TRA - Turners Automotive Group

[KW]

Turners Auckland sales might be taking a hit with millions watching this NZ Cheap Cars campaign

https://www.stuff.co.nz/nz-news/360690097/watch-kiwi-ad-cheap-used-cars-has-over-2m-views-tiktok

Oh, i just discovered these guys videos.  They are great.  I'm now a big fan. 

[Basil]

At a very high-level look that is a lovely result!

With Auto Retail now firmly back in
growth mode, we enter FY26 with strong momentum across all segments. We are on track to
reach our FY28 targets earlier than expected. Our Tina brand refresh and new campaign
launch reflect continued investment in a proven formula that is delivering strongly."

FY28 target going to be earlier than expected!

Yes future growth looks assured !! The company currently has 3 further sites under conditional offer at the moment with plenty more in the pipeline. 

I reckon they hit FY28's target NPBT of $65m in FY27 !

[Pierre]

Is anyone else having trouble with the link to the results presentation online?

[winner (n)]

Share price up up and away

What's the all time high again

[lorraina]

I tried and gave up.

[lorraina]

The photo on page 24 of the presentation is TRA's Hornby Christchurch site.
I viewed this site and was very impressed.
According to Michael at Hornby the Wairakei Road site will be the same size.

[Dolcile]

No problem getting on the call for me. 
Managed to pick up a few more shares this morning too.

[Basil]

From the call
Strong growth expected in the receivables book this year, >10%
Strong growth in branch expansion next 4-5 years, (ambivalent about owning or leasing, whichever makes more sense for the business on a case by case basis)
Economy to grow more slowly than expected, needs interest rate stimulus
Expecting profit from rebrand of My Auto Shop business rebrand to Turners servicing and repairs from FY27 but nothing forecasted in at this point, break even in FY26
Strong momentum across all divisions as we've moved into FY26.
Very positive feedback on the Tina 2.0 relaunch marketing campaign and raising marketing significantly in FY26 to support branch expansion

My comment: An exceptionally well managed business.  I am expecting ~ 10% growth in earnings and dividends per share in FY26 and FY27.

[Dolcile]

I had the same takeaways Basil.  I was very pleased to hear Todd speak so positively about the Auto Retail business kicking on.

How do we place a value on this great business ?

[Basil]

It will be interesting to see where the brokers land with their revised price targets.  Forsyth Barr were at $7.05 before this announcement and earnings came in slightly above their expectations.

[winner (n)]

One way of measuring Turners growth is the change in Book Value (Shareholders Equity)

In F25 NPAT was 38.6m and less other stuff of 5.6m gives Comprehensive Income of 33.0m

Dividend of 18.2 paid and new capital of 5.3m (Inc DRP)

So Book Value (Shareholders Funds) up 20.2m or 7.3%

On a per share Book Value up 5.8%

Pretty good when a large chunk of profit is paid out in divies

[Basil]

In a note released this morning Forsyth Barr call the FY25 result "High Octane" and go on to say among many other things

"TRA normalised EPS and DPS have grown at +10% and +11% per annum respectively since FY15.
We think TRA's 12 month forward PE of 12.7 it still to cheap for a business with an underlying track record as one of the most consistent compounders in the NZ market.  We retain our outperform rating, with a modestly increased price target of $7.30"

(They were at $7.06 before the result)

They are forecasting TRA gets ahead of its FY28 target of $65m NPBT a year early in FY27 with their forecast of NPAT of $48.2m for FY27, (~$67m NPBT) with upside from My Autoshop

Forecasts

FY26 Forecast EPS 48.0 cps, DPS 32.5 cps
FY27 Forecast EPS 52.9 cps, DPS 36.0 cps
FY28 Forecast EPS 57.4 cps, DPS 39.5 cps

Amoung other things they called out

owned unit sales increasing 6%, vehicle margins rebounded in 2H, (noting Turners said conditions last winter were as bad as during the middle of the GFC), inventory turnover ratio continues to improve, the loan book returning to growth.

Further upside to earnings remains possible if (1) branch rollout is accelerated, (Turners mentioned it has 3 new sites currently under offer), (2) margin tailwinds from its retail optimisation and digital scale exceed our expectations, (3) accelerated OCR cuts...(4) the N.Z. economy recovers more quickly than expected.

My comment.  TRA's track record with all the economic challenges over the last 5 years, especially since Covid 5 years ago has been truly outstanding and surprised many people.  I expect their track record of growth to continue for the foreseeable future.  Consistent 10% annual growth in earnings is normally associated with a much higher PE than 12.7 and I think Turners is N.Z's preeminent GARP (growth at a  reasonable price) stock and I am more than happy to remain with it being my #1 invested position.  I think the team at Turners are doing an outstanding job of building the business and I take my hat off to them.  This is arguably the best managed company on the NZX.

[Ferg]

Can't disagree with any of that Basil.  One thing I like about TRA is the different sources of revenues & profits .....insurance is going great guns and they have the finance arm under control.  So a soft year in one area doesn't pull down the whole result.

[Dolcile]

Great post Basil. 

Can you remind me, what is that GARP formula you've previously mentioned?

Thanks

[Basil]

Great post Basil. 
Can you remind me, what is that GARP formula you've previously mentioned?
Thanks

Thanks, sure.  The legendary investor Ben Graham said intrinsic value was eps x no growth PE of 8.5, (when the risk free 10 year rate is 4%) + 2g, where g is the expected growth rate over the next 7-10 years.
This was based on historical eps.

I use 1g in my calculations based on forward earnings and look for stocks that are trading below that as being fantastic value. TRA have a decade long history of growing eps at 10% and a forecast to keep doing this so I think g = 10.

No growth PE should be 8 with the 10 year risk free rate at circa 4.7%.  Adding 1g of 10 to that sees a fair PE for TRA of 18 x next year earnings which are forecasted at 48 cps = $8.64

That sounds outrageous putting a PE of 18 on Turners but is it really considering their outstanding track record of growth over the last decade that's forecast to continue ?  Fact checking this with for example, Briscoes, with declining earnings in recent years, its on a PE of 17.85 so its clear a PE of 18 is not ridiculous with another quality retailer or with the market in general.

Most brokers will use peer group multiplies to value TRA in relation to other retailers and in particular to others in the motor vehicle industry.  What they are missing is that comparing TRA's track record of growth with second hand cars and their other business divisions is very different to the far more cyclical track record of new motor vehicle distributors.

I think Forsyth Barr's forecast of $7.30 is quite conservative and certainly the current share price is deep within my deep value growth screening methodology.
Perhaps even more importantly to me as a nearly retired investor, (I could easily retire now but still enjoy working with most of my clients I have known for ~ 30 years) is the CAGR in dividends over the last decade of 14% per annum which is without peer on the NZX and a truly outstanding track record of dividend growth.