There's a challenge for someone who is very, very brave and a highly skilled mediator.  As for me, all of the above makes me like my Turners shares even more lol. 

[entrep]

Holy crap Basil, what a read! Great post.

[winner (n)]

Michael Stiassny Will sort things out ...he's pretty clever.

Was once known as Dr Gloom

[Basil]

Doctor Doom will certainly earn his directors fees with this one lol   Some commentary on him for those not familiar with his reputation and abilities.
https://www.nzherald.co.nz/business/doctor-doom-portrait-of-a-corporate-undertaker/NPJ6R6ECUEFFGWIECRFYBC4PHU/
Maybe he thinks it will all be too hard, after all he is an insolvency and receivership specialist.
Thanks entrep.    Very interesting stuff looking at these sorts of corporate fiascos eh.

[lorraina]

Michael Stiassny Will sort things out ...he's pretty clever.

Was once known as Dr Gloom

Strong Chairman. "Our Michael."
Good Board.
Excellent CEO.
Turnaround already working.
Strong Balance Sheet.
Equity Ratio ..55.07%
New Finance provider.Finance Now [part of SBS] working capital at a lower rate,
Strong  Operating Cashflow.$10.908 mil....[incredible]
Strong Brand.Easy scaleable.Currently just 12 branches.
Market.The under $15,000 is the right place.
Competition.Always good for activity.Think McKenzies and Woolworths or why Malls work.
Stock Turns that would make every other dealer cry for.
ChCh yard stocks 70 cars.Sells on average 50 a month.ie over 8.5 stock turns.
Strong online sales.
Currently trading below NTA.
Eugene Williams selling.A "window of opportunity" for savvy long term investors to get a good holding at bargain price.I work it out as buy one, get one or two free.
Liquidity.373 TRA traded so far today.92,500 NZA.
Hang on a big buyer has just taken the volume traded today of TRA up to 1,298.
Strong demand for Electric and Hybrid Cars.Currently 41% of cars sold.

ps.I still regard TRA as a great company.

[Red Baron]

Great posts vrom Basil (21) and lorraina (25).    A true debate:  zunny zide vs dark zide.   Neither is right or wrong.   The canvas is laid bare by the hard vork of the exponents of both views.  The exercise for investors is in pricing the risk. Basil is hunting down a different vox hole.  Lorraina eez in!

The Baron?  "High in ze sky on this one."  Or as my ground based colleagues might zay "ztuck in ze trenches."
But at zome point as an investor you have to make the decision to "go over the top."  The only way to meet your investment goal!   The zecret is to pick your trench and timing.  It is zafe in the trenches - zort of.  But stay there forever and eventually the gas will get you.   Your investment portfolio will choke.   May you both make that 'right decision', vhich may be different vor each of you!

RB

[BlackPeter]

Michael Stiassny Will sort things out ...he's pretty clever.

Was once known as Dr Gloom

I had some contact and meetings with Michael Stiassny when he was (next to many other boards) running NZ Wind farms.

Not sure who gained from his services at that stage, but certainly not the shareholders who paid him. Probably too early to call the undertaker?

I think as a director of a going concern he is overrated, but hey - he seems to be great in selling himself.

[lorraina]

Stiassny's record at NZA is impeccable.
Company was in disarray when he came on board.
He has arranged:
A New Board,
A New Auditor
A New Finance arrangement [at better terms]
New first rate CEO
New CFO.
Certainly steaded the ship, and set it on a new well focussed strategy,while all the time keeping the business running profitably.
An incredible achievement in just under a year.

[BlackPeter]

Stiassny's record at NZA is impeccable.
Company was in disarray when he came on board.
He has arranged:
A New Board,
A New Auditor
A New Finance arrangement [at better terms]
New first rate CEO
New CFO.
Certainly steaded the ship, and set it on a new well focussed strategy,while all the time keeping the business running profitably.
An incredible achievement in just under a year.

Look - I hope it works out for you.

I just noted that I didn't found Stiassny very convincing in the past ... and certainly not on the board of a smaller company. I had as well the impression that he felt quite uncomfortable in dealing with the requests of unimportant retail shareholders. But sure - everybody can change and learn.

And hey, I made it even in my latest car hunt (earlier this year) to one of the NZA (I dare not mention the brand) car yards, which is more than I could say about TRA.

However - none of their cars made it on my shortlist.