TRA - Turners Automotive Group

[KW]

SP heading back to where it was pre-inclusion. Doesn't make much sense to me, but who knows what deals were done behind the scenes by Fund managers. Or maybe they are yet to do their re-balancing?

Fund managers usually just transfer stock between funds. Eg. Fund Manager with both an Active and an Index Fund.  Active fund buys stock for the 3 months prior to index inclusion, then transfers it across to the Index Fund.  The Active Fund then books the profit.  Bonus is then having the Active Fund perform better than the Index Fund as the price drops post index inclusion.   

[Basil]

Fund managers usually just transfer stock between funds. Eg. Fund Manager with both an Active and an Index Fund.  Active fund buys stock for the 3 months prior to index inclusion, then transfers it across to the Index Fund.  The Active Fund then books the profit.  Bonus is then having the Active Fund perform better than the Index Fund as the price drops post index inclusion. 

The volume in the period leading up to the announcement is not supportive of your theory.
Copy of Muse's post from the other channel on 1 December follows


So its currently estimated that 2.2 million shares may need to be purchased by index trackers. That is 2.5% of TRA shares on issue, or about 72 normal trading days (rolling last 12 month daily average volume is about 30,599 per session).

Daily volume has increased, on the back of good financial performance & releases, but no doubt traders taking early positions. Last 40 trading session average volume is ~47,800, an excess of 17.2k extra per day over those 40 sessions. That is a touch more additional volume than other recent index inclusion experiences at the same trading day before inclusion. That's about 688k excess volume over that period but clearly not all of it will be on account of people buying to on sell to index funds (or potentially index trackers buying via warehousing agents but I wouldn't have thought that process would occur until after the formal announcement).

I'd imagine index funds once the announcement is made will sound out institutional trading desks looking to source large blocks of shares. They could potentially contract up early after the announcement to acquire a set number of shares in the closing process on the eve of inclusion at some prevailing VWAP leading to the close, and also buying on market to fill up the cracks in the intervening period. Then of course there is a hell of a lot of trading amongst traders/investors piggy backing off the momentum.

Either way there is a lot of volume to be traded from next Monday to the 15th of December.

Will be fun to watch and see how it compares to other inclusions, and of course participate in for those inclined!

Gentrack really going hard - my how that one has flown..

[KW]

The volume in the period leading up to the announcement is not supportive of your theory.

Yes it is.  In August TRA was lucky to be doing 6k a day in volume, some days it was sub 1k.  End of Sept volume picked up and by Oct it was doing 100k a day. 

And buyers have disappeared now.  Only 20k total buy orders in.  Vol today is back to 14k.  If the index funds are buying on market, where are they?

[Basil]

I'll deal with your second question first as that's what's of most interest to others.
Where are the index buyers ?  Good question and I admit the pattern exhibited so far in the 10 day index inclusion process is slightly more unusual than what I have seen before at previous rodeo's, of which I have attended many.

It's not unusual to have a burst at the beginning of the ten day inclusion process, as was the case on day 1 and then for it to go quiet for the rest of the first week.  I expect peak volume on day's 8,9 and 10 of the process with the likely peak being the final 15 minute match process at the close of trade on 15th.

Look, this was probably the most widely anticipated index inclusion I can recall.  I myself have telegraphed its likelihood for several months after backing up the truck at $3.50 a few months ago and adding more along the way.

There is some evidence of above normal volume in the months leading up to this, as Muse outlined in his post, and I was responsible for some of that, and I am sure many others on this, and the other channel had a hand in that as well.  I think Muse's post has a very high level of credibility.

The Jarden Direct site has the exact detail of volume by each trading day. The average daily volume in August was 25K shares and only 4 days in October were over 100K.  As much as I respect how good your posts normally are, I need to correct the record because you painted a very different picture and there wasn't a single day where volume was less than 1K.  Yes, volume picked up in October, but I believe Muse's post is correct that just under 700K extra shares have been bought about normal volumes in the lead up.  But from that you need to deduct what I have bought and others on both channels.  A lot of that buying is simply people waking up to the value this growth company offers, and many will retain some or most of their shares.  I'm not sure if you back out my purchases and others on both channels many at all have been bought to warehouse for index funds.  Further, I have the list of the top 20 shareholders, and it's not well supported by institutions at all.

If it comes to it, I'm perfectly happy and relaxed to be left holding the baby with all my shares in Turners because the baby's name is "Tina" 😉
I am very fortunate to have done an optional marketing paper at Auckland Uni and understand the brand building power of the exceptional marketing campaign Turners are running and am very confident indeed about their future.  I've posted extensively about their metrics and 10-year CAGR and growth rate outlook before.  It's a compelling hold in my view for long term growth.  Has all the attributes I look for in a great GARP stock.

P.S. Most on the board have large shareholdings and Todd's family interest is good too with just under 800,000 shares.   These guys are working very diligently to make Turners a great success.

[lorraina]

Drove past Timaru site today.
Outstanding location.
Looks great.

[LoungeLizard]

Great post Basil. I'm too lazy to look at the stats but it had seemed to me that there was a higher than normal volume of trading done in the month or so leading up to inclusion. SO there looks to be little retail buyers now to keep the SP from drifting. It all comes down to whether the Fund Managers are still to join the party.

HLG's had 5 days of manic buying before things went into reverse, so its entirely possible that things won't kick off for TRA until next week, or even in the last few hours of the 10 day period. But as I and others have stated, TRA are a hold no matter what happens. The coming year is already flagged to be a record one and the SP will get to $5 next year imo, whether there's an NZX50 pop or not. 

[KW]

Its probably going to drift back to $4.30 - back to its 50 day MA and to close that gap.  The opportunity for a index inclusion trade has been and gone.  Got to be quick 

[Basil]

Its probably going to drift back to $4.30 - back to its 50 day MA and to close that gap.  The opportunity for a index inclusion trade has been and gone.  Got to be quick 

Maybe you missed this bit of my post.

It's not unusual to have a burst at the beginning of the ten day inclusion process, as was the case on day 1 and then for it to go quiet for the rest of the first week.  I expect peak volume on day's 8,9 and 10 of the process with the likely peak being the final 15 minute match process at the close of trade on 15th.

We'll see. Index inclusion requires at least 2.2m shares and there's only 504K done so far, about another 1,700K to go.. Very happy to buy more at $4.30 on the  very slim chance you are right. 

[KW]

Maybe you missed this bit of my post.We'll see. Index inclusion requires at least 2.2m shares and there's only 504K done so far, about another 1,700K to go.. Very happy to buy more at $4.30 on the  very slim chance you are right. 

Where did this 2.2m number come from?  Nobody knows how much is invested in funds that track the NZ50.  And of those funds that do, nobody knows how many actually purchase real shares, and how many use derivatives to track it. 

[Basil]

Forsyth Barr do excellent index research.  They have calculated the weighting of TRA in the index and estimated the number required.  Their index research has proven itself accurate many times before. 

There's also the post index inclusion effect with more insto's inclined towards holding NZX50 companies that those outside it.  Like I said earlier, there's very little current institutional support for TRA.  I foresee insto support increasing in the years ahead.

To be clear I am focused on the investment case here and I think I've made that case very clear already.
Craigs released an excellent note in late November titled On the right TRA-jectory with a price target of $4.93 irrespective of any index inclusion premium or not as the case may be.  In my view It's only a matter of time before shareholders see this with a $5 handle and there's a good solid yield paid each quarter, so holders are being paid well to enjoy growth in the years ahead..  It has ALL of the characteristics I look for in terms of a compelling hold of a GARP company. With 7% historical and forecast CAGR it won't take many years before shareholders see a $6 share price and then a $7 handle and so on.  That's the power of compounding growth for ya.

The index inclusion thing is like icing on a very fruity, moist and rich Christmas cake.  Probably better for you in the long run if don't eat the icing lol

[KW]

On another note, what is the point of it being listed on the ASX?  Most days it doesnt even trade.  Just seems an unnecessary cost for such a small company.  

[BlackPeter]

On another note, what is the point of it being listed on the ASX?  Most days it doesnt even trade.  Just seems an unnecessary cost for such a small company. 

A number of Australian funds are only allowed to buy stocks which are listed (as well) on the ASX. That's the reason for many NZ companies to have an ASX listing, despite most of their trades happening on the NZX.

Not sure though there is a case for TRA, according to Yahoo hold institutions less than 2% of their shares.

Who knows - maybe Grant plans on flogging off his shares at some stage (remember - he did that with other companies) and does not want to unduely reduce the number of institutions who can buy in ;

[Waltzing]

SP still holding up... actually would like 4.20's next winter as the country hits the wall with OCR rates knocking the heck out of the economy as this is a strong DIV stock as Sir B has highlighted...

[Basil]

Very unlkely there's any chance of the $4.20's again.  What impressed me the most with the recent half year result was top line sales growth.  As Todd points out, this has a halo effect and flows down into their other profit divisions, insuracne and finance and returns there are earned over time, (the course of the contract).  Further, finance attachment rates improved 2% and they are growing their loan book again.

I've already noted the usual pattern of how index inclusion volumes are executed over the course of the 10 day period in post #633 above and I have been following these index inclusion events closely, for many, many years.  Could be worthwhile some of you looking how GTK have tracked this week, also going into the index and also a bounce on the first day and trailed off this first week as weak, inexperienced and impatient hands tipped themselves out.

With thanks to Alokdhir on the other channel, we know volumes and VWAP each day so far have been
Day 1 377K $4.822
Day 2 49K $4.746
Day 3 58K $4.638
Day 4 20K $4.634
Day 5 56K $4.628
Total 560K @ VWAP $4.77

Forsyth Barr estimates 2.2m required due to index inclusion.  Not all of the buying in this first week would have been index funds so there's more than 1.7m shares required next week.

As mentioned earlier, $4.80 represents 12 times consensus FY24's earnings but also worth noting seeing as FY24 is only a few months from being done and dusted, its only 11.3 times FY25's eps.  Based on consensus dps for FY25 of 27 cps at $4.63, (closing price yesterday), the gross yield is 8.1% for FY25 based on 27 cps fully imputed consensus rising to 29 cps, 8.7% for FY26.  Possibly worth noting Jarden are predicting annual dividends of 39 cps for FY30, 11.7% gross on $4.63 so that gives you an idea of what sort of dividend growth is possible in the years ahead.

Goes without saying that everyone needs to chart their own future course here but my positive view of this company and its outlook for the future is something I believe I have made a very full effort to discuss and anyone that followed me in a few months back @ $3.50 is already up 32% which is not too shabby considering the NZX50 gross index which includes all dividends paid by index constituents is flat this year. 

[Waltzing]

"$4.20's"

no chance then? oh .. bother ... who is going to buy all those petrol engined cars ....