TRA - Turners Automotive Group

[Basil]

Looking forward to them reporting later this month and the market seems confident it will be a strong result as am I.  Many, many years of strong growth to come for Turners and the forward FY27 PE is still very reasonable indeed at approx 16 times, (according to consensus forecast) https://www.marketscreener.com/quote/stock/TURNERS-AUTOMOTIVE-GROUP--20699914/

My view: I think they will comfortably beat the consensus forecast in FY26 and FY27 so in my opinion the forward PE is only about 15-15.5 times for the current year which for a company with a well proven 12% EPS CAGR despite severe economic adversity in the last 6 years, well that's still exceptionally good value for what is a very high caliber, exceptionally well managed, highly defensive stock in my book.  This is very firmly on the "Do not sell at any price list" of stocks I own right alongside HLG which is arguably an even more compelling buy. 

[mike2023]

One of my best small investments in 2023 in the $3.70s. I figure with divs and growth it's been returning close enough to 50% pa. Long may it continue.
Also on the no sell list with IFT. Although I did cut back IFT last week to my core holding, not my best choice of late.

For many years TRA was largely static and I often grew bored of holding, not any more.

[Dolcile]

I agree entirely Mike.  I've been buy progressively since October 2024 and also taking advantage of the Dividend Reinvestment Plan. The NZX is so barren in terms of good company's it is not surprising that capital continues to flow in the Turners direction. 

[FatTed]

So Basil "This is very firmly on the "Do not sell at any price list" of stocks I own right alongside HLG which is arguably an even more compelling buy. "

which at current prices is the better buy? I have more HLG than TRA

[Basil]

which at current prices is the better buy? I have more HLG than TRA

Good question FatTed.   My holding ratio HLG to TRA is 100 : 60  As they say, actions speak louder than words but I really do like Turners a lot. 

In terms of forward metrics HLG which is more than three quarters way through its FY26 year and is on about a forward PE of 11.9 and TRA which has just started its new financial year is on about 15 - 15.5.  That's quite a meaningful difference for two companies with ostensibly the same EPS CAGR rate over the last decade, however it should be noted that Turners have proven their business model is more defensive in recent years and they have consistently grown throughout all the economic challenges of the last 6 years whereas HLG's growth has been a little more variable and lumpy.  I think the fact that Turners management communicate a heck of a lot better with institutional and retail investors, very clearly articulating their future growth plans is one of the key reasons for the higher metrics and it might always stay that way for exactly that reason.  If that's the case then they're both equally attractive but my holding ratio suggests quite clearly that I think HLG is substantially underpriced. 

HLG's business model is more capital efficient, (good stores can recoup the capex fit-out costs within a year), there's no debt and $1.13 cash per share in the bank and they have a longer track record than Turners with Hallensteins history going back over 150 years and Glassons over 100 years.

Both companies are incredibly well managed (10 out of 10 in my opinion), by highly dedicated management teams that are aligned with their own substantial shareholding and working incredibly hard in all shareholders best interests.  If someone put a gun to my head and said you can only invest in two companies, I'd choose these two.  Disc HLG 20% PF allocation TRA 11%  I guess my allocation reflects that at my core I am a value investor and I see incredible value on offer with HLG and huge cash flow.

Consider this, in the half year to 1 February their cash flow from operations was $40m, that's ~ 67 cents per share for the half year.  Let that figure sink in.
Cash in the bank went up by $9.2m (15.5 cps) to a record $67.5m ($1.13 per share with no debt) despite paying a record 30.5 cps dividend in December and investing a record $12.5m in new plant and equipment (21 cps) up from $8.5m in the previous comparable period.  When it comes to producing cash flow HLG are a truly wonderful company with growth compounding and self funding growth in the years ahead.  They have a circa 20 year expansion program ahead of them in Australia, a much longer more obvious growth path than Turners have with the N.Z. market.

Turners is still cheap but HLG at $10 is in my opinion an incredible opportunity.
For anyone who thinks they missed the boat a decade ago before the Glassons Au growth took off consider this.
HLG at $10 now is dramatically better value than when I bought in at $2.70 in 2016.  Let that sink in before I explain why.

I bought a decade ago, a no growth highly cyclical N.Z. retailer with a very small no growth Glassons Au division on a forward PE of 11.7 at $2.70 when EPS was 23 cps..  Today, you can buy the same company that's no longer a predominantly no growth N.Z. retailer, majority of sales are in Australia, and has a long proven 10 year EPS CAGR of 14% (based on consensus FY26 estimate of 84 cps earnings in FY26). https://www.marketscreener.com/quote/stock/HALLENSTEIN-GLASSON-HOLDI-6495564/finances/  for almost exactly the same forward PE of 11.9.  What part of that makes any common sense ?
The PE has not changed despite the transformation from a purely cyclical no growth N.Z. retailer to a well proven high growth Australasian company.

Buying at $10 today is the same value as buying at $2 in 2016, i.e. people buying now have not missed the boat and are actually getting far better value buying a proven Australasian high growth apparel retailer on pretty close to no growth metrics ! 

My contention is HLG is absurdly good buying at $10 and it could really rip later this year if we get a resolution to the Middle East crisis.
TRA is still a great company but clearly its not my very highest conviction holding.  In conclusion, I think they're both superb companies and a great long term hold, its just that HLG is badly mispriced by the market.

[winner (n)]

Well done Basil with your free TRA carry in the years ahead.... but it's a bit of a worry when you say 'Seeing as they're effectively free they can stay in my investment company forever and a day."

But if things don't go to plan with Turners and the share price dives I betcha an astute investor like you will be selling.

After all might be free but if share price drops say 30% you'll be 30% poorer on those free shares

[Basil]

Fair comment mate.  I guess what I am really saying is I have upmost confidence in TRA management and am feeling really relaxed and contented with their operations and looking forward, from a very comfortable position to seeing how the growth story plays out in the years ahead.  There's no need for me to sell and you could argue even if they hit a forward PE of 20, that's still fair and reasonable for a company with a well proven EPS CAGR of 12%
I can't imagine what might derail their growth story after all, they have such a remarkable track record in the last 6 years of economic adversity in N.Z.

[FatTed]

Thanks Basil I'm 3:1 you are 5:3!
Think I may buy a few more.

[Basil]

Impressive but Tina told me she is feeling a bit sad about your Turners holding 
I think she needs a hug to cheer her up.  Better get in quick before she starts charging $10 a hug
Truth be known, that was a truly stunning half year result on 27 March for HLG and trading update and I think if it weren't for concerns over the geopolitical situation it would be close to $12 already.  I better shut up about it now because I want more later when there's peace in the Middle East.