TRA - Turners Automotive Group

[lorraina]

Thanks.
I think people under estimate just how clever Turners are with their property deals.
Any property they buy and develop they get the development margin,and the property is valued higher as it is leased to a listed national client,ie Turners Cars.
Great use of part of their insurance float.

[Basil]

I really appreciated the guys giving us a lot more detail around their property strategy and execution.  Love that they are taking advantage of the more favorable environment for buyers of commercial property at the moment.  Plenty of opportunities will come their way in the next 12-18 months for more branch expansion I reckon. 

[Waltzing]

Do they hold the property in a holding company.

[Basil]

Yes Turners Property Holdings Limited, 100% subsidiary, see page 76 of the 2023 annual report.
I see they claimed $299K depreciation last year and will be more this year with property additions.
That's an expense that soon won't be allowed under this new Govt so Net profit before tax will take a commensurate adjustment upwards from FY25.

[Waltzing]

Well done Sir B, many thanks for that...

clever boys and girls my gosh...

page 70...76 ... right...

does this man not sleep ... pages and pages of reports read and digested...

we think he must actually be a pro working for an organisation ... cant be a private investor...

[Basil]

You're far too kind mate.   I can't help myself, I'm infatuated with Tina lol

Theme song for index inclusion and $5 boat party https://www.youtube.com/watch?v=vjD3EVC1-zU 

[winner (n)]

The $109m of land and property on Turners books is at Cost less a few years depreciation

Wonder what they are actually worth if valued at market (pretty sure never been revalued in the books)

Maybe could add best part of a buck to NTA?

[winner (n)]

As at March they had $5,8m of Investment Property being residential zoned land at Sanctuary Hill Christchurch

At September Investment Property is shown as NIL

Did they sell it or something? Nothing obvious in Cash Flow Statementb

[Hectorplains]

As at March they had $5,8m of Investment Property being residential zoned land at Sanctuary Hill Christchurch

At September Investment Property is shown as NIL

Did they sell it or something? Nothing obvious in Cash Flow Statementb

Where's Sanctuary Hill in Christchurch? 

[lorraina]

Go to Google Maps.
358 Worsleys Road,Cashmere,Christchurch.

[Hectorplains]

Go to Google Maps.
358 Worsleys Road,Cashmere,Christchurch.

Thanks Lorraina, I lived in the flat city for twenty years and had never heard of it.   It looks like a good land bank.

[lorraina]

Thanks Lorraina, I lived in the flat city for twenty years and had never heard of it.   It looks like a good land bank.

From Turners last annual report;
"The investment property was valued at reporting date at the purchase price included in a conditional sale and purchase for property."

Perhaps they have sold it.?
A large parcel of land,that Turners inherited many years ago when the owner/borrower defaulted. [Dorcester days]
Whether is is or has been a good land bank or not,I have my doubts,and I would hope Turners have sold it,and recycled the funds into an Auto Retail site .
Bare land costs money to hold as there is no income generated.

[winner (n)]

What happened to it prob be reported innInterim Report when it comes out

[Basil]

Really cool that Todd and Aaron took the time out of their busy lives to engage with retail shareholders late yesterday afternoon.  Not aware of any other company that makes that sort of effort.  The extra insights shared were very interesting and appreciated and has helped me refine where I see the shares going in the next few years.

Reflecting on this I must confess it was hard work a few months ago at $3.50 when the SP simply couldn't seem to get out of its own way and sat there in the mid $3's like it weas anchored to the rock of Gibraltar.  Had to really grit my teeth and just kept doggedly buying blocks of shares in the hope that one day the market would wake up and realise the potential of this company.

Now I'm heavily overweight and anyone that takes an interest in my posts knows I am strong advocate for a well-diversified portfolio, (heck it was my signature line on the other channel for years lol) and sure it even says in the Bible to invest in 7 or 8 things because nobody knows what calamity may befall the earth but it doesn't say in equal proportion and I know my very successful farming cousins in Southland have very big fields of certain crops they feel are more lucrative then others, while still maintaining a diversified farm with other crops and livestock.

So where am I goi8ng with this endless reflective prattle you might wonder...I am wondering myself lol.
There are many facets to what impresses me with Turners that I've talked about before but I guess what's really surprised me this year is how resilient the business has been in very difficult economic times.  Far more resilient than any of the other retail stocks out there. That got me pondering why is that ?

I can't help reflecting on some fuel demand information I saw while a shareholder of Z.  Basically, the demand for fuel is almost completely inelastic, even a huge price shock only shifts demand down 2%.  I guess as a byproduct of our, (by modern international standards), pretty hopeless public transport system Kiwi's really love their freedom of movement and cars in a way give you wings, (the ability to go wherever and whenever you like).  I guess after the cruel lockdowns during Covid we value that freedom even more.

Analysts will use comparative stocks to value TRA and I get that's always part of their valuation methodology but there are no directly comparable companies and I really like that Turners really are agile, (I almost despise using that word after Nick at WHS almost abuses it with overuse), and can adapt their stock holdings quite quickly to meet the market demand where it sits.  Their level of stock turn is deeply impressive.

I guess the big learning for me this year, (maybe I should always have known this), is that TRA is more resilient than a stock like HLG or Briscoes, despite those companies also being incredibly well managed.  People will happily defer clothes or homeware purchases but when you need a car, you need a car and that's all there is to it.  The consistent way Turners have performed over the Covid period and this year has deeply impressed me.

I've found my own version of Ben Graham's intrinsic valuation formula really valuable over the years as it irons out a lot of the B.S. companies like to throw at you.  A reminder, he says the intrinsic value is historic PE of 8.5 + 2 x g where g is the average expected compound growth rate over the next 7-10 years.  My version for finding deep value growth stocks is forward PE of 8.5 + 1 g where g is the same and with Turners having proven to grow eps at 7% over the last decade and brokers picking that to continue for the next 2 years, I find myself wondering if 7 is the right g for TRA over the next 7-10 years.  After talking with Todd and Aaron last night about their future plans with site acquisitions and the steady and systematic way they want to go about this and reflecting on the brilliance of the Tina marketing campaign, I think they can grow at that rate for the foreseeable future.

So...if that's a reasonable proposition then I think intrinsically they're worth a PE of 8.5 + 7 = 15.5  I note there are a vast number of companies on the NZX with a less stellar growth rate trading on much higher PE's.  Forsyth Barr are forecasting 43.1 cps in FY25 so that gets me to 15.5 x 43.1 = $6.68
To be clear, I am not suggesting they are going there any time soon, that's simply my view of the intrinsic value of their business with the excellence of their business model and marketing.

I do think this warrants a decent premium to Briscoes which I note is trading on 12.2 times FY25 broker estimates so maybe this time next year we see then on a multiple of 12.5 - 13.0 as the market starts to open its eyes to their prospects in a more encouraging economic climate.  Maybe a feasible price target a year hence is 12.5 - 13 times 43.1 cps = $5.39 - $5.60.

So that brings me full circle to the question of diversification and the potential sugar rush of index inclusion.  To be frank, I really struggle to find decent companies on the NZX with high caliber management that I respect trading on attractive GARP multiples.  Sure, invest on a diversified basis in at least 7 or 8 things so that suggests about 12.5% each makes sense but if you really believe in something maybe double or even, dare I suggest this, triple that level for one stock you feel is a truly compelling hold is okay ?

If I take some sugar hit from index inclusion somewhere in the low to mid $5's what other opportunity am I going to invest in that has similar medium to long term prospects that's trading on such undemanding multiples ?

Then I got to reflecting on Forsyth Barr's estimate of FY26, (which isn't that far away, only the year after next) dividends of 29 cents a share and thinking about how useful that will be and the future growth from there in my retirement years, remembering it's not just about the yield, there are two parts to this, the yield and how it's going to grow over time..

Do you want to be a trader or investor, everyone has to make their own mind up.
My doctor reckons too much sugar is no good for you and I reckon he's right lol
Sorry for the endless rant.  I hope this long musing is helpful for some who might be considering what to do with their shares on index inclusion.

[winner (n)]

Did they talk about the Economic Overlay Provision of $2m they have

Suppose it's just a few million put aside for a rainy day .....and if the rainy day doesn't come just release it to profit

Maybe learning from our Jeff ....maybe a profit smoothing tool lol ...don't want to make too much sometimes