TRA - Turners Automotive Group

[BlackPeter]

cheers - interesting chart. I didn't realize that PE and P/B are that well correlated.

[Waltzing]

nice pastels ...

[winner (n)]

cheers - interesting chart. I didn't realize that PE and P/B are that well correlated.

Think PE is Price/Earnings and P/B is Price / Equity ....throw in Earnings is Return on Equity (ROE) and it might become a bit clearer

[BlackPeter]

Think PE is Price/Earnings and P/B is Price / Equity ....throw in Earnings is Return on Equity (ROE) and it might become a bit clearer

Yes, sure - they both have the same numerator (i.e. price). However, looking at the denominators - I normally would assume that earnings changes faster than book value, which makes the correlation a bit surprising ... but than - maybe they (the board) are quick enough to change the book value (as they should) as a function of the earnings potential, to make it fit.

[winner (n)]

The apparent correlation between PE and P/B multiples arises because Turners is a relatively consistent performer, esp in respect of its ROE.

The consistent ROEs along with a relatively high dividend payout rate makes it 'easy' for the market to value TRA whether they use PE orvP/B multiples ...after they are related.

I pulled some key performance ratios out for Turners to show the degree of consistency.

They also highlight the 'resilience' of the business model during good and bad times. Almost.

Anyway a good overview which if anything else gives shareholders a feeling of reassurance

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[Basil]

Great post by Muse on the other channel.

My response was an off the hip comment so thought I better go back and check. Page 39 of the ASM preso talks to an increased hedge position of Oxford borrowings to ~75%, and the FY24 annual report says interest rate swaps in place over $257m. Unclear if Salt Funds were talking about % floatings vs the % effectively hedged with the later the one that counts.

So as floating rates fall, so to will the cost of the 25% unhedged position (finance receivable income will be fixed, 75% of finance receivable funding interest expense will be fixed, so NIM should benefit to the extent that floating rates over the 25% unhedged funding falls).

Interestingly enough, the ASM preso noted some older and lower priced swaps ran off in Q1 FY25 which will have a negative impact on NIM% in 1H25, but that should unwind in H2FY25. NIM isn't just a function of the fixed receipts from lending and the hedged borrowing costs, and whatever happens to the floating costs, but also the competitive situation at the time. NIM compression looks to have bottomed in 1H24 and growing in 2h24. first half 25 might not show linear growth as the old historic low cost swaps roll off but should continue to improve (in my view) throughtout the year and hereafter. Business has been pretty open that NIM should start to increase as rates fall.

Other interesting thing that gets less attention here and elsewhere is the impact of interest rates on the insurance business. TRA's insurance business has to comply with RBNZ solvency standards, and holds $62m in term deposits which I understand are fixed at relatively short maturities. Since FY20 these deposits looked to have ranged from 55-62m. So when term deposits were low this 'float' (oh dear just I just use that term) didn't earn much and that certainly changed over the last 18 months. In FY22 for instance TRA booked $761k in interest income from bank accounts and short term deposits, with that rising to $3.9m in FY24 (an increase of $3.1m). One would think that as short term deposits fall it will result in a proportional drop in the interest income from the insurance deposits, which as 100% profit has a direct impact on pre-tax earnings.

The insurance business has performed well - FY22 pbt of $11.6m rising to 14.3m in FY24 - an increase of $2.7m, or less than the increase in short term deposit income. This has helped offset a portion of the $5.5m compression in the finance division over the same time period.

It's just worth recalling there are different pistons to the TRA business...insurance has benefited while finance declined, and that has made the overall group results more resilient, but the inverse ought to be true as rates fall. Term deposits not going back to 2021-2022 levels so I'd imagine the interest rate driven fall in the insurance division wont be as significant as when it was a tailwind (if that makes sense), and the finance book may have more to gain and more than offset insurance and so net net may/likely still be a positive for the group all things equal. and all things aren't equal falling rates are fundamentally positive for the economy, potential retail customers, and the auto retail division which feeds all other divisions (ex credit mgmt). Personally I don't fret about this point; there are so many great organic initiatives underway and the business seems to be in a sweet spot in the auto retail market at the moment. Yes it would be nice for all the divisions to fire at the same time when on the way up, but for long term holders like myself resiliency in aggregate earnings and dividend distributions are more important than short term sugar hits.

I have to admit I don't follow the detail in all this as much as I used to. I guess that's a function of my confidence in the business and the superb management team - not just Todd but all the other execs, and the Board as well. If there is a presentation I'll still join if I'm free but its a nice place to be, having the confidence to zone out a bit. Happy to be corrected if I've got anything wrong above.

[Buzz]

Turners Subscription is "closed for business". https://www.turnerssubscription.co.nz

I wonder whether this has anything to do with Carly being in suspension on ASX for about 3+ weeks (and extended today) due to 'funding and financing arrangements'?

[777]

Tina being interviewed on Seven Sharp tonight

[Jay]

Saw that, a free advert for Turners!
Don't think it said a "sponsored" slot

[Waltzing]

Turners now a TINA...

a national instut after RBNZ quotes her and now shes on the local news shows..

powerful advertising..

[winner (n)]

Ticker code to TINA would be good idea

[Waltzing]

WOW imagine that ...its a TINA...

[BlackPeter]

Ticker code to TINA would be good idea

Please, NO - don't! .... no need to screw up all the spreadsheets and trend charts with a new ticker. Was bad enough with Heartlands changing the ticker several times, and just look where they are now ;

[Waltzing]

thats where you have a lookup table in a workbooks that get loaded by VBA module and then you do a function lookup to VBA module function and lookup the workbook and fiddle around and about for ages making it work....

then next summer you emerge wondering where your year went....

[Sideshow Bob]

Turners now a TINA...

a national instut after RBNZ quotes her and now shes on the local news shows..

powerful advertising..

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