# TGA - Thorn Group



## McCoy Pauley (28 January 2010)

No thread on this one, so I thought I'd get the ball rolling.

Thorn Group Limited (ASX:TGA) floated as Radio Rentals a few years back.  It primarily operates in the Australian household goods rental markets that offers a wide range of audio visual products, kitchen and laundry appliances and computers along with a new range of furniture and gym equipment on a rental basis. RR Australia was formerly known as Radio Rentals Australia.  It also owns and operates Big Brown Box business.

Major shareholders include the NAB (5.8%), IOOF Holdings Ltd (10.0%), Perpetual Limited (14.0%) and Investors Mutual Limited (8.3%).

It has a market capitalisation of just under $155 million, with 128.7 million shares on offer.  It turns over just under $44 million in the most recent reported financial year and announced a profit upgrade in November 2009.

The share price bottomed at $0.39/share in early 2009 but is now trading at about $1.20/share.  Seems to find a bit of a resistance at that level as it's consistently bounced off that mark in the last couple of months.

I picked some up late last year.  I was attracted to the relatively low P/E ratio (8.8 as at 27 January 2010) and comparatively high dividend yield (4.62% as at 27 January 2010).  







It'll be interesting to see how this company fares if/when the economy improves.  It was hammered as part of the overall market downturn in 2008 but it's rebounded strongly in the last 6-8 months.

As always, DYOR.


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## McCoy Pauley (26 February 2010)

Hmm, well, not sure what's happened since I started the thread, but the TGA share price has taken a tumble in the last couple of weeks and is down almost 4% today as well.



Looks to my novice eyes that we're nearing a possible break-out scenario one way or the other (up or down).


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## McCoy Pauley (4 March 2010)

Interesting - a trade of almost 3.5 million shares @ $1.04/share went through just after the market closed (1602, by my broker's watch).  Only represents about 2.7% of the number of shares issued in TGA, but this is the biggest volume in more than six months.

I'll be interested to see if a notice of substantial holding in TGA is filed in the next few days with ASX.


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## McCoy Pauley (17 March 2010)

No notice filed as of yet but interesting (at least to me) to see the share price jump suddenly today to $1.20/share, having hovered in a band between $1.075 and $1.13/share for the last few weeks.  I don't have any real indication why that would be the case and the volume was quite low.  As a holder of shares in the company, I'm pleased to see the SP take off like that but I query the sustainability.


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## ROE (17 March 2010)

good stock something I like to own one day now that I fully understand the business  

Shame it didnt register on my radar during the GFC


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## McCoy Pauley (29 June 2010)

TGA released its full year accounts at the end of May and announced a nice little profit increase of 33% YoY.

Unsurprisingly, the share price has taken off on a little bit of a tear since the announcement and the company is beginning to attract some mainstream media attention with articles written in the AFR and the Eureka Report in the last fortnight.


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## McCoy Pauley (19 November 2010)

TGA share price still rewarding all holders.  Peaked at about $1.80/share a few weeks ago and has dropped back to $1.68/share as of today.  Been in a nice up-trend since the release of its full year results a few months ago.

Still holding and looking to accumulate more on weakness.


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## ROE (23 November 2010)

I like half yearly update ...another kickass business...

Bought in sometimes ago after did an extensive research on the business
and found it can sustain double digit grow for some year to come.

now it deliver what I confident it can deliver
I was expecting 12-15% sustain growth rate but this 
business suprise me once again with high double digit (38%)

just like FGE and CIL surpise me with my way convervative estimate


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## McCoy Pauley (23 November 2010)

Indeed, ROE.  It (and TLS) was the only shining light in my portfolio today.  As a former Treasurer once opined, the half-year results really were a beautiful set of numbers that brought home the bacon.

Also good to see that the board and management have decided to cut losses on the Big Brown Box venture.  Hopefully the fall-out should be minimal and the board and management can focus all their efforts on their core activities for the rest of FY11.


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## ROE (23 November 2010)

McCoy Pauley said:


> Indeed, ROE.  It (and TLS) was the only shining light in my portfolio today.  As a former Treasurer once opined, the half-year results really were a beautiful set of numbers that brought home the bacon.
> 
> Also good to see that the board and management have decided to cut losses on the Big Brown Box venture.  Hopefully the fall-out should be minimal and the board and management can focus all their efforts on their core activities for the rest of FY11.




I always knew Big Brown Box venture is a flopped even before it takes off
I dont know what the management is thinking...they just cannot compete with online business..it's a different type of game all together.

Online business has very few competitive advantage unless your are ebay or Google because each has built a moat for themselves through innovation and user based ...online Actions business first to the market with user based pretty much destroyed everyone else who start it up after......

the other mob CCV which I also own will run into the same issues with their website hehe, but it is an experiment that they can learn from that cost bugger all to their cash flow so it's not really a concern 

Own TGA and CCV you got the whole market cover with high debt house hold, who ever win you win 

Just like owning Microsoft and Apple, who ever win you win, if both win you win double hahaha

TLS my basket case for now haha..bought in $2.92 bought a bit more $2.64 and that is it 
lock and load and see how it go in a 3 years...if it doesnt pay off I have something to learn from while I collect 28 cents dividend  ..... TLS a bit of a test case for me because I based an analysis  on something that I haven't done before


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## So_Cynical (23 November 2010)

Thorn yet another darling of the "value" brigade...i just cant see how having high debt households as your customer base can be a good thing :dunno: the CEO (i think) was on Lateline Business just now and came across as a smart cookie...said they will grow there market share in the small and medium business tech services space..leasing/HP of low end technology i suppose. :dunno:


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## ROE (23 November 2010)

So_Cynical said:


> Thorn yet another darling of the "value" brigade...i just cant see how having high debt households as your customer base can be a good thing :dunno: the CEO (i think) was on Lateline Business just now and came across as a smart cookie...said they will grow there market share in the small and medium business tech services space..leasing/HP of low end technology i suppose. :dunno:




I know a few people living in 1/2 Mil house rent fridges and furniture 
that a few sale taken away from HVN 

The millionaire next door by Dr Stanley do exist in Australia 
it just not the people who live in expensive house and drive luxury car and rent Fridges

and if you want to know why Thorn are so good, read their business model, it is Superb 
they manage to pull a model most people dream off ...

how can you lend to the unemployed and having default less than a few percent..MAGIC
their default rate is better than banks.

PS: Corporate is the next big thing for them...Tabcorp rent a few thousand TV from TGA a year
remember Coates hire before got bought out by Private Equity, such an awesome stock.. TGA giving me another second change of Coates hire


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## skc (23 November 2010)

ROE said:


> I know a few people living in 1/2 Mil house rent fridges and furniture
> that a few sale taken away from HVN
> 
> The millionaire next door by Dr Stanley do exist in Australia
> ...




ROE, have you looked at TSM? Similar business with focus on technology products (as opposed to fridges and sofas as well), but with slightly better distribution model imo. They do deals in store like JB / DickSmith, and have better reach to the SME customers.

TSM is selling at PE ~10 which is about as expensive (or cheap) as TGA but without the track record in growth. Thoughts?


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## ROE (24 November 2010)

Yes I have a details look at TSM last year 
I sent you a message in your mail box


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## skc (24 November 2010)

ROE said:


> Yes I have a details look at TSM last year
> I sent you a message in your mail box




Thanks for sharing your thoughts.

Some news on Big Brown Box here (to make sure I have 75 chars )

http://www.smh.com.au/business/big-brown-box-crushed-by-strong-a-20101123-185o1.html


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## VSntchr (27 December 2010)

Ive been studying a few companies in this area lately. Anyone know of any other similar companies/competitors. I can think of flexirent and thinksmart..


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## chrisalex (1 January 2011)

I haven't read through all the thread but TGA make their money by lending cash at around  30 - 40%. About 2 years ago the shares hovered around .70c, and now they are pushing $2.00, and it may appear to keep heading that way. Their clients are low income people, and I think the maximum the average Joe could borrow was $1000 over 2 years.
   This makes repaying not too difficult. I get annoyed if they are referred to as loan sharks. They provide a service to people the Banks and Building Societies won't help.
   In short, I like them, and they even pay a little dividend.

         The disappointing thing is two years ago when I noticed TGA I didn't have the deposit on a bread roll.
                                   DYOR         chrisalex


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## Spudded (14 January 2011)

ROE, I think we may have a fairly similar portfolio  What other stocks are you delving into at the moment?


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## ROE (15 January 2011)

VSntchr said:


> Ive been studying a few companies in this area lately. Anyone know of any other similar companies/competitors. I can think of flexirent and thinksmart..




Flexirent and thinksmart is not really a competitor to TGA, they operate in a different market 

Flexirent and Thinksmart let you borrow the money to buy the goods from HVN or JBH
you pay the repayment and or interest and if something goes wrong with the equipment it is your problem...

TGA purchases the equipment and lent it out to you, TGA own the equipment you pay the rental. TGA will service, will install will do everything for you all you do is use it...
if it is broken they come and fix it for you ....

TGA also capture the population that cannot qualify for Flexirent and Thinksmart credit check... TGA has much much wider customers base, from the unemployed
to the long term dole bludgers on Centrelink, to people in 500K home 
small business and big corporate...

This full service rental is good for big business like Tabcorp where they don't
have to worry about buying thousands of TVs for their TAB shop and worry about servicing and keep track of inventory and capital expenditure... Just outsource the lot
to TGA and pay them a monthly bill and factor that margin into their business..

TGA also expanding into short term loan market which the other 2 dont touch.
TGA is really cutting into CCV market and CCV is its competitor in this market

that why I own both, I don't have to worry hehe, they both good companies and 
if whoever win I win and if both win and that is the case right now double bonus...

Hopes that help, right now TGA is pretty has a monopoly in this market, there is smaller guy around but they are bugger all compared to TGA and cant compete on service and geometric spread...

Also this business has first mover advantage pretty much like Brambles in Logistic
with their CHEP Pallets...someone want to compete with Brambles they need to buy Billion dollar worth of Pallets first to make any dent into Brambles market...

once you acquire enough equipment and customers based it would take someone a 
**** load of capital to compete with you before they even turn a dime of profit...
as capital return on purchase take some months to filter through.

and if you have smart management they keep their eyes and ears open and as soon as some one come in they can shut them down by compete on price that make it 
un-viable for the new guy to operate due to the startup capital cost...


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## ROE (15 January 2011)

Tane said:


> ROE, I think we may have a fairly similar portfolio  What other stocks are you delving into at the moment?




Nothing lately cant find too many good stuff ... 

I just top up more CCV some weeks ago 

I made a lot of money out of CCP but I could have made a lot more but I was a little conservative, I have many more opportunity to top up CCP as low as $1 to $2.50 

I wont repeat this same mistake with CCV and I take step to action it some weeks ago, plus now my capital is a few hundred percent more than when I start pounding on CCP, so I can be a little more generous on each stocks...

There is another stock mirco-cap I'm looking at, it had a too much of a good run it discourage me from making the purchase

..at the current price is Ok but I don't have too much margin of safety..6 months ago it was perfect but 6 months ago my initial assessment blind me from looking deeper 

then last night I had sometimes and I went back and check stocks I dismissed in the last few months and see how they are doing.... I came up with a different opinion this time around....check out the price, pretty sad for me it double....and another 10% or so rally today....so I decided to stay out and keep watching and learning 

I'm still hoping it pull back but I have little hope, buy side outnumber seller 2-3 to 1
This could be the one that got away and could be a 10 baggers....

The search continue 

very few  investors in small and micro cap stocks maybe we can create a google groups and throw ideas around....keep it small (5-8 people) keep it relevant....
that give all of us opportunities to pound on stock we think could be the next 10 baggers...

Occasionally I venture into big brother territory when I see opportunity but this is purely for dividend play with a reasonable margin of safety and modest capital return that at least keeping track with inflation 

but micro cap, small caps and mid cap is where it will delivers us the 10 baggers....
I have nothing but many many good memories with small caps and micro caps


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## robusta (15 January 2011)

ROE said:


> Nothing lately cant find too many good stuff ...





Have to agree with you there ROE, having trouble finding good new investments myself.





ROE said:


> I just top up more CCV some weeks ago
> 
> I made a lot of money out of CCP but I could have made a lot more but I was a little conservative, I have many more opportunity to top up CCP as low as $1 to $2.50
> 
> ...




Unless there is another major correction smaller caps seems to be the place to look for opportunities.


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## Spudded (16 January 2011)

ROE said:


> very few  investors in small and micro cap stocks maybe we can create a google groups and throw ideas around....keep it small (5-8 people) keep it relevant....




Would definitely be keen for that


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## ROE (22 January 2011)

didn't know TGA paid a dividend on 20/01 

just show up on my account, that how much I care for price and dividend
it will come when the business and fundamental are in tact


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## McCoy Pauley (24 January 2011)

ROE said:


> didn't know TGA paid a dividend on 20/01
> 
> just show up on my account, that how much I care for price and dividend
> it will come when the business and fundamental are in tact




Yep, it was a pleasant surprise when the dividend statement arrived in the post last week!

Onwards and upwards, it appears.  Hopefully the share price can consolidate around the $2.00/share mark and set that as the support level for the next rise up.


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## McCoy Pauley (11 February 2011)

It seems to me that Thorn Group has spent much of January and the early part of February consolidating, so it was a very pleasant surprise to see the share price set a new 52 week (and all-time high) on the close today.  Hopefully that's a bullish sign for the next week.


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## McCoy Pauley (8 March 2011)

The share price pushed above $2.30/share recently but there's been a bit of a sell-off of late and as of this morning, the share price has dipped under $2.00/share.

Based on my calculations and TGA's guidance when it announced its first half results last year (TGA has adopted 1 April-31 March as its financial year), I think the company is undervalued and I'm seriously thinking hard about topping up my holdings, especially if the price weakness continues.


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## Tightwad (8 March 2011)

Anyone have an intrinsic value for this?  I'm going to have a crack at working one out, ive only seen 1.70 which goes back a few months i think.


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## McCoy Pauley (8 March 2011)

Tightwad said:


> Anyone have an intrinsic value for this?  I'm going to have a crack at working one out, ive only seen 1.70 which goes back a few months i think.




If I use the normalised NPAT reported as at 31 March 2010, my intrinsic value as at 31 March 2010 was $2.16/share, based on equity of $81.8 million, 129.5 million shares issued, $16.40 million normalised NPAT, dividends of $7.05, prior year's equity of $69.2 million and a required return of 10%.

If I use the headline NPAT of $19.49 million reported as at 31 March 2010, my intrinsic value as at 31 March 2010 was $3.00/share, with the other inputs all the same.

I'm happy to use 10% required return on this company due to its stable management and zero debt.


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## VSntchr (8 March 2011)

I have TGA at around $2. 

IMO no need to get very specific at the moment as there is an insignificant margin of safety. It has been dropping a little this past week or so, so I will be watching with interest.

Whilst it may have low debt-equity ratio, this business is not without its risks..and as such I prefer a slightly higher RR.


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## Tightwad (9 March 2011)

Around $2 sounds likely, still looking into it.

I'll keep any eye on it, I'm inclined to wait for something at more of a discount since I jumped in with my last share too close to IV.


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## robusta (9 March 2011)

Tightwad said:


> Around $2 sounds likely, still looking into it.
> 
> I'll keep any eye on it, I'm inclined to wait for something at more of a discount since I jumped in with my last share too close to IV.




I came very close to buying today when the sp fell to $1.825 but kept my discipline. Looking for a larger margin of safety.


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## ROE (9 March 2011)

robusta said:


> I came very close to buying today when the sp fell to $1.825 but kept my discipline. Looking for a larger margin of safety.




The patient of inactivity is gold in the fast financial world

Don't follow the financial engineers they only build dreams
Real engineer build bridges 

I watched this over the weekend, watch out for those financial engineers

http://www.youtube.com/watch?v=FzrBurlJUNk


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## Tightwad (9 March 2011)

robusta said:


> I came very close to buying today when the sp fell to $1.825 but kept my discipline. Looking for a larger margin of safety.




Yeah its one of many that i didnt act on so it becomes tempting.  But then you end up reasoning.. its only slightly below IV.. and why do i want this stock that is close to IV when I could just buy JBH which is arguably a few dollars under..  or a couple of other stocks which are close to IV.


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## McCoy Pauley (18 March 2011)

What an interesting announcement on an otherwise sleepy Friday afternoon!

TGA has agreed to acquire National Credit Management Ltd for $32.5 million, which will be funded through debt (a renewal and expansion of TGA's funding facilities with Westpac to $50 millin).

TGA also upgraded its guidance for full year profit after tax to $22 million to $23 million for the year ending 31 March 2011, a 34% to 40% increase (excluding NMCL related costs of about $1 million) on the previous full year results of $16.4 million (excluding a one-off favourable tax effect of investment allowances).

NMCL is (according to TGA) "a leading provider of integrated receivables management services in Australia".  It operates nationally, servicing over 800 active customers in the private and public sectors.  The senior management team has agreed to stay on with TGA.

TGA didn't announce when completion of the acquisition will occur.

Looks to me that TGA is expanding into the space occupied by the likes of Credit Corp, in that NCML deals primarily in debt collection services, including the purchasing of debt ledgers from banks and financial companies.

TGA has released an investor presentation with respect to its acquisition and guidance update.

Share price has jumped almost 6% (compared to yesterday's closing price) in response.


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## ROE (18 March 2011)

McCoy Pauley said:


> What an interesting announcement on an otherwise sleepy Friday afternoon!
> 
> TGA has agreed to acquire National Credit Management Ltd for $32.5 million, which will be funded through debt (a renewal and expansion of TGA's funding facilities with Westpac to $50 millin).
> 
> ...




I top up some more shares today .. I know where they are going....
I only bought 30% of what I want to buy because I just discovered another Gems 
I'm doing some due diligent this weekend.. Monday is a pounding day so cant give all the cash to TGA

looking at CCV and CCP and you can see where TGA want to get into

and this market we haven't scratch too much off the surface yet.

Forward PE of 11 with increase earning expected for some years to come...

There will be plenty of room for CCP CCV and TGA ..the top three operators in their fields  buy them all well I did any way hhehehe and for those who scare of CCV watch its return on equity this year onward ...

Here is my bold conclusion ...the last decade belongs to the banks
the next decade belong to rental and short term cash market and debt collectors

After a decade of debt binge and good time someone got to clean up the trash


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## JTLP (18 March 2011)

ROE said:


> I top up some more shares today .. I know where they are going....
> I only bought 30% of what I want to buy because I just discovered another Gems
> I'm doing some due diligent this weekend.. Monday is a pounding day so cant give all the cash to TGA
> 
> ...




Hi ROE...

I wrote a PM to you a while back - did you get it? Just a few questions in there for you =)

RE: TGA - strategic movement that will bode well for future growth no doubt. I'm surprised they chucked the little doozie about a profit upgrade at the end of the presentation...thought it would have been one of the standouts?

Anyway - DNH


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## ROE (19 March 2011)

JTLP said:


> Hi ROE...
> 
> I wrote a PM to you a while back - did you get it? Just a few questions in there for you =)
> 
> ...




Sorry over look I PM back just then ....

good business don't need to talk themselves up, the market will know when you show them the money 

I expect 15% up on NPAT, TGA give me 34% cant complain...


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## Pioupiou (20 March 2011)

I have heaps of TGA shares, and I bought 25,000 more a few days ago, which is why I invested the time to write the stuff below for my personal enlightenment, or perhaps to merely soothe my mind via selective cognition.  Excuse its verbosity, but it would take too much effort to trim it. I also hold CCV, and it too has been generous to me.  I hope somebody can gain something useful from the guff below.
=======================
I suggest that TGA is worth more than the current share price ($1.94 at COB 18/3/2011). Check my facts and figures and arrive at your own conclusions pursuant to your research and considerations, but I think $2.50 is a reasonable value for TGA.

Because of subjectivity, assumptions, approximations, ignorance and error, my guesstimation of the intrinsic value of a TGA share has latitude, and so I have ignored considering the 18/03/2011-announced NCML deal in my guesstimation because I do not know all the facts (debt for instance), and because I think that in the next year or two the NCML deal will neither do TGA significant good nor do it significant harm.

If one presumes the $32.5 million purchase price of NCML plus the $1 million related expense is borrowed at 11.5% (the current $6 million debt costs TGA $690K a year), then this is going to attract an extra interest expense of $3,852,500 (say $3.9 million), so NCML's reported EBIT of $6.2 million will be reduced to about $2.3 million, or about $1.53 after tax. TGA's profit for the year ending 31/3/11 is projected to be between $22 million and $23 million, and hence the extra $1.53 million for YE 31/3/12 is not hugely significant, and remember, one should downfactor this to recognise extra risk of having more debt, and to allow for the broadening of managerial focus.*

There are long-term synergies in owning NCML, and TGA's management have hitherto shown admirable astuteness and shareholder-friendly focus, so I'll assume the acquisition will do TGA no harm. One of the benefits of the NCML add-on is that it slows down the natural decay of growth and ROE that expanding into suboptimal sites would naturally occasion, and hence an increasing intrinsic value for TGA can be assumed for a few more years.*

Ignoring the $1 million NCML related cost (because it is accommodated above) the net TGA profit after tax for YE 31/3/11 should be $22.5 million (the mid point of the range projected). There are 130,737,000 shares, so the EPS is 17.21 cents. If you look at a company of this quality, one could reasonably pick a PER greater than 11.5. Depending on your PER, the intrinsic share price could be: 11.5 = $1.98; 12.0 = $2.07; 12.5 = $2.15; 13.0 = $2.24; 13.5 = $2.32; 14.0 = $2.41; 14.5 = $2.50; 15.0 = $2.58; 15.5 = $2.67; 16.0 = $2.75.

On the matter that TGA's quality suggests a reasonably high PER, TGA is a business made in heaven. It has: a high return on equity (about 27.5% for YE 31/3/2011); a low 7.6% debt to equity ratio; EPS has grown every year since YE 31/3/2008 (8.4c, 9.5c, 15.1c and 17.2c for YE 31/3/2011); and TGA pays about 50% of EPS as a 100% franked dividend. Also, unlike retailers, TGA's income is derived from myriads of rental streams, so a poor stint of new business would have a muted negative ramification (eat your heart out Gerry Harvey).*

TGA's rental terms is typically three years, and from memory 60% of the customers rent something else when the term ends, because they have got used to the cash-outflow commitment, and their proclivity for instant gratification readily finds new must-haves to hire (God bless them). The cash-strapped profile of the TGA customer demographic means that many TGA customers do not have mortgages, so rising interest rates have low impact on TGA, so whatever way the economy turns, TGA seems to do well. Many items rented are eligible to be paid by Centrelink's CentrePay facility, thus reducing defaults from folk that most firms would avoid. Also, TGA, as Radio Rentals, has been in business for over 70 years, so it knows how to manage the income streams that are central to its success, which understanding and processes are central to the NCML business too.

Shareholders will get reasonable warning if things start going bad for TGA - the customer count would decline and the average months of the residual rental terms would diminish. I wish I could say the same for some of my other investments like BOL, DOW, EGN, NOD and VMG, whose only certainty is the never-ending series of black swan events for losing money. As an aside, I often invest in pairs, so I also hold Cash Converters (CCV), which, like TGA, has been very kind to me. CCV and TGA to a degree share the same customer demographic, except that CCV has expanded internationally.

If you consider all the above TGA-related facts, suitably altered by your own research and subjectivity, and you compare TGA to other profitable companies that pay franked dividends, then by analogy you should be able to pick a reasonable PER to use in your own guesstimate of a reasonable intrinsic value for TGA.

If you want to go down the Roger Montgomery path as enunciated in his book, VALUABLE, you can derive an intrinsic value of a TGA share by dividing the ROE by say 10% to derive a factor to apply to the equity per share to get an intrinsic value, which factor applies where EPS = DPS. This factor increases via more arcane arithmetic if earnings are retained and invested by TGA at its ROE. Obviously debt-to-equity ratios, and EPS growth have a bearing, as would probability to cover the certainty of one's convictions, and as Roger has said on TV (Sky Business), after about thirty calculations, one arrives at intrinsic value. I am not intellectually equipped to think of thirty calculations, so I'll suggest seven calculations to guesstimate TGA's intrinsic value.

My baseline figures for TGA are:

*  Equity as at 1/4/2010 = $81,767,000
*  Shares = 130,737,000
*  Estimated earnings for YE 31/3/2011 = $22.5 million (between $22M and $23M)
*  10% is a reasonable required return on investment*

Consequently, equity per share = 62.54 cents, EPS = 17.21 cents and ROE is 27.52%.

Dividing 27.52% by 10% gives a factor of 2.752, and if one multiplies the equity per share (62.54 cents) by 2.752, one gets $1.72, which is the "intrinsic value" of TGA if it paid the full EPS as a dividend. See Roger's book, page 183. Roger's book has another a table of factors on page 184 that apply if the EPS were held back and invested by TGA at the current ROE. Sticking with the 10% requirement, this table suggests an ROE of 27.52% would give a factor of about 6. Roger suggests that we simply use the weighted average of these two factors if only part of the EPS is paid as DPS. In TGA's case, we could average 2.752 and 6 to get 4.376, and 62.54 cents multiplied by that gives an intrinsic value of $2.74, which suggests a PER of 16 - see earlier provided table.

Considering that many investment estimates are based on the coming year, whereas these TGA-related estimates are for the year ending 31 March 2011, which is two weeks hence, and taking into account the many qualitative factors mentioned earlier, a PER of 16 is not so silly. I do not know how Roger arrived at the table on page 184 of his book, and and how he justifies the assumptions it contains, but my instincts tell me the table might give factors that are too generous, and so I am happy to dampen the factor down to value TGA at $2.50. If TGA were a more liquid large-cap investment, its quality would easily justify a PER of 16. I suppose one could invent another calculation to recognise debt-to-equity ratio, another for Capital Valuation and a third for liquidity - after all, for any common intrinsic value calculated by the foregoing seven steps we, we would be foolish to rank a micro cap with high debt and low liquidity on a par with a firm with the opposite characteristics. For instance, I hold and like FFI and SGH, but for reasons of size in the case of FFI and lack of liquidity in both, I would not encourage others to consider them.*

I have been buying TGA for years, some only days ago, and I hold 285,000 shares (half in my SMSF and half personally at an average buy-in price of 91 cents). I should sell some TGA to de-risk my portfolio, but I'll only do that when I can find a share of comparable quality/value into which I can divert the proceeds, and I would be loath to sell any at below $2.30. In the meantime I'll pocket the dividends.


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## ROE (20 March 2011)

Nice write up

with that you may retire rich with TGA, I wouldn't worry about TGA debt

these guys know exactly what they are doing, debt will be less than today this time next year.. they going to raise more equity from shareholder to pay off debt
and I reckon wont be long before debt is a history for them.

Essential they already got it all mapped out, acquire business at decent price short term it can fund from cash flow and retained earning then raise equity to knock it down to a low level and they pay it off sometimes soon in the future.

Repeat the process


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## McCoy Pauley (21 March 2011)

Thanks for that in-depth analysis of TGA, Pioupiou.

As ROE mentioned, there was a little snippet in the weekend AFR noting that TGA intends to raise capital in the next 12 months to pay down the debt it's taking on to fund the acquisition it announced on Friday.


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## Pioupiou (21 March 2011)

When I assumed that TGA would fund buying NCML with debt, this was just a device to see if the acquisition cut the mustard, and it did.  I then ignored NCML to see if TGA was worth more than the Friday, 18/3/11, closing price without NCML, and it was worth at least 25% more, which was good enough for my purposes.

As an aside, the announcement stated that the debt to equity ratio would only get to 30%, which is hardly worrying for a solid stock like TGA.  The announcement referred to a possible equity raising to reduce the debt used to buy NCML.

I am looking forward to reading the annual report to learn how well the roll-out into smaller stores has been, and to learn management's prognosis for YE 31/3/2012.

What is TGA worth?  All I can say is that it is worth something north of $2.50.  One wag said his valuation was $2.75, which is a value I got when using the ROE-based technique advocated by Roger Montgomery.  Another suggested $3.00.  They both will be proved to be correct in the fullness of time provided the market reasonably reflects value.


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## McCoy Pauley (1 April 2011)

From memory, Thorn Group's financial year ends on 31 March, so we should expect the full year results in the next six or seven weeks - last year's results were released on 25 May 2010.  I wonder if we'll see some buying on the rumour and selling on the fact in the next couple of months, given that the company upgraded guidance a few weeks ago.


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## McCoy Pauley (20 April 2011)

Looks to my very novice technical eyes that we've had a short-term double top at about $2.30/share and consequently, the share price is hovering just about $2.00/share at present.  With TGA effectively pre-announcing its full year results, I wonder if those interested in the company believe that all the good news is already factored in and they're waiting for another trigger before buying into TGA.


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## VSntchr (20 April 2011)

McCoy Pauley said:


> Looks to my very novice technical eyes that we've had a short-term double top at about $2.30/share and consequently, the share price is hovering just about $2.00/share at present.  With TGA effectively pre-announcing its full year results, I wonder if those interested in the company believe that all the good news is already factored in and they're waiting for another trigger before buying into TGA.




Lots more to be absorbed and analysed by busy minds than just the profit figure...cashflow is equally if not more important....


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## Pioupiou (24 April 2011)

On Pauley McCoy's $2.30, I have heard that some valuations have valued TGA at $2.30, but I have not seen the valuations.  I would suspect that they are based on information that belies TGA's real worth.  When the interim report comes out on 24 May, we might get more cogent valutions based on more current facts.

On VSntchr's cashflow comment - TGA's core business, rental,  has robust cash streams pouring money into the coffers - enough for TGA to get into the money-lending business to use some of it.  The one-time cash requirement to buy its latest acquisition is just a blip in a business that is intrinsically cash generating.


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## Pioupiou (29 April 2011)

Below is a cut and paste of something I wrote over Easter while playing around with the way Roger Montgomery (RM) suggests one arrive at intrinsic value.  I do not agree 100% with RM, but the numbers are not very different to what I would anyway guesstimate.  Because RM's "intrinsic value" has a meaning specific to his methodology, it makes sense to get a number of these for a few years, and then interpolate a value that you would ascribe to the stock based on the trend, and hence I decided to look at 2009, 2010, 2011 and 2012 (using guesstimates for 2012) 

-----------------------------------

TGA's figures for YE 31/03/2011 and YE 31/03/2012 could be improved soon, because TGA should come out with the formal YE 31/03/2011 numbers (preliminary report 24 May 2011), and this should provide a better basis for YE 31/03/2012 than my guesstimates below, where I guesstimated:

*  31/03/11 equity by adding for H2 the increase for H1;
*  31/03/12 equity by adding 50% of the estimated earnings;
*  31/03/11 share # by adding the performance rights # to the 30/09/11 #;
*  31/03/12 share # by adding a further 1.5 million shares;
*  YE 31/03/11 earnings uses mid point of forecast $22M to $23M; and
*  YE 31/03/12 earnings by adding $3M to YE 31/03/11 earnings,

and I assumed the payout ratio is a consistent 50% and an RR of 10% was suitable for TGA (an A1 company), plus I arrived at the RM factor for zero dividends by primitive interpolation from the table on page 184 of  RM's book “VALUABLE”.

 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . YE 3/2009 . . YE 3/2010 . . YE 3/2011 . . YE 3/2012
Earnings YE 31/3 . . . . . . . . . . . . . . . . . . $12,320K . . . $19,495K ,. . $22,500K . . .$25,500K
Equity - start of year . . . .  . . . . . . . . . . . . $66,162K . . $69,262K . . $81,767K . . . $94,791K
Equity – end of year . . . .  . . . . . . . . . . . . $69,262K . . $81,767K . . $94,791K . .. $107,541K
Average Equity . . . . . . .  . . . . . . . . . . . .   $67,712K . . . $75,514K . . $88,279K . . $101,166K
Earning/Average Equity .  . . . . . . . . . . . . . . 18.19% . . .  25.82% . . . . 25.49% . . . . 25.21%
Shares . . . . . . . . . . . . . . . . . . . . . . . . . . 128726K . . 129441K . . . 130737K . . . 132237K
Av Equity per shre . . . . . . . . . . . . . . . . . . $0.5260 . . .. $0.5834 . . . $0.6752 . . .  $0.7650
EPS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.57c . . . . . 5.06c . . . . 17.21c . . . .. 19.28c
RR (required rate of return) 10%
Assume Payout Ratio 50%
RM's factor where DPS=EPS . . . . . .  .  . . . . . . 1.8195 . .. . 2.5816 . . . . 2.5487 . . . . 2.5206
RM's factor where no div . . . . . . . . . . . . . . . 2.9447 . .. . 5.5210 . . . . 5.3929 . . . . 5.2833
Factor (average above) . .. . . . . . . . . . . . . . 2.3821 . .. . 4.0513 . . . . 3.9708 . . . . 3.9020
Intrinsic Val (Factor x av equity per share) . . $1.253 . . . . $2.363 . . . . $2.681 . . . . $2.980

Remember, in the table above the words “intrinsic value” are used in RM's time-static way, whereas it is normal to consider the time-value of money when estimating value for a point in time.  Also, I am a tad apprehensive of the row of numbers for “RM's factor if no dividend” - too high, maybe. 

To be pragmatic, one could simply assume that a share of this quality should enjoy a PER  or say 14.5, which to err on the conservative side is an average PER, and arrive at 17.21 cents x 14.5 = $2.50.  TGA is better than average, which is why RM classes it as an A1, so one could use a higher target PER and get a higher value – e.g., 17.5 would give $3.01.  In my view, TGA is worth somewhere between $2.50 and $3.00.


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## Pioupiou (4 May 2011)

Bought 25000 more today at $1.995.  Between my personal holdings and my SMSF, I now have 310,000 of the little beauties, and I am not selling, in spite of being 100% ahead of my total investment at today's SP of circa $2.


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## Pioupiou (13 May 2011)

Bought another 23,500 today (13/05/11) at $2.  Being Friday the 13th, this might turn out to be a bad buy, but I think not.

I rather fancied having 333,333 TGA, so when in the fullness of time TGA gets to $3, perhaps a year hence, I'll have $1 million worth of the stock.  Anyhow, I now have 333,500 - that is conviction for you. 

I hope I am right about TGA's intrinsic value.  Preliminary report for YE 31/3/11 is due on 24/5/11.  Let us see what transpires.


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## zac (13 May 2011)

Pioupiou said:


> Bought another 23,500 today (13/05/11) at $2.  Being Friday the 13th, this might turn out to be a bad buy, but I think not.
> 
> I rather fancied having 333,333 TGA, so when in the fullness of time TGA gets to $3, perhaps a year hence, I'll have $1 million worth of the stock.  Anyhow, I now have 333,500 - that is conviction for you.
> 
> I hope I am right about TGA's intrinsic value.  Preliminary report for YE 31/3/11 is due on 24/5/11.  Let us see what transpires.




Wow you must really have some confidence in TGA,
I bought a drop in the ocean compared to how many you have.
I bought mine at 1.90 and pretty pleased to get them at that price.

I like days like today on the ASX, its a bargain hunters paradise almost lol.


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## puppyboy (15 May 2011)

Seems there are a few of you that have similar holdings...I have 2 major holdings TGA and CCV entered TGA in Sept 09 @ .69 added up to .98 and entered CCV in March last year and added recently @ .81.
I sold some TGA at $2.28 on the run up...gut feel was it needed a drop soon before it could go again . I added to CCV with some those funds and readded a week or so ago with the rest. 
CCV needs debate ( I made a post there) with the scheme but TGA looks stellar after a drop. The model is great and providing there are no surprises in the near future looks to me the thing has reset and ready for another run just needs time. 
Someone mentioned TSM I put that on my watchlist did some research.. figures out this week I think...a friend bought into FXL @ 1.90 recently maybe that stock is of interest to some.
Seems this niche is giving returns with a good chance of upward movement in a market that otherwise seems light on for prospects.


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## zac (15 May 2011)

CCV is still a bit too high for me to purchase now, If it gets under 80 I will look at it, otherwise wait for the next annual report.
Im just being disciplined at my approach with it, thats all.


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## Pioupiou (16 May 2011)

I have bought TGA over the years at various prices ranging from 55 cents to $2.03, with an average price of $1.07.  Just in case the market grows even more foolish than it is, I have an order in to buy 15,000 at $1.96, but I do not expect to pick them up at that price.

Months ago I wanted to sell 20,000 at $2.30, but the shares never sold, and the price retreated to below $2.  At below $2, I'll keep on buying, if I can raise the money to pay for them.

Let us see what happens to TGA next week, and the weeks that follow, and then the months that follow, and in my case, then the years that follow.  I have liked TGA since 2007 when I first invested in them, and I have never sold.

I sold most (49,000) of my CCV at 83.5 cents to pay for more TGA, and I only have 2,000 left.  I would have been happy to hold CCV, but I needed to release funds.


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## zac (16 May 2011)

TGA went as low as 1.96 today and then got back up.


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## Pioupiou (18 May 2011)

Well, although TGA reached $1.96 yesterday, I did not bag any - in spite of having a buy oorder for 15,000 at $1.96.  I did not expect to land any at the price, but I was hoping for a rush of stupidity in the market.

TGA's price closed with some conviction today at $2.04, and it should edge upward in anticipation of the preliminary report on 24/5/11 for YE 31/3/11.  Actually, the report should not surprise those who heed TGA's occasional announcements, but it should astound those who do not.  The report should be a catalyst for analysts to recalibrate their SP predictions for TGA.  Let us see what happens.


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## Intrinsic Value (19 May 2011)

Pioupiou said:


> Well, although TGA reached $1.96 yesterday, I did not bag any - in spite of having a buy oorder for 15,000 at $1.96.  I did not expect to land any at the price, but I was hoping for a rush of stupidity in the market.
> 
> TGA's price closed with some conviction today at $2.04, and it should edge upward in anticipation of the preliminary report on 24/5/11 for YE 31/3/11.  Actually, the report should not surprise those who heed TGA's occasional announcements, but it should astound those who do not.  The report should be a catalyst for analysts to recalibrate their SP predictions for TGA.  Let us see what happens.




I noticed on RMs blog that he has a 2011 valuation of 1.46 for TGA.


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## nicarena (19 May 2011)

Intrinsic Value said:


> I noticed on RMs blog that he has a 2011 valuation of 1.46 for TGA.




Yeah noticed that to. He had a value of $1.14 after the last annual report and this update is after the half yearly report. I had a IV of $2.04 after last annual report and an IV of $2.21 after the half yearly report so my IVs are well above his.  The last time my IV was well above RMs was when I asked him about Forge (FGE) as my IV was around $7 and he had it around $4. He just said it was a combination of analysts forecosts that were conservative (something like that). I think he upgraded Forge soon after that and we know what has happened to Forge since. I feel quite comfortable with my IV as I have researched the company and believe they are on the right track. In fact the company sounds like most Value investors as they only purchase companies at or below market value. I'm happy to be on board this company.


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## Pioupiou (19 May 2011)

One has to be careful evaluating an intrinsic value for TGA, because, atypically, its YE is 31 March.  Hence its last report was the half year ending 30 September 2010.  The figures to be released a few days from now, on 24 May, are for the full year ending 31/3/11.

Morningstar  provides figures for a stated year, and folk using figures from there (e.g., from Westpac or Comsec) may make the incorrect assumption it means the year ending in June.

I have seen broker (using the word loosely) evaluations for TGA as high as $2.90.

If Roger M is not talking about TGA as much as he does about FGE, MCE, TRS, JBH and Oroton, it is perhaps because he is hoovering up TGA, and he'll talk about it when his coffer is full.  I now have 335,000 TGA, and, ceteris paribus, I would buy more if TGA fell below $2 , even though I am concerned that my portfolio is so lopsided.


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## VSntchr (19 May 2011)

I really do think that alot of people on here and on Roger's blog over value TGA..I really cant see how people are coming up with numbers close to $3...that said - I think its a great business in a industry with good prospects...

Rogers latest val is mid $1, mine is roughly $1.80...I really dont think he would be hoovering it up at present given he has recently stated his IV which is below the current SP.


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## Pioupiou (19 May 2011)

VSntchr said:


> I really do think that alot of people on here and on Roger's blog over value TGA..I really cant see how people are coming up with numbers close to $3...that said - I think its a great business in a industry with good prospects...
> 
> Rogers latest val is mid $1, mine is roughly $1.80...I really dont think he would be hoovering it up at present given he has recently stated his IV which is below the current SP.




You and RM may be right - like the Pope, I sometimes err on temporal matters.

The preliminary report for TGA's financial year ended 31/3/11 should be available in two or three trading days hence - it is due on Tuesday, 24/5/11.  This is so soon, that I may as well reply to the above when the report is published, because then I can use less conjecture.  I'll re-examine my valuation of TGA on 24/5/11, and post it into this thread.  Who knows - the exercise might illuminate the error of my thinking, and then I'll change my tune.  Obviously, if I use a desired rate of return of 10%, then I am going to get a different answer to somebody using 20%.


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## Pioupiou (22 May 2011)

This is not the reply that I promised to write as soon as the new figures are available from theTGA  preliminary report for YE 31/3/11, but just for the hell of it, I took my figures from my posting of 24 April 2011, and changed the required rate of return (RR) from 10% to 12%.  This makes a large difference.  Below are the results of my earlier estimates:


. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . YE 3/2009 . . YE 3/2010 . . YE 3/2011 . . YE 3/2012
Earnings YE 31/3 . . . . . . . . . . . . . . . . . . $12,320K . . . $19,495K ,. . $22,500K . . .$25,500K
Equity - start of year . . . . . . . . . . . . . . . . $66,162K . . $69,262K . . $81,767K . . . $94,791K
Equity – end of year . . . . . . . . . . . . . . . . $69,262K . . $81,767K . . $94,791K . .. $107,541K
Average Equity . . . . . . . . . . . . . . . . . . . $67,712K . . . $75,514K . . $88,279K . . $101,166K
Earning/Average Equity . . . . . . . . . . . . . . . 18.19% . . . 25.82% . . . . 25.49% . . . . 25.21%
Shares . . . . . . . . . . . . . . . . . . . . . . . . . . 128726K . . 129441K . . . 130737K . . . 132237K
Av Equity per shre . . . . . . . . . . . . . . . . . . $0.5260 . . .. $0.5834 . . . $0.6752 . . . $0.7650
EPS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.57c . . . . . 5.06c . . . . 17.21c . . . .. 19.28c
RR (required rate of return) 10%
Assume Payout Ratio 50%
RM's factor where DPS=EPS . . . . . . . . . . . . . 1.8195 . .. . 2.5816 . . . . 2.5487 . . . . 2.5206
RM's factor where no div . . . . . . . . . . . . . . . 2.9447 . .. . 5.5210 . . . . 5.3929 . . . . 5.2833
Factor (average above) . .. . . . . . . . . . . . . . 2.3821 . .. . 4.0513 . . . . 3.9708 . . . . 3.9020
Intrinsic Val (Factor x av equity per share) . . $1.253 . . . . $2.363 . . . . $2.681 . . . . $2.980

If I use an RR of 12%, the IV (the above bottom line) drops to:

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . YE 3/2009 . . YE 3/2010 . . YE 3/2011 . . YE 3/2012
Intrinsic Val (Factor x av equity per share) . . $0.669 . . . . $1.440 . . . . $1.632 . . . . $1.815

Many people using Roger Montgomery's formula for deriving intrinsic value use the RR as a level-of-comfort factor, but this makes a big differences in the "intrinsic  values" (IV) that different folk derive.  Consequently, when I write the promised blurb in a few days time, I'll expend some effort justifying a low RR for TGA - namely 10%.

Also, if one looks at Roger's list of A1 companies, he has TGA with an IV of $1.57 for 2011.  As the figures for 2011 have not been published, I am unsure what metrics and what RR he has used.  You can see from the above that if I used 12% for the RR, my IV is not very different to Roger's.

Anyhow, I'll treat this matter in more detail next week.


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## breaker (22 May 2011)

Thanks


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## Pioupiou (25 May 2011)

I have been spruiking up TGA for so long, I must sound like a broken record.  Since 2007 until a few days ago, I have been a regular buyer, having bought eighteen times at prices ranging from 55 cents to $2.03, to average $1.07.  I have never sold TGA, and at last count I have 348,500 – 167,000 in my SMSF and 181,500 held in my own name.  I mention these facts so that you know that I am a serious investor in TGA, and you can be reasonably sure that I watch TGA like a hawk, especially as my enthusiasm for TGA is not shared by many investors who are not slouches, and I perennially wonder if I am out of step.

Opinions on the value of TGA range roughly from $1.50 to about $3.00.  The differences of opinion stem from differences of perception about the dynamics of the TGA business model, and to a much lesser degree the metrics used.

Let us first clarify the metrics.  The profit after tax was $22,038,000, but the one-off NCML acquisition costs were $1 million, so the normalised profit was approximately $23,038,000.  The weighted average number of shareholders at 31/03/2011 was 130,737,000, and hence the normalised EPS is 17.622 cents.  The ROE is 26.07%, calculated thus:

Earnings YE 31/3/2011 -- $23,038,000
Equity - start of year ---- $81,767,000
Equity – end of year ----- $95,003,000
Average Equity ----------- $88,385,000
Earnings/Av Equity (ROE) ---- 26.07%

If one uses PER to guesstimate an intrinsic value for TGA, then if one thought it was a risky stock, one might use a PER of 9, and the EPS of 16.9 cents as shown in the Morningstar figures one sees via Comsec and Westpac, then one could derive a value of  9 x $.169 = $1.52.  The basic EPS mentioned in the TGA report for YE 31/3/2011 is 17.01 cents, and the diluted EPS 16.86 cents, so using either of these makes a minor difference of about a cent.  Using the normalised EPS of 17.622 cents times 9 gives $1.59.   This normalised EPS is the sensible figure to use, so let us now see how the guesstimated intrinsic value would vary by using different PERs:


PER -------- EPS $ ------ Value Share $ 
9 ----------- 0.17622 -------------- 1.59
10 --------- 0.17622 -------------- 1.76
11 --------- 0.17622 -------------- 1.94
12 ---------  0.17622 -------------- 2.11
13  --------- 0.17622 -------------- 2.29
14 ---------  0.17622 -------------- 2.47
14 .5 ------  0.17622 -------------- 2.56
15  --------- 0.17622 -------------- 2.64

What PER is apt for TGA?  A high one in my view, because the business has been around for over 70 years, it has an ASX record of steady and growing EPS, it has a good ROE of 26%,  its income is substantially contracted rental streams with a history of very low default and on average these commitments have over two years to run, its customer demographic is little impacted by the rate of interest, the Australia-centric nature of the business obviates currency risks, and for the first time TGA's management have stated that the year ending 31/03/2012  will be excellent (to quote: “. . . the company expects a substantial increase in earnings in the financial year ending 31 March 2012 due to a full year contribution from the acquisition of NCML and solid organic earnings growth from the existing business.”).  I could go on pointing out the unique  strengths of TGA – the sole purposeof which is to ensure that you select an appropriate PER, if that is what you use, or the appropriate internal rate of return (RR), if you guesstimate intrisic value using RR as part of the calculation.

I pulled out a few good shares last night to see what PER is now applicable to them – to wit:

---------- SP ----- PER
UGL ---- 15.23 --15.55
WOW -- 27.38 -- 15.56
TRS ---- 10.60 --14.07
JBH ---- 16.53 -- 13.59
MMS --- 10.20 -- 17.84
MTU ----- 3.45 -- 14.2

Average PER -- 15.135

All the above suggests to me that TGA is at least worth $2.50 using a simple PER approach.

If you divide the ROE by a required rate of return (RR) to arrive at a factor to uplift the Book Value (Equity per share) to arrive at an intrinsic value, then the RR that you select will make a huge difference to what you think TGA is worth.  In simple terms, ignoring retained earnings, you get the following results in respect of TGA.  The average equity for TGA for the year was 67.61 cents per share, so if you use an RR of 10%, and an ROE of 26.07%, then the factor would be 2.6, which multiplied by 67.61 cents gives a share price of $1.76.

However, if the company retains 50% of the earnings, the factor increases.  By my calculations Roger Montgomery should (but does not) arrive at a factor of about 4.1123 (the decimals are not intended to convey conviction), and multiplying that by 67.71 cents gives $2.78.  Roger recently wrote that he valued TGA at $1.57, which is what would happen if one used an RR of about 14% (I have not double checked this – suffice to write that one can get at any value by simply adjusting the RR).  If I could get 14% from a bank, I would not bother investing in the ASX, I would put the lot in the bank and live of the interest, and hence I think that for TGA, a 10% RR is reasonable.  Do your own research, and select your own RR.

I think TGA falls within Roger's top 20 ASX-listed companies, and he classifies it as an A1 company, which in itself suggests a low RR.  I am a bit surprised at the low intrinsic value that he has calculated for TGA.

As I have written before, I think TGA is worth something north of $2.50.  Some people think it is worth $3.00, and some about $1.50.  Let us see what Mr Market decides in coming months.


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## Intrinsic Value (25 May 2011)

Pioupiou said:


> I have been spruiking up TGA for so long, I must sound like a broken record.  Since 2007 until a few days ago, I have been a regular buyer, having bought eighteen times at prices ranging from 55 cents to $2.03, to average $1.07.  I have never sold TGA, and at last count I have 348,500 – 167,000 in my SMSF and 181,500 held in my own name.  I mention these facts so that you know that I am a serious investor in TGA, and you can be reasonably sure that I watch TGA like a hawk, especially as my enthusiasm for TGA is not shared by many investors who are not slouches, and I perennially wonder if I am out of step.
> 
> Opinions on the value of TGA range roughly from $1.50 to about $3.00.  The differences of opinion stem from differences of perception about the dynamics of the TGA business model, and to a much lesser degree the metrics used.
> 
> ...




Yes the RR significantly affects the IV. 14 percent is on the high side but I think the RR is used discretionarily based on any number of factors. eg competitive advantage, barriers to entry, track record, industry etc

I get 2.10 as the current IV using 14percent RR.


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## skc (25 May 2011)

Pioupiou said:


> I have been spruiking up TGA for so long, I must sound like a broken record...
> 
> I pulled out a few good shares last night to see what PER is now applicable to them – to wit:
> 
> ...




Great post and thanks for sharing. 

Personally I would value TGA using a PEG of 1. Given that they are growing NPAT at ~15%, a PE of 15 and value of $2.6 seems fair. This obviously is subjected to them maintaining their growth...

Careful with your list of comparables - while they are all good companies, they have vastly different risk and growth profiles (e.g. UGL is in engineering, building trains with the biggest risk being project stuff up, while MMS does salary packaging with the biggest risk being regulation changes).


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## Pioupiou (25 May 2011)

skc said:


> Great post and thanks for sharing.
> 
> Personally I would value TGA using a PEG of 1. Given that they are growing NPAT at ~15%, a PE of 15 and value of $2.6 seems fair. This obviously is subjected to them maintaining their growth...
> 
> Careful with your list of comparables - while they are all good companies, they have vastly different risk and growth profiles (e.g. UGL is in engineering, building trains with the biggest risk being project stuff up, while MMS does salary packaging with the biggest risk being regulation changes).




I did not select companies with the same profile as TGA, in part because I have trouble even thinking of one, and the ones I picked probably do not have on aggregate the positive qualities of TGA.  I had written such a long post that I did not exhaust all TGA's good points - it's a stock from heaven.  All I want to imply is that TGA should enjoy a high PER.  

On the negative side TGA is a small cap, and for the big boys, there is not enough volume traded daily, and hence they give TGA less focus than it deserves, which mutes its SP.  This is one reason why we little guys can outperform the instos - we can find gems like TGA, and invest in dollops large enough for us, and get good returns.  As TGA grows and its track record lengthens, the instos will dribble in.

Anyhow, I am pleased that you concur that TGA is worth more than my bottom-line $2.50.  The 24/5/11 dated presentation has the NPAT growing over the last four years at a CAGR (for 2007-2011)= 36.9% - higher than you wrote.

How many companies have an SP equal to or lower than their intrinsic value derived via the Roger Montgomery method using an RR of 14%?  I imagine very few, no more than can be counted on the fingers of both hands.  If I am right, then we should exit the ASX en masse, or 14% is too high (except for poor stocks).  I am trying to arrive at a fair value from the whole-market perspective (a price to which the market should trend over time), not a bargain-basement price that a few lucky investors might stumble onto.


----------



## puppyboy (25 May 2011)

Pioupiou said:


> I have been spruiking up TGA for so long, I must sound like a broken record.  Since 2007 until a few days ago, I have been a regular buyer, having bought eighteen times at prices ranging from 55 cents to $2.03, to average $1.07.  I have never sold TGA, and at last count I have 348,500 – 167,000 in my SMSF and 181,500 held in my own name.  I mention these facts so that you know that I am a serious investor in TGA, and you can be reasonably sure that I watch TGA like a hawk, especially as my enthusiasm for TGA is not shared by many investors who are not slouches, and I perennially wonder if I am out of step.
> 
> Opinions on the value of TGA range roughly from $1.50 to about $3.00.  The differences of opinion stem from differences of perception about the dynamics of the TGA business model, and to a much lesser degree the metrics used.
> 
> ...




Like you I got in early on this stock and my average buy price with 100,000 is 90.5 cents...I did have 140,000 but sold 40,000 at $2 .28 when they peaked first...invested that into CCV....
TGA has had a rest and with the positive figures and remarks of substantial growth happening gut feel is it can take out the high and then see what happens....a run of 20% after taking out the high doesn't seem outlandish to me....It's in a growth phase do the figures another 10 Mil on the loan book at 38%...all those people renting flat panels can borrow money as well...plenty of room for growth...it will hit the wall one day but I can't see that happening for a while.


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## zac (25 May 2011)

Pioupiou said:


> On the negative side TGA is a small cap




I see this as a plus, for a small cap to be rated so well. Has lots of potential.

Another company thats way under its IV at the moment is ZGL, Zicom.
In addition VOC, Vocus.

They are about the only 2 I can think of that are well under IV. Id have bought shares in ZGL today if it wasnt for my lack of knowledge in the company.

VOC im still toying with. I feel like they may go lower as when RM rates a company the prices become artificially inflated.


----------



## Pioupiou (25 May 2011)

Intrinsic Value said:


> Yes the RR significantly affects the IV. 14 percent is on the high side but I think the RR is used discretionarily based on any number of factors. eg competitive advantage, barriers to entry, track record, industry etc
> 
> I get 2.10 as the current IV using 14percent RR.




People seem to get different values using RM's method, so it would be interesting to see the arithmetic.  Actually, I think RM's premium for non-dividend paying firms is too high, so I would not be surprised if some folk down-factor it.

The important point for me is what is a reasonable RR for a superb company - one in the top-20 of RM's list of A1 companies?  Even RM said he is now holding a great deal of cash, and I would be surprised if he gets half that RR on that money.  My view is that to calculate fair value to which we can reasonably expect the market to trend over time, we should use an RR that is reasonable for a premium-quality stock.  To arrive at a price that one might want to use to buy bargains, one should use a margin of safety (MOS) factor.  That is, use RR to give fair value within the framework of the stock's metrics and the risks, then use a MOS factor to set the buy-n price.  This avoids semantic misunderstandings in forums like this.

The factors determining an apt RR, or an apt PER, are very subjective, so one can expect them to vary from investor to investor.


----------



## McCoy Pauley (26 May 2011)

IMO, using a required return rate of 14% for TGA is too conservative for this type of company.  Perhaps a higher margin of safety can now be justified due to the debt TGA has taken on to finalise its latest acquisition, but I would be looking at using a RR of 11%-12% for TGA.


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## Intrinsic Value (26 May 2011)

McCoy Pauley said:


> IMO, using a required return rate of 14% for TGA is too conservative for this type of company.  Perhaps a higher margin of safety can now be justified due to the debt TGA has taken on to finalise its latest acquisition, but I would be looking at using a RR of 11%-12% for TGA.




I agree I reckon it is the debt that is worrying RM and why he has put an RR of 14 percent on TGA.


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## zac (26 May 2011)

Intrinsic Value said:


> I agree I reckon it is the debt that is worrying RM and why he has put an RR of 14 percent on TGA.




What is the debt to equity ratio?
Is it published in current data on any of the brokerage sites?


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## Noddy (26 May 2011)

zac said:


> What is the debt to equity ratio?
> Is it published in current data on any of the brokerage sites?




According to commsec D/E ratio is 37.9%


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## Noddy (26 May 2011)

Generally shares are priced on the basis of estimated future earnings or potential, and using a DCF (Discounted Cash Flow) calculation as follows -

Current EPS 17c

Anticipated future increase 12% pa
(Based on an increase of 12% since listing, and a 2010/11 increase of 13%)

DCF valuation would be $2.50.


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## Intrinsic Value (26 May 2011)

Noddy said:


> Generally shares are priced on the basis of estimated future earnings or potential, and using a DCF (Discounted Cash Flow) calculation as follows -
> 
> Current EPS 17c
> 
> ...




BUt if those earning are debt fuelled then the formula is very misleading.


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## Noddy (26 May 2011)

Intrinsic Value said:


> BUt if those earning are debt fuelled then the formula is very misleading.




Not really.
The interest on the debt is already covered prior to calculating NPAT, which is then used in turn to calculate EPS.


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## Intrinsic Value (26 May 2011)

Noddy said:


> Not really.
> The interest on the debt is already covered prior to calculating NPAT, which is then used in turn to calculate EPS.




If  the debt is long term and the interest rate is not fixed then there could well be problems.


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## Pioupiou (27 May 2011)

This debt issue creates a valuation problem for TGA for me, because the significant metric  in my calculations is the normalised EPS of 17.62 for YE 31/3/11 (the actual EPS being 17.01 cents), which arose substantially without contribution from NMCL, whereas the recent debt increase relates to the NCML acquisition, and we expect growth to be increased because of NCML.  If one wants to consider the negatives (the debt impact), then it is unreasonable not to include the positives.

The new net debt-to-equity ratio of 28.4% is hardly threatening.  This is why I have been disinclined to calculate a value based on YE 31/3/11 EPS and historical growth trajectories that do not accommodate NCML, and then downscale the intrinsic value by increasing the required rate of return because of the increased debt.   In effect I simply accept that the acquisition of NCML will do shareholders no harm – a leap of faith, admittedly.  If you think management erred, uplift your required rate of return, or pick a lower PER, or change whatever is appropriate for your approach to stock valuations.

TGA's management have averred that they expect the NCML will be EPS accretive in 2012 pre amortisation of intangibles.  This suggests TGA will write off some of the NCML-related intangibles in the year ending 31/3/2012, which will lower EPS.

This is all too complicated for a financial primative like me, so I end up by holding that TGA is worth about $2.50, and if I want to buy it cheaply, I would apply a margin of safety of 25%, and buy at $2.  If I did not own many TGA shares, and I had idle funds, and I could not find another gem at a 25% discount, then I would continue to buy at prices somewhere between $2.00 and $2.50 – say $2.30.

Just a thought.  If NCML cost $30 million, and this was five times EBIT, then NCML should contribute an EBIT of $6 million.  If we assume interest would be 10%, the the interest would reduce the profit before tax to $3 million, and the profit after tax should be $2.1 million, or about 1.6 cents a share, which is about 10% on this past year.  I think this helps to justifies ignoring NCML and its impact on debt on the basis that it is at worst neutral.  If the NCML business morphs well into the whole TGA business with synergies to boot – e.g., utilising debt handling mechanisms and gaining access to new customers – then that will manifest itself in time, and the SP should follow in the long run, and I as a long-term investor should be happy.

TGA's management intend to raise equity to fund the NCML acquisition via a rights issue.  I wonder why they bother, because the debt could be whittled away via retained profits fairly quickly.  I am unsure how this affects the value one should ascribe to TGA shares today.

The net effect of all this waffle is that I am disinclined to value TGA at a lower value because it acquired NMCL, and to be conservative, I will not uplift the target value either, or at least not now.

PS

Below are some calculations I played with today.  I think the factor that Roger M uses for no-dividend situations is too high, and hence the resultant $2.78 intrinsic value is too high, or I have cocked up other calculations.  Roger only gets $1.57, so he probably uses a highish required rate of return, but this suggests a PER of 8.9, which I think is too low.  The answer, I think is somewhere between $1.57 and $2.78. 

Earnings normalised - ignore $1m NCML cost -------- $23,038,000	
Equity - start of year ------------------------------------ $81,767,000	
Equity - end of year ------------------------------------- $95,003,000	
Average equity per share ------------------------------- $88,385,000	
ROE - normalised earnings/av equity ----------------------- 26.07%	
Shares in TGA --------------------------------------------- 130737000	
Average equity per share ------------------------------------- 0.6761	
EPS (normalised) ---------------------------------------------- 0.1762	

RR - required rate of return - use 10.00%	
Assume Payout Ratio 50%		

Montgomery Factor if DPS=EPS ------------------------------ 2.6066	
Montgomery Factor if no dividend ---------------------------- 5.6181	
Average Factor-------------------------------------------------- 4.1123	
Intrinsic Value = av factor x av equity per share ----------- $2.780	

Buy-in price giving a margin of safety = 20.00% --- $2.224
Buy-in price giving a margin of safety = 25.00% --- $2.085
Buy-in price giving a margin of safety = 30.00% --- $1.946

Values for different price earnings ratios ---------	PER	
 - - This PER required to get valuation of $1.57	8.9 --- $1.568
 ------------------------------------------------------- 10.0 --- $1.762
 ------------------------------------------------------- 11.0 --- $1.938
 ------------------------------------------------------- 12.0 --- $2.115
 ------------------------------------------------------- 13.0 --- $2.291
 ------------------------------------------------------- 14.0 --- $2.467
 ------------------------------------------------------- 15.0 --- $2.643
 - - This PER required to get valuation of $2.78 -- 15.8 --- $2.780


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## Pioupiou (30 May 2011)

I sent my views on TGA to Roger Montgomery in two blog postings, and I got a pat on the head for both.  With luck this might prompt RM to reconsider the RR (required rate of return) for TGA.  By the way, and I might have posted this before, the most generous valuation of TGA that I have seen comes from Clime - see:

http://www.theaustralian.com.au/bus...d-thorn-on-track/story-e6frgac6-1226043486422 

Clime's $2.90 valuation is high, but if TGA sticks to its past trajectory, it is achievable - it will just take time.

As a second aside, I was surprised to see that Wam Research Ltd (ASX code WAX) had 2,522,541 TGA shares at 31/3/11.  See:

http://www.wamfunds.com.au/WAM/media/WAMMedia/WAM Research/WAXNTAMar11.pdf 

Wam's top 14 holdings in value are:

As at 31 March 2011 the top listed equities (value over $1 million) were as follows: 

Code  Company -------------------------------------- Market Value $ -------- % of Gross Assets
MMS  McMillan Shakespeare Limited ----------- ------  6,262,425 ----------- 5.7%
NAB  National Australia Bank Limited ----------------- 5,635,000 ----------- 5.2%
CCP  Credit Corp Group Limited  ----- ------ --------- 4,896,767 ----------- 4.5%
WBC  Westpac Banking Corporation ------------------ 4,781,250 ----------- 4.4%
APE  AP Eagers Limited ---- ------------ --------------- 4,289,173 ----------- 3.9%
WBB  Wide Bay Australia Limited ----- ---------------- 4,094,373 ----------- 3.7%
CBA  Commonwealth Bank of Australia --------------- 4,029,560 ----------- 3.7%
SGN  STW Communications Group Ltd ----- ----------  3,951,256 ----------- 3.6%
MYS  MyState Limited ------------------------- ---------- 3,438,413 ----------- 3.1%
RHG  RHG Limited  ---------------------------------------- 3,144,182 ----------- 2.9%
ANZ  Australia and New Zealand Banking Group Ltd -- 3,113,750 ----------- 2.8%
BRG  Breville Group Limited ------ ------------ --------- 2,877,404 ----------- 2.6%
SAI  SAI Global Limited ---------------------------------- 2,598,938 ----------- 2.4%
TGA  Thorn Group Limited -------------------------------- 2,522,541 ----------- 2.3%


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## zac (10 June 2011)

I got the letter from Thorn but maybe im overlooking something.
How does someone take advantage of there 1 in 8 share offer?


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## ROE (22 June 2011)

zac said:


> I got the letter from Thorn but maybe im overlooking something.
> How does someone take advantage of there 1 in 8 share offer?




Pay the money by the due date by 30/06
either cheque or bpay

With cheque you want to post a few days before it close
bpay maybe 1 day before and to be sure 3 days just in case
banks has a computer meltdown.

I would do bpay,.. your reference number is unique so they know who you are...


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## zac (22 June 2011)

ROE said:


> Pay the money by the due date by 30/06
> either cheque or bpay
> 
> With cheque you want to post a few days before it close
> ...




Cheers, thanks for the info.
With the SP going as low as it has it certainly wasnt worth taking up the 1 in 8 offer. Especially how its not including the Dividends.
So I havent bothered.


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## notabclearning (22 June 2011)

Pioupiou said:


> I sent my views on TGA to Roger Montgomery in two blog postings, and I got a pat on the head for both.  With luck this might prompt RM to reconsider the RR (required rate of return) for TGA.  By the way, and I might have posted this before, the most generous valuation of TGA that I have seen comes from Clime - see:
> 
> http://www.theaustralian.com.au/bus...d-thorn-on-track/story-e6frgac6-1226043486422
> 
> ...




Would just like to say as a clime subscriber their valuation has been lowered.


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## McLovin (23 June 2011)

notabclearning said:


> Would just like to say as a clime subscriber their valuation has been lowered.




To what, if you don't mind my asking?


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## Pioupiou (11 July 2011)

By the way, I applied for more TGA shares than I was entitled to, and I got them.  At $1.85 that purchase is now looking good.  When TGA was selling at a low price in June, I simply did not have the funds to buy more.  I borrowed most of what I needed to front with the money on 30 June, because I knew that I could repay part of it early in July, a new tax year.

I hurled about $50K at the rights issue entitlements plus additional shares, so at today's SP of circa $2.00, that looks to have been a good move.  Hindsight is a wonderful thing.  My daughter said she would not bother with her entitlements, but I convinced her otherwise, so that turned out well too.

Quo vadis TGA?  I would like to see evidence of how well the NCML venture works for the business before I venture an "intrinsic value" for TGA.

I do not like the appellation 'intrinsic value", because it carries a sense of being objective, whereas it is highly subjective, and it changes at any point in time from person to person.  There should be a word in English to cover using words to convey the wrong impression to one's audience without actually lying.  For instance, calling CO2 "carbon", rather than "oxygen", which being two thirds of the CO2 molecule has a better claim as the nickname than "carbon" does.  I can just see politicians struggling to justify an oxygen tax, and calling oxygen a pollutant, rather than the easier task of doing so with that black sooty stuff called carbon.


----------



## tinhat (11 July 2011)

Pioupiou said:


> By the way, I applied for more TGA shares than I was entitled to, and I got them.  At $1.85 that purchase is now looking good.  When TGA was selling at a low price in June, I simply did not have the funds to buy more.  I borrowed most of what I needed to front with the money on 30 June, because I knew that I could repay part of it early in July, a new tax year.
> 
> I hurled about $50K at the rights issue entitlements plus additional shares, so at today's SP of circa $2.00, that looks to have been a good move.  Hindsight is a wonderful thing.  My daughter said she would not bother with her entitlements, but I convinced her otherwise, so that turned out well too.
> 
> ...




Perhaps you have never heard of the carbon cycle?


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## robusta (9 August 2011)

Picked up some TGA today @ $1.51, now fully invested in SMSF as well.


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## zac (9 August 2011)

Wow nice price.
Im down n out that with all these bargains around that Im missing out as I invested heavily a few weeks ago.


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## ROE (10 August 2011)

zac said:


> Wow nice price.
> Im down n out that with all these bargains around that Im missing out as I invested heavily a few weeks ago.




Nice entry robusta, I bought one day early @ 1.75 

Load up HVN yesterday at 1.77 ...I reckon it's a bargain I factor a lot of bad sh*t going for it at that price.

zac if you invest in solid companies long term it will be your friend...


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## zac (10 August 2011)

ROE said:


> Nice entry robusta, I bought one day early @ 1.75
> 
> zac if you invest in solid companies long term it will be your friend...




Yeah I know, its sad though when things are amazingly discounted and you cant get in on it LOL.


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## robusta (10 August 2011)

zac said:


> Yeah I know, its sad though when things are amazingly discounted and you cant get in on it LOL.




Almost impossible to pick the bottom IMO, I am sitting on paper losses in about 1/2 the stocks bought in the last two weeks, when I think I have got a great price and buy it falls almost straight away.


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## breaker (10 August 2011)

robusta said:


> Almost impossible to pick the bottom IMO, I am sitting on paper losses in about 1/2 the stocks bought in the last two weeks, when I think I have got a great price and buy it falls almost straight away.




Yeah me to wish I knew how to short


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## Tyler (27 August 2011)

Doesnt TGA also do short term loans?
THey didnt seem to effected by the legislation that heavily effected CCV


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## oldblue (27 August 2011)

robusta said:


> Almost impossible to pick the bottom IMO, I am sitting on paper losses in about 1/2 the stocks bought in the last two weeks, when I think I have got a great price and buy it falls almost straight away.




May I gently suggest that you concentrate buying on stocks that have started an uptrend?

Not infallible, but works most of the time, particularly if I'm strict about applying a creeping stop loss.


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## robusta (27 August 2011)

oldblue said:


> May I gently suggest that you concentrate buying on stocks that have started an uptrend?
> 
> Not infallible, but works most of the time, particularly if I'm strict about applying a creeping stop loss.




Thankyou for that oldblue, I could certainly learn some patience. 
It is difficult however for me to pass some of the prices thrown up by the market in the middle of a panic however.

The stop loss thing however does not apply to me as I do not use them.


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## skc (28 August 2011)

Tyler said:


> Doesnt TGA also do short term loans?
> THey didnt seem to effected by the legislation that heavily effected CCV




TGA does do cash advance but that's only a small part of their overall business. Loan book last year was $12m and the average loan size appeared to be larger than CCV's. So they would be affected but not as prominently.

Wait until the govn't rolls out new laws on how big a TV and fridge you can rent... then they would be in trouble.



robusta said:


> Thankyou for that oldblue, I could certainly learn some patience.
> It is difficult however for me to pass some of the prices thrown up by the market in the middle of a panic however.




May be you should refer to your signature more often


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## robusta (28 August 2011)

skc said:


> May be you should refer to your signature more often




The trouble is my crystal ball does not work - I think I have found a bargain today but do not know if it will be more or less of a bargain tomorrow.  So my solution is to buy when I think prices are cheap enough. Having said that I take oldblues point and perhaps instead of catching falling knifes maybe I could buy when they have bottomed.


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## skc (28 August 2011)

robusta said:


> The trouble is my crystal ball does not work - I think I have found a bargain today but do not know if it will be more or less of a bargain tomorrow.  So my solution is to buy when I think prices are cheap enough. Having said that I take oldblues point and perhaps instead of catching falling knifes maybe I could buy when they have bottomed.




One possible way to overcome this is to monitor more companies. If you only have 2 companies you want to buy, you will more likely to jump in early because you might be concerned that both of them will run back up without you. 

On the other hand if I had 20 companies on my potential buy list, I tend to be more patient. Cause chances are when the market does turn back up, some of these 20 companies would be laggards and you can still buy in at a low enough price.

Of course it depends on how much time and effort you have to analyse the investments.


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## So_Cynical (28 August 2011)

robusta said:


> The trouble is my crystal ball does not work - I think I have found a bargain today but do not know if it will be more or less of a bargain tomorrow.  So my solution is to buy when I think prices are cheap enough. Having said that I take oldblues point and perhaps instead of catching falling knifes maybe I could buy when they have bottomed.





skc said:


> One possible way to overcome this is to monitor more companies. If you only have 2 companies you want to buy, you will more likely to jump in early because you might be concerned that both of them will run back up without you.
> 
> On the other hand if I had 20 companies on my potential buy list, I tend to be more patient. Cause chances are when the market does turn back up, some of these 20 companies would be laggards and you can still buy in at a low enough price.
> 
> Of course it depends on how much time and effort you have to analyse the investments.




I was thinking along the same lines before i read your post...

With now 22 stocks to watch i find myself looking at what stock that has fallen the most according to Stator and then taking a closer look at that stock, when was the last time i brought it, at what price etc...and that way its reasonably easy to pick my next average down target without getting to distracted by just 1 or 2 or 3 stocks.

All the while keeping in mind that i don't want to take more than 3 averages down and want to have about 12 or 15% falls between them...or more.


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## McCoy Pauley (14 October 2011)

According to an article on FN Arena published 13 October 2011, Moelis met with TGA's management very recently and came away from the meeting comfortable that TGA's core Radio Rentals operation continues to perform well despite the challenges of a tough operating environment.

TGA's management referred to recently introduced concepts such as kiosks in metro areas and 1-2 man branches in regional centres.  Moelis sees this as a low-cost opportunity to channel increased volumes into the established stores.

Moelis predicts that TGA will have 5-10 new "concept stores" opened by the end of FY12, which will offset the news that NCML lost the ATO tender.  Moelis sees that the loss of the ATO tender is not overly significant, with Moelis estimating that the contract contributed less than $1.5 million to EBIT and NCML accounts for less than 15% of TGA earnings.

Moelis trimmed its EPS forecasts by 4% through FY14 - forecast EPS of 19.4c in FY12 and 21.3c in FY13.  This compares to a consensus EPS estimate of 19.5c in FY12 and 21.2c in FY13.

Moelis has a "BUY" rating on TGA with a price target of $1.90/share.  The consensus 12 month price target is $2.10/share, based on estimates from Macquarie, RBS and Credit Suisse.


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## Pioupiou (24 October 2011)

Concerning the matter of NCML losing a seat on the ATO panel of debt collection service providers, the four service providers under the 4-year panel contract that expired on or circa 27 September 2011 were:

• Dun & Bradstreet (Australia) Pty Limited  
• National Credit Management Limited  
• Recoveries Corporation Pty Ltd, and  
• Baycorp Collection Services Pty Limited

NCML's share of the pie was just under $14 million, or about $3.5 million a year.  What the loss of this does to EBIT, I cannot say, but the $1.5 million mooted by Moelis would, I think, be on the generous side.  Why NCML failed to gain a seat on the subsequent panel is a much more interesting question.  Typically, if a service supplier gains panel status, it tends to retain it via subsequent Commonwealth tendering exercises. 

TGA's Interim Report is scheduled to be released in about four weeks time (22 November).  It  will confirm that TGA's core business is performing well, because recent formal announcements have stated as much.  That report should provide the metrics to extrapolate what the full year ending 30 March may be.


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## ROE (22 November 2011)

The numbers speak for itself  about this kick ass business

THORN PROFIT INCREASES 30% & GROWTH INITITATIVES CONTRIBUTING   

•  NPAT up 30% to $14.3m 
•  Revenue up 20% to $96m 
•  Interim dividend 4.0 cents, up 13% 
•  4% customer growth in Radio Rentals/Rentlo with continuing low arrears  
•  Cashfirst loan book reaches $15m 
•  Rapid growth in Thorn Equipment Finance  
•  National Credit Management Limited (NCML) contributing $3.3m EBITDA 

Results 

For the half year ended 30 September 2011, retail and financial services company, Thorn Group
Limited (ASX: TGA), recorded a 30% increase in net profit after tax to $14.3 million. 

Revenue grew 20% to $96 million, earnings per share1
 increased 19% to 10.08 cents, interim 
dividend increased 13% to 4.0 cents and debt to equity remains conservative at circa 8%.

TGA increase dividend, CCP increase dividend, CCV increase dividend, FLT increase dividend, NVT increase dividend
Party on 

I'm expecting RFG and CUP to increase dividend in the near future


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## McLovin (22 November 2011)

Great result. Looks like NCML is starting to bear fruit. Recurring revenue is now above 70% of revenue (flicked Big Brown Box off and bought NCML). The rental business just keeps spinning out cash, even if management do make a mistake (I'm not expecting they will) the OCF is a margin of safety in itself!


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## skc (22 November 2011)

I monitor a group of companies I call "Micro financials" (TGA, TSM, CCP, SIV, CLH) and they all seem to trade in such low PE despite having good history of growth and pretty decent prospects, not to mention recession-proof to some degree.

CCV would have been on the list if it wasn't for its regulation risk. And FSA is even cheaper albeit with more checkered history.

Anyone like to share their views on why that is the case?


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## ROE (22 November 2011)

skc said:


> I monitor a group of companies I call "Micro financials" (TGA, TSM, CCP, SIV, CLH) and they all seem to trade in such low PE despite having good history of growth and pretty decent prospects, not to mention recession-proof to some degree.
> 
> CCV would have been on the list if it wasn't for its regulation risk. And FSA is even cheaper albeit with more checkered history.
> 
> Anyone like to share their views on why that is the case?




In bear market people fly to big companies they considered safe, leaving the small caps to the brave. My portfolio is full of these guys and they paid crazy dividend  each year when their big safe brother cant keep up...

I applied a very simple rule.. can WOW/BHP etc.. double my money in 5-10 years time compared to TGA? ..for WOW to double my money they have to grow to a 61B company  where TGA has to go to $400m ..I think TGA road is hell a lot easier...and you probably get a lot more dividend in between..

How TGA doing in the last 2-3 years compared to WOW.. TGA on its way to double my money, WOW go no where or backward ...

you don't want too many people buying these stocks, only the free and the brave  they becomes too expensive otherwise because of liquidity, let them all move to WOW, BHP,WES,CBA and leave these cheap small caps to us brave people...

FSA I dont like the management, they issues a lot of freebies options to themselves dont pay any dividend and they sell these free options on the market... more like a company for management to pillage.
At once stage I did have them then I see this pattern  SOLD gone .....

I get out of stocks I feel management is in there for themselves or the facts change after I bought in...


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## Pioupiou (23 November 2011)

Yes ROE, the TGA numbers speak for themselves, but one should always double check these things.  I lost a great deal a few years ago when I bought shares in Coote Engineering, which did well on a subsequent profit announcement that later turned out to be “engineered”, and shares bought for circa $1 are now worth 10 cents.  A multi-million sale, with a good margin of profit, was put through the books in the last few days of the year to an entity called Greentrains which sprung into existence only days earlier, and which had no money, and could not pay for the rolling stock it bought.

The TGA figures are substantially sound.  The $3.3 million EBIT contribution from NCML would only have been $2.5 million without the ATO business, so about $800K x 70% = $560K will not be repeated going forward.  $630K was written off NCML intangibles, and that expense will not be repeated going forward, which is an after-tax number of $630 x 70% - $441K.  I expect  the YE 30/3/2012 profit to be about $28.5 million, which divided by 146,606,000 shares is an EPS of about 19.5 cents – perhaps 20 cents if you allow about 3.33% growth.  The January interim dividend is set at 4 cents, and if earlier years set a precedent, the July 2012 dividend should be about 6 cents.

You have to look at TGA's financial reports to get good historical numbers, because numbers in online brokers' sites tend to be misleading.  When you know the facts, TGA has never had a reversal for many years, including its pre-listing performance.

Here are some numbers, and if they vary a bit from what you think they should be, that will be because I have attempted to normalise the metrics to account for share issues and NCML-related one-offs in this and last year.

EBIT
 - 2004 - - - - 2005 - - - - 2006 - - - - - 2007 - - - - 2008 - - - - 2009 - - - - 2010 - - - - - 2011 - - - - 2012
$5,196K - - $6,837K - - $9,484K - $12,387K - $16,262K - $18,093K - - $24,612K - - $32,700K - $41,500K

Average contract term in months and rental due
 - 2004 - - - - 2005 - - - - 2006 - - - - - 2007 - - - - 2008 - - - - 2009 - - - - 2010 - - - - - 2011 - - - - 2012 13.9mth - - 17.5mth - 17.9mth - - - 19.1mth - - 21.0mth - - 22.0mth -- 23.0mth - - 23.0mth - - 27.0mth
- - - - - - - - $5,564K - - $5,970K - - $6,670K - - $7,302K - - $8,103K - - $9,128K - $10,360K - $11,500K

The above is an important set of metrics, because they will inform one of thigs going downhill long before the usual metrics do so.

Return on capital
 - 2004 - - - - 2005 - - - - 2006 - - - - - 2007 - - - - 2008 - - - - 2009 - - - - 2010 - - - - - 2011 - - - - 2012
- - - - - - - - - - - - - - - - - - - - - - - - 14.51% - - 17.77% - - 17.19% - - - 20.35% - - - 19.02% - -  - - ???

Normalised Diluted EPS
 - 2004 - - - - 2005 - - - - 2006 - - - - - 2007 - - - - 2008 - - - - 2009 - - - - 2010 - - - - - 2011 - - - - 2012
 - - - - - - - - - - - - - - - - - - - - - - - - 5.05c - - - - 8.42c - - - 9.52c - - - 15.00c - - - 17.62c - - - - 19.44c

What is a quality share like TGA worth.  Well, one can indulge in all sorts of valuation mathematics, but it is somewhat akin to weighing a pig to five decimal points by counterbalancing it with a rock, and guesstimating the weight of the rock.  With the good business model (over 100,000 contracted revenue streams, blah, blah), good history and good metrics, you may as well take 20 cents and multiply it by any number you like between 8 and 15 to get a target SP of between $1.60 and $3.00.  For starters, use the halfway point - namely, $2.30 as being reasonable.


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## McCoy Pauley (23 November 2011)

I've been contemplating a re-entry into TGA for some time but for various reasons (mostly to do with a lack of available cash, unfortunately), I missed a particularly attractive point in the cycle.

However, yesterday's half-year results confirms that again TGA appears to be a stand-out performer.  John Hughes' interview on Lateline Business is also an interesting summary of the company and well worth a look if it can be tracked down.

I'm hoping for a re-trace in the next few days and weeks to maximise potential gain down the track.


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## Pioupiou (23 November 2011)

McCoy Pauley said:


> I've been contemplating a re-entry into TGA for some time but for various reasons (mostly to do with a lack of available cash, unfortunately), I missed a particularly attractive point in the cycle.
> 
> However, yesterday's half-year results confirms that again TGA appears to be a stand-out performer.  John Hughes' interview on Lateline Business is also an interesting summary of the company and well worth a look if it can be tracked down.
> 
> I'm hoping for a re-trace in the next few days and weeks to maximise potential gain down the track.




What a bummer this matter of not having a bottomless pit of cash is.  I was very tempted to borrow some more, and buy at $1.64 the day before the announcement, but I owe too much as it is, and so I tempered my instincts to buy.  Whether TGA goes up or down 25 cents would not deter me from being a significant holder of TGA, so for your exclusive benefit, I hope it retraces so you can get on board, but that has to be the step backward before the great leap forward.  When TGA gets to $2.30, I might sell some, but I'll bother about that when the propect arises, and in the meantime I am happy to have the dividend that increases year on year.


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## skc (23 November 2011)

McCoy Pauley said:


> I'm hoping for a re-trace in the next few days and weeks to maximise potential gain down the track.




You probably get your chance. CCP spiked up 15% on a profit upgrade only to retrace all the way back now...


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## McLovin (23 November 2011)

skc said:


> You probably get your chance. CCP spiked up 15% on a profit upgrade only to retrace all the way back now...




+1

Market malaise. No one wants to be in the market.


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## ROE (23 November 2011)

TGA remind me the day I used to lend my equipment out to people cant afford to buy or don't know where to source the goods

I make my money back after 12 times lending out and I got my equipment for FREE
Invest $1200 , lend out $100 a weekend ....

and your engineering company what a bummer ..... I usually don't invest more than 25% of my capital in one stock doesn't matter how good it is, most between 5-25% mark ..... 

That way I dont get wipe out due to stupid management, disasters or some other crazy event I cant foresee or have lack of knowledge.

I do have a head for spot reasonable business, ....I'm not always right but it's enough to make me decent return... you probably need to be 50% right, the other 50% you get out as soon as facts changes or hold on for recovery....the 50% you get right will make multiple times return so it more than adequate to cover the other 50% you got it wrong...

while all that going on right pick vs wrong pick you get nice dividend return and enjoy life to the max


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## robusta (23 November 2011)

skc said:


> You probably get your chance. CCP spiked up 15% on a profit upgrade only to retrace all the way back now...




Funny you bought that up in this thread.

I bought CCP a while ago for my personal account but am looking to buy for my SMSF as the price is retracing.

I bought TGA in August for my SMSF @$1.51  but am hoping to buy for my personal account if the price retraces.


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## McCoy Pauley (24 November 2011)

According to FN Arena, Credit Suisse and Macquarie rate TGA as outperform with price targets of $2.00/share and $2.05/share respectively, and RBS Australia rates TGA a buy with a price target of $2.07/share (down from $2.15/share, interestingly).

Credit Suisse forecasts earnings growth of 12% in FY12.

Current consensus EPS estimate is 20.0c/share.  Current consensus DPS estimate is 9.7c/share.  Current consensus price target is $2.04/share.

I don't put much stock in broker targets, particularly without the benefit of reading the research underlying the broker targets, but it's interesting that three brokers rate TGA quite highly.


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## McLovin (24 November 2011)

Here's the latest Macquarie research note on TGA. In case anyone is interested.


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## tinhat (24 November 2011)

McLovin said:


> Here's the latest Macquarie research note on TGA. In case anyone is interested.




Thanks - I'm considering an entry into TGA and CCP at some stage.


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## Pioupiou (29 November 2011)

McLovin said:


> Here's the latest Macquarie research note on TGA. In case anyone is interested.




Thanks for that - very interesting, and it set me off on another inspection of the TGA situation.  I have so many TGAs that I often wonder if I have misunderstood something, but every time I pour over the facts I end up feeling very comfortable with that holding. 

I compared the metrics for WOW and TGA, and it is surprising how similar they are, and on balance I think TGA is the better of the two.  TGA eschews debt, which makes it a safer bet, whereas WOW leverages debt to get better ROE.  TGA keeps about 50% of earnings to fund growth , which I like, whereas WOW pays about 80% of EPS as dividends.  What is interesting is that WOW attracts a PER of about 13.5 currently, and more in bull-market days, whereas TGA only attracts a PER of about 9, maybe 9.5.  Both sell into markets that are stable in bad times, which is good.

Below are some numbers.  TGA has its YE on 30 March, so the comparable periods do not exactly match, which is why I have a double header below.

WOW - - - - - - - - - - Jun 2007 - - Jun 2008 - - Jun 2009 - - Jun 2010 - - Jun 2011
TGA -- - - - - - - - - - Mar 2007 - - Mar 2008 - - Mar 2009 - Mar 2010 - - Mar 2011

W - Book Value - - - - - $4.37 - - - - - $4.95 - - - - $5.57 - - - - $6.15 - - - - $6.24
T - Book Value - - -- - - $0.42 - - - - - $0.48 - - - - $0.53 - - - - $0.62 - - - - $0.72

W - EPS - - - - - - - - - - 107.8c - - - - 133.5c - - - 149.7c - - - - 163.2c - - - 171.5c 
T - EPS - - - - - - - - - - - 5.1c * - - - - - 8.3c - - - - - 9.4c - - - - - 14.9c - - - - 16.7c

W - Dividend - - - - - - - 74.0c - - - - - 92.0c - - - 104.0c - - - - - 115.0c - - 122.0c
T - Dividend - - - - - - - - 1.0c - - - - - - 4.2c - - - - - 4.7c - - - - - - 6.2c - - - - 8.4c

W - Debt/Equity - - - - - 55.7% - - - - 44.5% - - - - 45% - - - - - 45.3% - - - 61.8%
T - Debt/Equity - - - - - 14.7% - - - - - 8.0% - - - - 8.7% - - - - - - 7.3% - - - 37.9%** (now 8%)

W - Return on capital - - 19% - - - - - 22% - - - - - 20% - - - - - - 21% - - - - - 21%
T - Return on capital% - 13% - - - -- -18% - - - - - 17% - - - - - - 24% - - - - - 17%** (NCLP)

W - Return on Equity - 24.5% - - - - 27.2% - - - - - 27% - - - - 26.7% - - - - 27.5%
T - Return on Equity - 12.0 % - - - - 17.5% - - - - 17.8% - - - - 23.8% - - - - 23.2%

*TGA floated in December 2006, so the EPS has been “adjusted” to 5.05c, rounded to 5.1 c.

** TGA acquired NCLP a few weeks before EOY using borrowed funds, and these were substantially repaid via a $30 million capital raising months later, so these figures (37.9% debt/equity and the 17% return on capital are an aberration).

If you accommodate the fact that at COB on 28/11/2011 the WOW SP was $24.21, and TGA was $1.715, or  7.08% of WOW, and you scale up the per-share metrics of EPS, Dividend and Book Value by the ratio of 100 to 7.08, I think you could conclude that TGA is the superior performer, which begs the question why WOW has an EPS of some 13.5 compared to TGA's 9.  If TGA enjoyed a PER of 13.5, its SP would be about $2.70 on YE 30/03/2012 EPS projections.

On the matter of projections, I do not know WOW well enough to argue with the Morningstar projections so I'll use them, and they do look kosher.  With TGA, there are four values you should bear in mind when considering projections.  There was $1million spent on NCML acquisition costs in YE 30/3/2010, which brought that year's earnings back a bit, but it was a oncer.  In HI of this year $630K in NCML intangibles were written off, which will not be repeated, and there was some $30 million of borrowed money used to buy NCML that attracted interest in H1,  which will not be required to be paid in future.  I have assumed this interest was $600K.  On the other side of the coin there was $800K before tax profit contributed by the ATO business with NCML, and this will not be repeated, which reduces the basis for future projections.  I have assumed a constant growth of EPS of 11%, and half that for H2 this year.

We know that the net profit after tax was $14,307K and that there are 146,606,000 shares.  If I make the above adjustments I get an EPS of 20.4 cents for YE 30/3/2012.  Likewise for YE 30/3/2013 I get 23.01 cents, and for  YE 30/3/2014, I get 25.54 cents.  This is higher than most brokers calculate.  My basic logic for holding TGA is that the dividend is OK, and growing, and one day these shares will be worth $3 each – not this year nor the next, but within a few years.

I do not believe 11% growth in EPS is unreasonable, considering TGA's track record, and the fact that in the 30/9/11 ending half year report the directors mooted in the outlook statement that, “The company expects a substantial increase in earnings FY12 due to a full year contribution from NCML and solid organic earnings growth from the existing divisions‟.   Also, the average residual term of TGA's rental contracts was reported to have increased from 23 to 27 months – a great deal of new business must have been inked to get a metric like that.  Consequently, I am more bullish than the brokers.  Of course, I could be wrong, but for now I am sitting on my large TGA holdings, and watching the business like a hawk, and looking forward to banking some $16K in fully franked dividends in January.

As an aside, Thorn Equipent Finance could do very well out of any banking crisis that buffets Australia.  At the moment it has a focus on the TABs, but the unit is being rejigged to build up that model, and it could burst out in new directions like financing fit-outs of medical and dental premises to pick up the slack of reluctant banks (I just invented that possibility, so don't read to much into it).  As for the Radio Rentals and Rentlo duo, they will just keep on keeping on, and the plum in the pie is that many of the contracts for household items are paid for monthly via Centrelink's Centrepay facility, which keeps defaults low. 

I think a TGA share should be worth at least 10% of a WOW share, and this is what I picked up from FXArena today (28/11/2011) - “Current consensus EPS estimate is 179.4, implying annual growth of 4.6%.Current consensus DPS estimate is 127.9, implying a prospective dividend yield of 5.3%.Current consensus price target is $ 26.98, suggesting upside of 11.3% (ex-dividends).Current consensus EPS estimate suggests the PER is 13.5.”  When TGA gets to to 10% of that SP, or $2.70, I'll be a happy chappy.
.


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## oldblue (29 November 2011)

You make a good case for TGA, Pioupiou.

It's a stock I like too, although I'm not holding. Good business model and sound performance. But I'd be a bit careful about taking the WOW/TGA thing too far. Very different businesses; huge difference in scale; marked difference in market perception. Bear in mind Buffett's - or was it Charlie Munger's remark? - about the market's ability to remain irrational longer than one's ability to remain solvent - or words to that effect. I'm not suggesting that TGA has any problems in that regard but it's very possible that the market doesn't and won't give it the standing that you do.


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## tinhat (29 November 2011)

oldblue said:


> You make a good case for TGA, Pioupiou.
> 
> Bear in mind Buffett's - or was it Charlie Munger's remark? - about the market's ability to remain irrational longer than one's ability to remain solvent - or words to that effect.




It was Keynes.

http://en.wikiquote.org/wiki/John_Maynard_Keynes


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## Pioupiou (29 November 2011)

oldblue said:


> You make a good case for TGA, Pioupiou.
> 
> It's a stock I like too, although I'm not holding. Good business model and sound performance. But I'd be a bit careful about taking the WOW/TGA thing too far. Very different businesses; huge difference in scale; marked difference in market perception. Bear in mind Buffett's - or was it Charlie Munger's remark? - about the market's ability to remain irrational longer than one's ability to remain solvent - or words to that effect. I'm not suggesting that TGA has any problems in that regard but it's very possible that the market doesn't and won't give it the standing that you do.




I am not a trader, so I am not too bothered about the irrationality of the market - all I want to know is whether the underlying business in which I am heavily invested is sound, and is management share-holder friendly.  In other words, will I be happy three or more years hence?  I write often about TGA, because articulating cases in writing helps me gather my thoughts, and because I am no longer accumulating TGA, nor contemplating selling at current prices, I am happy to share the hours and hours of consideration and research that I devote to TGA.

Of course, if I had the luxury of being a good punter, I would consider market sentiment, and I would have been able to skip out when TGA was north of $2.20, and slipped back when it retraced to $1.50, but I was not that sharp.  For now, I hold.  I have being buying TGA since 2007 (about two dozen individual investments), and my average buy-in price is about $1.15.  I have never sold TGA, although I did try to sell some at $2.30 last year.  I now have 401,000 TGA shares, so on capital appreciation alone, I am well ahead.  I'll not buy any more, and I will sell some one day, but until the SP gets to at least $2.30, I'll banish the notion of selling from my mind, and enjoy the dividend.

Of course, I know the differences between WOW and TGA are not small, but then TGA does not have a peer against which it can be compared, and WOW is a better comparison than most other stocks that spring to mind, because both companies are steady earners in good or bad times.  What makes TGA similar to WOW is the steadiness of income.  In WOW's case it springs from their market dominance and the staple nature of what WOW sells, whereas in TGA's case it springs from the rental model of its business which puts in place contractually committed rental streams.  Also, there is a considerable demographic overlap of customers - typical TGA customers buy their food and drink from WOW, and they have the odd flutter on WOW-owned poker machines (hmmm - maybe TGA could do for WOW, what it does for the TAB - i.e., finance and manage the poker machines).  The point I wanted to make was that TGA is quality-wise on par with WOW, but because it is much smaller (1% the size), it is not as well supported by investors and it is a less liquid stock, and hence it has a lower PER.  I think any SMSF could invest in TGA with a great deal of confidence, as I have done.


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## robusta (29 November 2011)

You make some very good points Pioupiou.

For me I have a small holding in my SMSF and I am hoping to pick up some more if "the baby gets thrown out with the bathwater"  in any future volatility.


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## waimate01 (30 November 2011)

Pioupiou said:


> I now have 401,000 TGA shares...




Wow - in for a penny, in for a pound. You own almost one third of a percent of the entire company. Your holding is about double the average daily volume. That's a high conviction position!


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## Pioupiou (30 November 2011)

waimate01 said:


> Wow - in for a penny, in for a pound. You own almost one third of a percent of the entire company. Your holding is about double the average daily volume. That's a high conviction position!




I would not advise others to have such a high proportion of their net wealth (about 50% in my case) in one stock, and when TGA gets closer to fair value, I'll sell some to spread the risk.

From a gambling perspective within a longish time frame (a year), what is the likelihood of TGA dropping 50 cents to come close to my buy-in price of $1.15, and what is the likelihood of it gaining 50 cents to get to about $2.20?  I would say with a high level of conviction that the former is highly unlikely, and the latter close to being a certainty.  I regard this gamble as being a no-brainer in favour of holding TGA in my case, and buying in for those who hold no TGA shares, or very few.  The dividend to be paid over the next 8 months (January and July) will be about 10 cents (4c +6c), 100% franked, which is a real 14.3 cents, or about 12.6% annualised on an SP of $1.70 - not a bad reward while you wait for your capital gain.

A high-conviction investor can easily end up with too many eggs in one basket, but the other side of the coin is that a large investment in a stock concentrates the mind.  I am gradually moving to own fewer stocks with a higher level of conviction, and ability to watch them like a hawk.  Two years ago I had about 31 stocks, perhaps more, and now I have 21, and I plan to pare this number to about 15 in the next twelve months.  TGA has been the best performer.


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## oldblue (1 December 2011)

It seems to me that there is a fine line between "high conviction" and "falling in love with a stock" with the potential dangers inherent in the latter condition!

Good to see that you are well aware of this risk but personally I wouldn't be risking 50% of my portfolio, let alone 50% of my net worth! in one stock, however convinced I was as to its merit.


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## oldblue (13 December 2011)

TGA is looking increasingly attractive to me but I admit to a few qualms regarding their recent foray into debt collection (NCML) and the increased emphasis on unsecured lending via Cashfirst where receivables have doubled in the space of 12 months. These are still comparatively small operations  and I realise that TGA have considerable experience in these areas from their core leasing business, but I wouldn't want to see the finance/collection segment become too large a part of the total business in a quest for continued company growth.

Reassurance and/or comments would be appreciated.

Disc: Not yet holding.


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## Huskar (13 December 2011)

oldblue said:


> TGA is looking increasingly attractive to me but I admit to a few qualms regarding their recent foray into debt collection (NCML) and the increased emphasis on unsecured lending via Cashfirst where receivables have doubled in the space of 12 months. These are still comparatively small operations  and I realise that TGA have considerable experience in these areas from their core leasing business, but I wouldn't want to see the finance/collection segment become too large a part of the total business in a quest for continued company growth.
> 
> Reassurance and/or comments would be appreciated.
> 
> Disc: Not yet holding.




I also have some qualms about their diversification strategy (or is it in fact a focusing of their expertise?..). It means capex requirements are very large ($54m in FY11 on my calculation) and so growth is only possible via debt or equity. So shares had to be issued during FY11 to reduce bank debt. I also would like to see a larger insider presence on the registry. The MD owns ~2.5% of capital but this position largely seems to have been acquired by the issuance of performance options.

On the flipside of course their rental business is a really good business.

Disc: not yet holding.


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## McLovin (13 December 2011)

Huskar said:


> I also have some qualms about their diversification strategy (or is it in fact a focusing of their expertise?..). It means capex requirements are very large ($54m in FY11 on my calculation) and so growth is only possible via debt or equity. So shares had to be issued during FY11 to reduce bank debt. I also would like to see a larger insider presence on the registry. The MD owns ~2.5% of capital but this position largely seems to have been acquired by the issuance of performance options.
> 
> On the flipside of course their rental business is a really good business.
> 
> Disc: not yet holding.




How did you calculate CAPEX at $54m? The biggest cash flow item is from the acquisition of rental assets. But this isn't really "CAPEX" in that they only need to buy the item once they have rented it. To oversimplify it, it's like buying a bond. The term and coupon are known from the start.


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## Huskar (14 December 2011)

McLovin said:


> How did you calculate CAPEX at $54m? The biggest cash flow item is from the acquisition of rental assets. But this isn't really "CAPEX" in that they only need to buy the item once they have rented it. To oversimplify it, it's like buying a bond. The term and coupon are known from the start.




Page 35 n 2 of FY11 report gives capital expenditure as $54.4m.

What you are saying makes sense though: a one-off cash flow (payment for the good) is exchanged for a series of future cash flows (lease payments). This gives earnings a high degree of visibility, so $80m in operating and finance lease income is due in FY12 (n23 & 24) (right?). 

On the other hand TGA has to make this investment in order to continue to generate revenue. This "CapEx figure" has been steady at 33% of revenue over the last 4 years and 80%-90% of operating cash flow. Would that be because this is the level management thinks it is prudent to grow?


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## McLovin (14 December 2011)

Huskar said:


> What you are saying makes sense though: a one-off cash flow (payment for the good) is exchanged for a series of future cash flows (lease payments). This gives earnings a high degree of visibility, so $80m in operating and finance lease income is due in FY12 (n23 & 24) (right?).




Right.



Huskar said:


> On the other hand TGA has to make this investment in order to continue to generate revenue. This "CapEx figure" has been steady at 33% of revenue over the last 4 years and 80%-90% of operating cash flow. Would that be because this is the level management thinks it is prudent to grow?




Sure but in some way this goes back to how you view the "investment". I prefer to see it as a cost of doing business (or even customer acquisition costs if you want to be more abstract). The investment is only made when a customer agrees to a rental/finance arrangement. If the company is able to deploy funds into increasing its rental base then I'm happy for it to do so, if growth slows then the annuity stream should continue to payout over the medium term (as you said it provides visibility). The difference is about the nature of the cash flow. Capital intensive (ie high CAPEX) companies tend to have high fixed costs, TGA doesn't.


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## oldblue (15 December 2011)

Does anyone have experience of TGA from a customer's perspective?

My own experience is very limited and not typical but I recently hired an "extra" fridge for the duration of the Christmas season. Discovered that this couldn't be done over the phone - although I'm sure I did last year! - but required a visit to the shop. Paperwork seemed cumbersome and excessive despite paying in advance by credit card. I realise that a lot of their business is conducted with higher credit risk customers so this is probably unavoidable.

The good news, from a shareholder's point of view, is that the cost has increased *25%* since last year!

Disc: Must hurry up and buy some!


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## Pioupiou (15 December 2011)

To conduces more rigorous thinking than occurs when I swirl things in my head, I wrote a blurb on TGA for myself, which I pasted into this thread yesterday, but it did not get posted, so I'll try again.

I think it was a comment from "oldblue" that made me  look at TGA again - just to ensure that I did not have a neurological block that disallowed reality to spoil my rose-coloured perspective.  As for holding too many TGAs - well I am like a crayfisherman who is doing rather nicely out of his licensed crayfish pots, and who is not too troubled by his reliance on that one investment.  I'll sell some TGA in 2012, but not now at today's low SP.

I had never used NPV to guesstimate a fair-value SP for a stock, so I tried it on TGA, and to do so I needed a string of dividends, which implies inventing an EPS growth scenario, and assuming dividends would be half of that.  Some of the underlying qualitative and quantitative facts follow.

TGA's competence is managing creditors, especially the cash and credit constrained subset of Australian households – 1 million of them, of whom TGA has 100,000 as customers.  

TGA has a healthy balance sheet, is debt averse, and except for the NCML acquisition, has self funded admirable growth since its ASX listing on 13/12/2006.  NCML has disappointed management, and I think they will not go down that path again unless the case is compelling.  Not surprisingly, TGA performed better than expected in the collection of money pertaining to the NCML business, but the loss of the ATO business, and TGA's difficulty in buying debt at viable prices is disappointing  – to use TGA's words,  “PDLs declined due to a lack of purchases in the 1st half and strong collections performance on the existing portfolio”.  TGA uses “PDL” to mean Purchasing of Debt Ledgers – not Pay Day Loans, which is not the market targeted by TGA's CashFirst.

TGA's management is normally cautious, and new initiatives like CashFirst, One Person Branches (OPBs), shopping mall kiosks and Lifestyle outlets (serviced via storage depots in low-rent premises) were first tested, then progressively rolled out when they performed well, and as all the above are new, there is a great deal of roll-out still to take place.  If things do not pan out well, TGA retreats – witness the sale of the Big Brown Box business.  If NCML continues to disappoint, TGA will sell it, and take the one-off loss on the chin.  The loss of the ATO business on price, and being outbid for PDLs suggests to me that the debt factoring business may not be a good place in which to be, but there could be a holistic synergy there that saves NCML from the chopping block.  Do not exaggerate the significance of NCML, it is small relative to the whole.

TGA used to finance equipment bought by SMEs, but the venture capitalists who owned the business before the IPO sold that to get cash.  Many small financiers like Beneficial Finance who used to compete with TGA in those days have been taken over, and the big boys (mainly banks) are not interested in sub-$100K loans, which is where TGA wants to be.  If a large-loan opportunity falls into TGA's lap, it will handball it to a bank for a commission.  This business will use one or two people to forge links with equipment vendors, whose sales force will flick financing deals to TGA Equipment Finance.  Expanding Thorn Equipment Finance is business as usual that raises no concerns for me.  It will add profit to the bottom line – probably not huge, but due to low fixed cost, it will be high margin business.

TGA is negotiating with a major Chinese manufacturer who wants to offer product to Australia on a rental basis, and because TGA's expertise is customer-creditor management, and it has that sausage machine established, the Chinese firm is considering outsourcing the customer-creditor management to TGA.  The deal on the table does not require TGA funding for items rented, because the Chinese firm is cashed up.  I think the product range is solar panels.  If this deal comes to pass or not, to boost profit growth, TGA will look for opportunities to extract more value from its core competence and strong financial position.

Let us look at the 75-year-old household equipment rental business.  There are about 8.5 million households in Australia, and Woolworths (WOW) sells to them all, whereas TGA has 100,000 customers, which tells me that TGA has more growth potential than WOW.  I am invested in WOW, and hence I can justify investing in TGA with greater confidence, and with a bigger likelihood of a significant upside surprise.

A Lifeline report that I read said that 14.1% of Australian households classified themselves as financially stressed.  The same report stated that 28% of households were financially unfit, so the 14.1% is a conservative number, and 14.1% of 8.5 million gives us over 1 million as a TGA customer demographic, and hence TGA could continue to grow as it finds ways to tap into that demographic.  The recent Interim Report states that TGA grew its customers by 4%, and its profit by 5%.   TGA has leeway to reach more people by expanding its OPBs, shopping mall kiosks and lifestyle outlets (two or more can be serviced via a common warehouse), and by adding suitable products to its range (dining room and lounge sets have been outstandingly successful recently – items that are included in Centrelink's list of products that can be paid for via the Centrecard facility).  I wish WOW would buy out TGA, then TGA could have hundreds of kiosks, and both my WOW and TGA holdings would benefit!

I think that TGA can grow its EPS, and hence its dividend, by somewhere between 5% and 15%.   Look at the history below, and decide for yourself.  Because I have the metrics, I provide the EPS for WOW too.  TGA's 2007 EPS has been adjusted to account for the IPO share issue.  The 2012 EPS has been extrapolated from the 30/9/2011 figures, with NCML-related adjustments to recognise the loss of the ATO business and the one-off nature of some expenses recorded in H1 – e.g., interest obviated by the recent capital raising.    

- - - - - - - - - - - - 2007 - - - - 2008 - - - - 2009 - - - - 2010 - - - - 2011 - - - - 2012
WOW – EPS - - - 107.8 - - - - 133.5 - - -- 149.7 - - -- 163.2 - -- - 171.5
increase - - -- - - - - - - - -- 23.84% - -- 12.13% - - - 9.02% - - - 5.09%

TGA – EPS - - - - - 5.05 - - - - - 8.3 - - - - - 9.4 - - - -- 14.9 - - -- - 16.7 - -- - 20.35
increase - - - - - - - - - - - - 62.75% - - 35.00% - - - 58.51% - - 12.08% - - - 21.86%

If growth is assumed to be 15% for  YE 30/3/2013, and the growth decays by a factor of .95 each subsequent year until it stabilises at 5%, the NPV for that dividend stream is $3.90 according to my spreadsheet.  If I start with 10%, I get $2.55.  If I assume only 5% growth, I get about $2.00.   If I use an RR of 12%, my NPV numbers change to $2.64, $1.80 and $1.40 respectively.

For my calculations of the NPV of the dividend stream, I assumed 10% growth in 2013, corroding by a factor of .95 until it plateaus at 5%.  I used an RR of 10%, and the NPV worked out as $2.55.  The figures are below, where the final $2.55 is the sum of the NPVs of the dividends for the individual periods when growth varied ($1.237), plus the NPV for subsequent years when growth has stabilised at the assumed 5%:

Year - EPS growth - Dividend - NPV Div - Cumulative NPV - - Final NPV
2012 - - 10.00% - - - $0.102 - - $0.093 - - - - - $0.093
2013 - - - 9.50% - - - $0.112 - - $0.093 - - - - - $0.185
2014 - - - 9.03% - - - $0.123 - - $0.092 - - - - - $0.277
BLAH BLAH BLAH
2025 - - - 5.13% - - - $0.260 - - $0.068 - - - - - $1.172
2026 - - - 5.00% - - - $0.273 - - $0.065 - - - - - $1.237 - - - - - - $2.545

These are just numbers based on assumptions, not a set of realities.  Also, my spreadsheet might be flawed.  Each investor, or potential investor, in TGA will have their own assumptions and calculations.  If the fair-value SP is not worth $2, however one guesstimates it, I would question the underlying metrics.  What the market will do in these choppy times is anybody's guess, and to a degree I do not care in the short term, because I am neither in the market to buy nor to sell right now, and I will enjoy the interim dividend in January.  If the SP approaches fair value, I'll sell some simply to diversify, because I hold far too many TGA shares.


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## Pioupiou (15 December 2011)

Further to my post today, I forgot to cover two matters pertaining to growth (TGA's economic moat, and the bullish management communications).

The term economic moat, coined by Warren Buffet, refers to a firm's ability to maintain competitive advantages to protect its long-term profits and market share.  In TGA's case, there are two moats, both passable, but working in tandem sufficient to retard competition.  One is the funding required to be in the rental and financing business, and the other is the unattractive nature of TGA's core competence, debt collecting.  What person with a trove of cash would want to embrace the odium of being a debt collector?

TGA's management are not in the habit of exaggerating TGA's prospects, so one can attach a great deal to TGA's formal communications – for example, in a recent communication (see an extract below), note the  the word “substantial” in relation to FE 30/3/2012 growth, and there is no basis to presume this is going to be a 1-year wonder:

Group

●  Strong core business plus development opportunities 
●  Substantial recurring revenue streams generating significant operating cash

By Division

●  Resilient rental business with opportunity to develop further geographically 
●  Continue to evolve and expand Cashfirst offerings 
●  Growing Equipment Finance operation 
●  Increased business development and marketing focus in NCML 

Outlook: 

The company expects a substantial increase in earnings FY12 due to a full year contribution from NCML and solid organic earnings growth from the existing divisions.


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## oldblue (16 December 2011)

With a 30% increase in first half NPAT it seems to me that the "substantial" growth is already pretty well in the bag, barring some unforeseen circumstances.

Disc: Now a modest holder of TGA.


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## Pioupiou (17 December 2011)

oldblue said:


> With a 30% increase in first half NPAT it seems to me that the "substantial" growth is already pretty well in the bag, barring some unforeseen circumstances.
> 
> Disc: Now a modest holder of TGA.




Actually, I was thinking longer term than YE 30/3/2012, because to do my NPV calculations I needed some basis to invent an EPS growth factor.  In that respect, consider the four dot points:

● Resilient rental business with opportunity to develop further geographically 
● Continue to evolve and expand Cashfirst offerings 
● Growing Equipment Finance operation 
● Increased business development and marketing focus in NCML

Rental (Radio Rentals and Rentlo)

The roll-out of One Person Branches has just emerged from Stage 2 (the roll-out of 4 more after the initial trialing of 1).  Another 5 are slated to be rolled out quickly, and then one presumes more will follow.  From memory, the original marketing plan was based on putting outlets in smaller towns that had an economic pull on surrounding smaller population centres that fell within the ambit of a localised TV broadcasting range.  Likewise, the shopping mall kiosks and the lifestyle outlets (more than one served by a common low-rent delivery depot) are new initiatives that are earmarked to grow.

The dot point does not mention new product lines, but the run-away success of lounge and dining room sets suggests that TGA has broken the constraint of relying on "equipment".  You can be sure that they will expand the product range to sell more to the target demographic. 

CashFirst

This will grow as TGA feels more comfortable with the metrics of the unsecured loan business, and increases advertising nationally.  The advertising deal TGA has negotiated is tied to results, so provided the advertising partner agrees, TGA can ramp up advertising with impunity.

Thorn Equipment Finance

The rebirthing of this line of business is hardly past parturition, so it has a way to go yet.

NCML

I am unconvinced that the debt factoring business has legs, so I do not look there for future years' growth beyond what is already locked in.  However, some of the substructure of that business, the debt collecting staff and systems, could be put to other purposes, as is now under consideration with a Chinese manufacturer thinking of outsourcing its customer-creditor management to TGA.

At the end of the day, to derive a fair-value SP, what EPS growth can we assume for the future?  When you have that, subjective as it is, then you can postulate what the fair-value SP is.  Personally, I think we are going to be astounded on the upside in respect to TGA's performance in coming years.  Do not take my opinion on the matter - think about it.

About two years ago I gave up small investments, because I found that if I only invested a few thousand dollars, I would not expend the effort and time researching, so these days, to force myself to read and digest the annual reports and other relevant material, I would not get into an investment of less than $30K.  If you like a company, and you have done your research, go for broke.  Take the opinion of others, mine included, with a pinch of salt.  Also, the metrics one finds in various broker reports is often wrong, or misleading - one must dig a bit deeper, which is hardly worth the bother for a minor investment.


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## oldblue (19 December 2011)

> At the end of the day, to derive a fair-value SP, what EPS growth can we assume for the future?




I appreciate your posts on TGA, Pioupiou, much more deply analytical than anything that I attempt. I get a bit worried though when you speak of future EPS growth - too reminiscent of the multitude of brokers analysts' reports that I've read over many years which invariably attempt to "calculate" future  earnings growth and which almost always prove to be wide of the mark. Not their fault but the external environment has this nasty habit of upsetting our affairs and rubbishing our  forecasts.

Personally, I prefer to focus on the near term and keep an eye on the TA story which usually gives a clue to a company's current performance and prospects.


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## Pioupiou (19 December 2011)

Financial Analysis (FA) is a subjective approach – the individual inernalises the facts to arrive at a fair-value SP (or intrinsic value), and it requires long-term assumtions, which, of course, are never 100% accurate.  This is why I like to detail the facts to give insight to my internalising.  Technical Analysis (TA) is empathetic – the individual guesstimates how others are going to act in the stock market in the short term, so one does not have to hazard long-term guestimates.

There is always a disjoin between FA and TA share price valuations, and this may occur more in respect to TGA than other shares.  This is because TGA's focus is on the cash and credit constrained demographic, which increases in bad times, and because TGA's streams of income and cash act as a buffer for revenue, profit and cashflow.  Consequently, FA should tell us that the current doom and gloom stories and the woes confronting discretionary retailers should help TGA's business.  However, TA tells us that investors will panic, and those wanting to buy will hold back, while many invested in TGA will want to sell.

Combining FA and TA is probably the optimal path, and my FA views, regarded with healthy scepticism and reworked to suit your views, might help you to get to that optimum – that is, accumulate a fundamentally good share at cheap prices, and sell them if you think you can buy in later at a cheaper price.  I wish I had sold when I could easily have exited at $2.20, and come back in again at about $1.60

On the matter of thinking long term, FA requires long-term guestimates and a risk-adjusted required rate of return (RR) - even if not stated, they lurk in the background.  Consider the approach of applying a PER of 10 to the EPS to guestimate a fair-value SP.  Folk who use a PER-of-10 approach expect an EPS many years down the track, and the target PER is in fact the reciprocal of the RR, adjusted for risk and growth.  ROE-based share valuation techniques tend to  give point-of-time “intrinsic values”, which are only useful if one extrapolates a string of them into the future, and so one has to make guesstimates of what the ROE and the Equity Per Share are going to be in future. The most rigorous FA technique is NPV of expected dividends, which requires one to assume dividends far into the future, and to select an RR.  These assumptions are never correct, but guesstimates are better than nothing, and they can be revisited, and continually altered.

As for brokers and the like getting things wrong – everybody gets forecasts wrong, except some do so more often than others.  The fair-value SPs mooted are often black-box valuations, because the underlying metrics and the algorithms used are hidden, and further, they may use metrics provided by Morningstar via various channels like Comsec, and these metrics can be misleading.  For instance, debt levels may refer to a date when there was a particular reason for an atypical level of debt – historical EPS numbers may refer to a situation when the number of shares was vastly different – sales metrics are misleading if the firm has a high level of operational leases – comparison with other firms in the sector may be spurious if the firm has unique characteristics (e.g., operational leases whose revenue recognition is spread over time).  These four examples are true in TGA's case, and this has given rise to distortions of opinions given about TGA.  Also, some metrics that are relevant are not provided by Morningstar – in TGA's case, the average months of outstanding contracts is a highly relevant metric, in my opinion.

Further, there are various algorithms used to calculate fair-value SPs.  Some of these have limitations – for example, a popular formula for calculating the NPV of a dividend that grows by a constant rate in perpetuity is the initial dividend divided by (RR less growth).  If growth were equal to RR, the divisor would be zero, and the NPV would be infinity, which is silly, and if growth were greater than the RR, the NPV calculated is a negative number, which is absurd.  Some ROE based algorithms overvalue companies that inherently require little capital – e.g., financial advisers, because the wunderkinder with the Midas touch in such firms could leave, and the wellspring of those seductive performance metrics would evaporate, particularly if the wunderkinder cherry-pick the best staff and high-value customers, and start competitive firms.   One could adjust the RR for this risk, but as most fair-value SPs mooted emanate from black-box valuations, you will not know if this risk has been factored into the RR used, or not.

If all that was required to select shares well was access to Morningstar's metrics and a few popular fair-value-SP algorithms, we would all be wealthy.

I have just looked at today's trading, and as TA may have alerted one to (because of investor reaction to gloom in Europe and bad news for many retailers), TGA's SP fell 3 cents, whereas FA tells us that TGA will keep its stellar trajectory of share-related metrics.  Also, I noticed that since 6/12/2011, Investors Mutual Limited has bought 1,899,700 TGA shares to reach 9,538,833, or 6.53% of the total, so I am not alone in the view that TGA is worth having.   I am sorry to carp on about TGA, but it is the only stock of the 21 that I hold where I think I have insights worth sharing, particularly because TGA has characteristics that are unusual, and therefore often misunderstood, and I hold so many that it justifies my snooping and thinking time.


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## Pioupiou (23 December 2011)

There is a good blurb on Thorn Group Australia (TGA) written by Dean Morel who selects one stock each month, pens his thoughts, which is reviewed by his peers at Motely Fool.  TGA is his January 2012 pick.

You can see part of Dean's recommendation at http://www.fool.com.au/2011/11/investing/thorn-group-limited-a-classic-stock-for-a-tough-economy/

By request, you can get the full article.   Dean does not explain his logic, but he suggests TGA's intrinsic value (IV) is $2.40, which is within the range that I think is reasonable, but higher than others think, who also do not explain how they arrive at their IVs, or fair-value SPs, or whatever they call them.

As for the current SP below $1.60 - some investors equate TGA with TRS, JBH, Billabong, Kathmandu, DJS, Hervey Norman, Myers, so they want out, and traders who use TA techniques notice the trend, and exacerbate it - all of which has nothing to do with TGA as a business, and hence its IV.


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## oldblue (24 December 2011)

Thanks for that, Pioupiou.

A fair bit of current SP "weakness" relates to TGA going ex 4cps div, and of course the whole market is fairly wobbly. No reason to sell but equally no rush to buy any more just yet. I'll wait for signs of a trend change before adding to my modest holding.


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## oldblue (2 February 2012)

I doubt that it means much but IOOF has become a substantial holder in TGA with a holding of a fraction over 5%.

http://asx.com.au/asxpdf/20120202/pdf/424406f44kr0vy.pdf


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## Pioupiou (5 February 2012)

IOOF now holding about 5% does not tell us anything significant.  In 2010 IOOF held about 10%.  IOOF was one of the brave instos that was prepared to invest in a small company with a limited ASX history, and as TGA ticks off the years, more instos will be prepared to consider TGA, and this, plus the fact that TGA is now in the ASX top-300, should help to bring the SP closer to fair value because of increased insto interest.

The current year ending 30/3/2012 completes five full years of ASX history, and so I expect the SP to dribble upward over time, and in the meantime shareholders can enjoy the dividends, which have risen year on year. 

In the four-plus years that I have been watching TGA, and read scores of opinions on TGA, I have never read a cogent case advocating selling TGA for fundamental reasons.  That TGA is listed in the Retail Sector is not a fundamental reason, and neither are shareholders' shortage of cash, or that they know a better investment, or expecting the SP might fall for reasons of negative sentiment.  They are, I agree, valid reasons to sell, but not what I mean by "fundamental reasons" for selling TGA if one has them in a balanced portfolio.


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## Garpal Gumnut (5 February 2012)

Pioupiou said:


> IOOF now holding about 5% does not tell us anything significant.  In 2010 IOOF held about 10%.  IOOF was one of the brave instos that was prepared to invest in a small company with a limited ASX history, and as TGA ticks off the years, more instos will be prepared to consider TGA, and this, plus the fact that TGA is now in the ASX top-300, should help to bring the SP closer to fair value because of increased insto interest.
> 
> The current year ending 30/3/2012 completes five full years of ASX history, and so I expect the SP to dribble upward over time, and in the meantime shareholders can enjoy the dividends, which have risen year on year.
> 
> In the four-plus years that I have been watching TGA, and read scores of opinions on TGA, I have never read a cogent case advocating selling TGA for fundamental reasons.  That TGA is listed in the Retail Sector is not a fundamental reason, and neither are shareholders' shortage of cash, or that they know a better investment, or expecting the SP might fall for reasons of negative sentiment.  They are, I agree, valid reasons to sell, but not what I mean by "fundamental reasons" for selling TGA if one has them in a balanced portfolio.




Thanks Pioupiou,

I've been reading your fundamental analysis for some time and thanks.

Technically over the last 4 months TGA has been in a range between about $1.55 and $1.78. I'm waiting for some increase in volume and a move up to jump on board.

It had retraced to last year's August lows, 50% from the low in 2010 and 38.2% from the low in 2009.

These are significant for technicians.

This is just to let you know that technically it may be due for a run up.

I rearrange my Super portfolio after every Chinese New Year, and I noticed TGA on my charts today and it was serendipity that you posted.

Best wishes for you and TGA.

gg


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## Pioupiou (6 February 2012)

Garpal Gumnut - today I read a good fundamental analysis of TGA at http://edgeseven.com.au/?p=172

Another pro-TGA analysis that I read recently is at http://www.fool.com.au/2011/10/best-asx-shares-and-stocks/top-radar-stocks/no-thorn-in-my-side/

TGA's year-end is 30/3/12, so we should get a profit guidance announcement in coming weeks, or failing that, the EOY reports circa late April.  These should provide an SP fillip, even if they report nothing more than a TGA watcher could guess.


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## silence (7 February 2012)

Whoa, a sudden spike upwards today in a relatively flat market. Commsec isn't showing me any news.

Is this just the expectation of a interest rate cut?

(I hold)


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## skc (7 February 2012)

silence said:


> Whoa, a sudden spike upwards today in a relatively flat market. Commsec isn't showing me any news.
> 
> Is this just the expectation of a interest rate cut?
> 
> (I hold)




It's been lagging behind its peers like CCP and TSM so it's due for a catch up.

IT's broken out of a really tight range between $1.60 and $1.64, and arguably broken above the downward sloping trendline as well. First resistance at $1.80.


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## Pioupiou (7 February 2012)

silence said:


> Whoa, a sudden spike upwards today in a relatively flat market. Commsec isn't showing me any news.
> 
> Is this just the expectation of a interest rate cut?
> 
> (I hold)




TGA is not a business that is much impacted by interest rate movements.  It has virtually no debt, and its target demographic tend to have no mortgages.  In my view TGA is such a bargain at the current SP, that the wonder is that the SP did not increase earlier, and why it is below $2.00 - read  http://www.fool.com.au/2011/10/best-asx-shares-and-stocks/top-radar-stocks/no-thorn-in-my-side/ and at http://edgeseven.com.au/?p=172.


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## McLovin (7 February 2012)

Pioupiou said:


> TGA is not a business that is much impacted by interest rate movements.  It has virtually no debt, and its target demographic tend to have no mortgages.  In my view TGA is such a bargain at the current SP, that the wonder is that the SP did not increase earlier, and why it is below $2.00 - read  http://www.fool.com.au/2011/10/best-asx-shares-and-stocks/top-radar-stocks/no-thorn-in-my-side/ and at http://edgeseven.com.au/?p=172.




I would have thought an interest rate hike would be good for TGA. A growing portion of their customers are first home owners who are in mortgage stress and can't afford to buy a flat panel TV.


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## oldblue (7 February 2012)

Pioupiou said:


> TGA is not a business that is much impacted by interest rate movements.  It has virtually no debt, and its target demographic tend to have no mortgages.  In my view TGA is such a bargain at the current SP, that the wonder is that the SP did not increase earlier, and why it is below $2.00 - read  http://www.fool.com.au/2011/10/best-asx-shares-and-stocks/top-radar-stocks/no-thorn-in-my-side/ and at http://edgeseven.com.au/?p=172.




A bit of a hard sell there, Pioupiou. That's twice in two days you've drawn our attention to those favourable reviews!

Not that I should complain - I'm a holder (modest number) too, but I don't think that the TGA story needs much boosting.


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## Pioupiou (7 February 2012)

I was tempted to list all the TGA reviews that I have read and shared with forum members over the last year, but being lazy, I merely pasted the two recent ones, because I knew where I had stored them.  I would quickly point readers to any negative review of TGA, except I have never found one, in spite of being always on the lookout.  I have also on many occasions in this and other forums asked those selling reasonably-sized TGA holdings to put forward their reasons for selling, and thus far not one person has done so.

Actually, I am relatively indifferent to SP changes.  I am a buy-and-hold investor, so even if TGA's SP jumps 30 cents this week, it will mean little to me, because I'll neither buy nor sell.  If it jumps another 30 cents I might sell 5% to 10% of what I hold to settle a few debts.  If it jumps yet another 30 cents, I'll be tempted to sell a fair swag of my TGA holdings, and use the money to have a safer investment spread. 

On the matter of the rate of interest not impacting TGA's customers, because most of them have no mortgages - this is something I recall reading in one or more TGA announcements, or third-party reviews, but it would take too much effort to locate the source, so I'll not try.  Obviously, there must be TGA customers who are mortgagors, and some of these may be tempted not to enter new rental commitments if their mortgage payments increase, and some will do the opposite because being more cash constrained than before, they cannot get items that they want via the usual retail market.  Those already committed to TGA will substantially continue making their committed payments.  On balance, TGA is fairly immune to the affects of interest rate movements, and other price movements that affect some companies, and this relative immunity to economic vicissitudes is one of the reasons that makes TGA such an attractive investment.


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## Pioupiou (15 February 2012)

It was Perpetual who sold two million shares recently.  

PMWSCS TGA - 1,682,023 - 2,909,900 $1.73 13/02/2012
PIMEDA - TGA - - 317,977 - - 550,100 $1.73 13/02/2012

The SP has wobbled upward since then.  Today I read a 13/3/12 dated blurb by Dean Morel of Motley Fool wherein he restated his earlier support for TGA.  There is nothing novel in the points that he made - good this, good that and a few more ticks in the right boxes.  If any readers of this thread have a bearish view of TGA, it would make for interesting reading.


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## JTLP (29 February 2012)

So TGA has taken a battering recently - looks like IFL are selling out.

I missed the boat last time squabbling over a few cents last time and would like to be in on this soon...all of course pending the rest of the world! Thanks ROE for the cents advice...

Growth in NPAT/Revenue and a cap raising of $30M so looks like bases are covered. Thoughts?


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## Pioupiou (1 March 2012)

I wrote a longish blurb in reply to JTLP, but it got lost in the ether.  In a nutshell I wrote that instos like IOOF and Perpetual are not very good at investing, as their SPs of 1/3/2011 compared to today, 1/3/2012, will show, and that I generally ignore their buying and selling.  However, as TGA typically turns over about $600K a day, the instos selling hundreds of thousands of shares will push the SP down.

Various valuations put TGA at between $1.90 and $2.50, so at today's price they are a steal.  I so convinced myself of this that I have just bought 10,000 at $1.61.  I now hold 420,000 of them.  I will sell some this calendar year, but maybe only 10%, and then not below $2.00.

TGA's year ends 30/3/2012, so let us see what happens over the next three months - that is, between now and when the annual report should be available for scrutiny.


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## Ves (17 March 2012)

Macquarie downgraded earnings forecasts in 2013 for Thorn during the week, which probably helps explain some of the negative price action.

They believe that the acceleration of disconnections will have more of an impact on earnings growth over this period due to the slowing growth of new connections in the Radio Rentals business. 

This is probably to be expected after a period of enormous growth in new connections in the past few years (they usually have a 27-month period before they mature), and I believe the fact that they convert 40% of these into long-term recurring revenue streams positions the company well for growth in the next decade.

Link here:

http://www.macquarie.com.au/dafiles...retail-newsletter/docs/2012-03/TGA150312e.pdf

I hope it works.


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## Pioupiou (17 March 2012)

Thanks for that link - I have been looking for a negative view on TGA for a long time to counter my bullish view on TGA.  As we are about two months away from being able to read the annual report for YE 30/03/2012, I'll not now concur with Macquarrie, or attempt to postulate why things may turn out to be better than what Macquarrie moots.  I plan to write a major review of TGA when the latest metrics and forward management views of TGA become known about two months hence.

I agree that buying NCML probably was a mistake.

On declining revenue/installations, I personally do not believe that TGA need rely on PCs and flat screens to make or break the company.  An inventive management could come up with suitable product lines hitherto not offered.  If management fail in this respect, then the Macquarrie prognosis could eventuate.

On the swing away from financial leases to operating leases - yes this will effect short-term profits because of revenue recognition principles, but over the medium term, operating leases are better for TGA.  Although this shift to operating leases will negatively affect the SP, in an all-understanding world it should not.

If TGA supplies goods that cost $1500 to somebody for $2,500, plus $500 in interest payments over three years - that is, $3,000 spread over three years - then TGA would record a sale of $2,500 and a profit of $1,000 immediately, and the interest received of $500 would be recorded over the following 36 months.  Under an operational lease using the same metrics, the $3,000 rental revenue would be recognised over 36 months, and hence the accounting treatment delays the revenue recognition and profit recognition, whereas in reality the same monthly cash dribbles into TGA each month for a common up-front cost.  Operating leases at least mean that ownership of the goods has not left TGA, and hence it can repossess the goods on default.  Accounting is a rubbery art, and we do not live in an all-understanding world.


----------



## Nutmeg (29 March 2012)

Pioupiou said:


> About two years ago I gave up small investments, because I found that if I only invested a few thousand dollars, I would not expend the effort and time researching, so these days, to force myself to read and digest the annual reports and other relevant material, I would not get into an investment of less than $30K.  If you like a company, and you have done your research, go for broke.  Take the opinion of others, mine included, with a pinch of salt.  Also, the metrics one finds in various broker reports is often wrong, or misleading - one must dig a bit deeper, which is hardly worth the bother for a minor investment.




I totally agree with you.  Buffett has said somewhere: why invest in one's seventh or eighth most preferred investment candidate where one has the choice to invest in the most preferred.  It makes no sense if you've done the research.


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## oldblue (30 March 2012)

That depends entirely on the quality of the research and an assumption that all relevant information is available to the researcher! We don't all have the abilities or research resources of a Warren Buffett!

For the average investor, diversification across a modest number of stocks still makes a lot of sense, IMO.

Disc: Holding a few TGA.


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## ROE (30 March 2012)

oldblue said:


> That depends entirely on the quality of the research and an assumption that all relevant information is available to the researcher! We don't all have the abilities or research resources of a Warren Buffett!
> 
> For the average investor, diversification across a modest number of stocks still makes a lot of sense, IMO.
> 
> Disc: Holding a few TGA.




+1

Agree a portfolio of quality 15-20 stocks will do pretty good for most people
If I was to run the business I would put more money into my business
but you taking about stocks here and someone else is in control

you can not rule out fraud, mismanagement and various other issues that 
a stock holder may face...it is extremely risky to put all your money into one
or two stocks...

Dont copy what other people do, do what is right for you and your risk..
do copy good principles


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## odds-on (30 March 2012)

ROE said:


> +1
> 
> Agree a portfolio of quality 15-20 stocks will do pretty good for most people
> If I was to run the business I would put more money into my business
> ...




Sort of agree. I think the level of diversification in a stock portfolio is down to two factors:-

1. Percentage of total net worth invested in stocks
2. Valuation competence.

If 80% of your net worth is in your home and cash, then putting 20% of your net worth into a couple of stocks which you actively manage is probably not that risky.

Never really understood how people manage to juggle to having a job, family, investment property portfolio, hobbies and then manage of a portfolio of 20+stocks. A ball is going to be dropped somewhere. Where is the correct focus?

Back to TGA, I have greatly appreciated the detailed analysis by some of the posters on this thread and am looking forward to the results announcement.

Cheers

Oddson


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## Pioupiou (30 March 2012)

ROE said:


> +1
> 
> Agree a portfolio of quality 15-20 stocks will do pretty good for most people
> If I was to run the business I would put more money into my business
> ...




Yep - I'll go along with the gist of that sentiment.

On the matter of too many eggs in one basket, TGA represents some 23% of my SMSF investments, and I would like to reduce that to no greater than 20%.  There are 20 ASX-listed equities there, plus six managed funds.  I have a smaller in value, 7-stock personal portfolio where I am more reckless, and TGA represents 62% of that portfolio.  I'll reduce the latter percentage when TGA's SP gets closer to what I consider fair value.  Today is TGA's EOY, and as soon as I get the Annual Report in late May, I'll revisit my analysis of it, which will include a target SP at which I would sell some TGA to de-risk my total portfolio.   I suspect my fair-value SP  will be something like $2.50 to $2.60, and my sell-a-few SP might be about $2.30.  The sell-a-few SP is the price at which I may be tempted to part with 10% of my TGA holding to simplify my finances.   My average buying-price is $1.17, with the highest price paid being $2.03 and the lowest being $0.55.

The Morning Star revenue and sales metrics for YE 30/03/2011 have been too low, and these seem to have been rectified in recent weeks.  Many brokers and others who have opined a target SP for TGA have been working off these wrong metrics, and in some cases using metrics that although not wrong are misleading (mainly the 2007 EPS and the 30/03/2011 debt/equity ratio).  The combination of these two sets of metrics has been to detract from the fair-value SPs that have been mooted.  I will not delve into this now, because in less than two months we will have the YE 30/03/2012 numbers to analyse.  I think the sub-$1.60 brigade have about exhausted themselves, so barring a black-swan event, I expect a more positive SP climb in coming months, and a fillip when the numbers for YE 30/03/2012 are announced

On the matter of management being less than honest, in about 2008, CXG (Coote Industrial Group – now EGN) announced a stellar profit rise, which was trumpeted in the press, and I patted myself on the back for buying in at about $1.16 as the SP shot north of that.  CXG's balance sheet looked liquid, with a high current payables metric.

The annual report did not detail that the large sale of refurbished rolling stock to Greentrains occurred only days before the EOY, and that Greentrains was created two weeks earlier (in early June), and that it had near-zero cash to pay for the circa $75 million purchase, and there were also words to the effect that the rolling stock was leased back to CXG, which worried me.  There was a cryptic note in the accounts to the effect that the MD, Michael Coote, had a nexus with Greentrains, because one of its shareholders, Orange Grove Brickworks, was a company owned by his parents.

I decided to check on Greentrans, and when I could not find it in the telephone directory, I telephoned the then CXG company secretary (a guy with an Indian name), but he refused to take my calls, or respond to requests that he ring me.  I looked up the ACN registration, and learned that Greentrains had only been registered in early June, some three weeks before CXG's EOY

From memory, the SP dropped from about $1.50 to about 10 cents as this saga unwound in subsequent months and years, and the matter is still playing out under the aegis of Dale Elphinstone, who continues to buy EGN shares at peppercorn prices.  If you google using words like Coote, Orange Grove and Greentrains, you can glean some of the sorry story.  That nobody connected with CXG was jailed, or even gently pelted with marshmallows by whomever is the probity watchdog for shareholders in Australia amazes me.   I might add that on-paper gains made on TGA have many times over eclipsed the $50K or so that I lost on CXG (now EGN).


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## Nutmeg (30 March 2012)

TGA has been on my watchlist for a while.  Despite that, I did not look at it for some time until yesterday when I could not believe how cheap it was.  I have stayed in cash for months looking for value opportunities.  The first came along in early March when JBH dropped below $10.50.  While I don't doubt that retail is tough at the moment and the landscape is undergoing real structural change as a result of the internet, JBH has been very oversold in my view.  TGA, which is not really a retailer, provided me with the second opportunity today and I bought in at $1.57.  Because of its business, TGA actually offers the perfect hedge to a pure retailer like JBH.  If TGA stays below $1.60 in the next few days, I think I'll load up on more.


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## GJD05 (30 March 2012)

An analyst friend of mine spotted the mistakes in the Morningstar accounting treatment of leases etc and emailed through his thoughts. Morningstar called him back and thanked him for the pick-up, the analyst agreed the treatment was incorrect and hence you see the changes today. I agree, if the FY results are solid, i can't see why this stock is not significantly undervalued at the moment. I drew a fair value SP around 2.30, but as we all know these days fundamentals are way down the considerations of many investors...


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## Klogg (30 March 2012)

GJD05 said:


> ...but as we all know these days fundamentals are way down the considerations of many investors...




Until they realise that they've been trading on emotions and things pick-up suddenly.

Just take a look at what happen with Breville [ASX:BRG]. Got that one at the $3.00 mark


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## Pioupiou (1 April 2012)

Guesstimating a target SP can be done fairly effectively by selecting a PER by which  one can multiply the EPS.

Deciding on a PER is best done by considering the stock one has in mind in the company of other listed stocks.  Include amongst the list the option of putting your money in a bank, which helps to inject realism into the exercise, because if you required, say, 7% to be inclined to put money in a bank, that is effectively a PER of 1 divided by 7%, or 14.3, which happens to be a fairly typical PER in the ASX500.  A quick look at the PERs  of a few companies gives the following this weekend (Sunday, 1 April 2012):

- Woolworths (WOW) – 14.74
- Flight Centre (FLT) – 13.57
- Monadelphous (MND) – 19.56
- Fleetwood (FWD) – 13.70
- JB-HiFi (JBH) – 9.13

From memory the two rental companies I know in the USA, Aaron's and Rent-A-Car have PERs of about 18 and 13 respectively, and TGA beats them on all relevant metrics except size.

Anyhow, if you compare all you know about TGA with alternative investments, you should be able to settle on a reasonable PER, and if you multiply it by the expected EPS of about 20 cents for YE 30/03/2012, you would have a reasonable target SP.  In my case it is about $.20 x13 = $2.60.  Others could end up with $.19 x 10 = $1.90.  Currently, the SP is about $1.60, so there are sellers out there using a PER of about 8.  I doubt if anybody expects the EPS to be less than 19 cents.


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## skc (2 April 2012)

Pioupiou said:


> Guesstimating a target SP can be done fairly effectively by selecting a PER by which  one can multiply the EPS.
> 
> Deciding on a PER is best done by considering the stock one has in mind in the company of other listed stocks.  Include amongst the list the option of putting your money in a bank, which helps to inject realism into the exercise, because if you required, say, 7% to be inclined to put money in a bank, that is effectively a PER of 1 divided by 7%, or 14.3, which happens to be a fairly typical PER in the ASX500.  A quick look at the PERs  of a few companies gives the following this weekend (Sunday, 1 April 2012):
> 
> ...




The big end of town tend to enjoy a higher PER then the smaller caps. Some PER never makes sense to me - companies like COH / CPB / WOR are good companies that always trade on PERs that seem too high (i.e. priced for perfection), while the likes of BXB, AIO trade on a high PER without being very good companies (imho).

PER is also historical and carries certain "stigma" or "momentum". What I find is that the market will much easily retate something from at PER 4 to 8, but it is a lot harder (and takes longer) to move from 8 up to 12, even though 12 may be the right number when it comes to peer analysis. And for companies like FSA / BSA, they just don't seem to shake the PE<6 valuation for years on end. 

The risk imo is that the fundamentals change when you are waiting for the market to price it from 8x to 12x - so I tend to trade my fundamental investments after PE 9-10x as a trading position (i.e. start to implement price-based stops).

With TGA, I personally consider any price between $1.6 to $2.4 to be fair. With a decent yield it makes holding $1.6 looking for $2.4 a reasonably safe exercise imho.


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## Pioupiou (2 April 2012)

In summary, I agree with what ske wrote - particularly the closing sentence – to wit:

"With TGA, I personally consider any price between $1.6 to $2.4 to be fair. With a decent yield it makes holding $1.6 looking for $2.4 a reasonably safe exercise imho."

That is, at $1.60 you can buy in, enjoy a reasonable dividend, and have a good chance of making 50% on your investment ($1.60 to $2.40), and a near-zero chance of losing much, if anything.  I would be happy with that, and the fact that I entertain the fond notion that the capital gain could be higher is not material to my advice to readers of this thread, which depending on circumstances is either, buy, hold or both. 

When I originally drafted my last post it had words to the effect that the PER one would settle for required consideration of many metrics, plus "soft" information on the physical and social environments in which the companies operate.  Size and liquidity are two factors to consider, which is why one would downscale TGA's PER relative to what one would do with WOW.  On the other hand, TGA beats WOW on many metrics, so one would upscale the PER, and so on.  WOW has more debt, but then it has been able to borrow cheaply, so there is both a negative and a positive PER-scaling factor in that.  JBH has heaps of debt, which bothers me, which would incline me to lower its PER.  TGA has locked-in streams of income which act as a income buffer – a reason to bump up the PER.  FWD and MND are part of the China story, plus mining is exposed to political risks, and because I am currently wary of the mining industry, so relative to mining-industry plays, TGA's PER benefits from that prejudice.

What I did not detail is that future years' EPS guesstimates hugely influence the PER I would use for TGA for YE 30/03/2012.  Past years EPS metrics are merely part of what occasions me to think what the future EPS metrics might be, and the momentum fallacy (after this, therefore more of the same) needs to be avoided.  I think that TGA's EPS metrics for the next three or four years are going to be better than what analysts and Mr Market thinks – reasons that I'll articulate when I write my magnus opus on TGA when the annual report is released.  

On EPS growth, I found looking at Rent-A-Center's metrics interesting, because in the face of plateaued revenue and profit, Rent-A-Center has grown its EPS via buybacks. It would be interesting to create a spreadsheet of EPS growth for TGA with a “growth decay” factor and a buyback factor, so that as TGA ceases to need the 50% of EPS that it now uses to fund growth, it uses that money to buyback shares, and hence keep the EPS growing, and hence the dividend growing.   If one uses a set of optimistic factors and a set of pessimistic ones, the average of the two often turns out to be fairly realistic.   There is an enormous amount of subjectivity in estimating a fair-value SP, which is why I think the words “intrinsic value” are misleading – dishonest even.    

I have looked at FSA and BSA with interest in the past, but not having spare cash looking for a home, and tending to limit my portfolio size, I did not pursue investigating them.  I'll look at them again, because their merits and demerits have faded from my memory. 

I am not a trader, so I tend to rely on high-conviction investing, and not bother with stops.


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## odds-on (2 April 2012)

skc said:


> The big end of town tend to enjoy a higher PER then the smaller caps. Some PER never makes sense to me - companies like COH / CPB / WOR are good companies that always trade on PERs that seem too high (i.e. priced for perfection), while the likes of BXB, AIO trade on a high PER without being very good companies (imho).
> 
> PER is also historical and carries certain "stigma" or "momentum". What I find is that the market will much easily retate something from at PER 4 to 8, but it is a lot harder (and takes longer) to move from 8 up to 12, even though 12 may be the right number when it comes to peer analysis. And for companies like FSA / BSA, they just don't seem to shake the PE<6 valuation for years on end.
> 
> ...





The market performing an easy rerate from PER 4 to 8 makes sense to me, a company is going from cheap to conservatively priced (Assuming the company has sufficient earnings stability so I can use PE=8.5+0.5*G ). The PER rerate from 4 to 8 is really about whether market believes the company is going to earn money next year rather than is it going to achieve 10% growth for the next 5 years. The rerate from PER from 8 to 12 means that market has got to believe in the future growth.

IMO stocks which have a business model to grow in economic downturns such as CCV/TGA are no brainers however the problem is when there are economic downturns the market demands a higher discount rate, therefore to make a nice profit you actually have to buy them with a PER 5-7 and start selling near PER 10-12. They are never going to be considered a market darling due to the "inverse" nature of the business model.

I am interested in TGA, however I need to answer the following questions (Pioupiou probably knows the answers off the top of his head):-

What is the management EPS guidance ?
What is management accuracy rate for EPS guidance over the last 5 years?

This could be a low risk way to make a tidy 25% or so on 50% of my fund. 

Cheers

Oddson.


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## craft (2 April 2012)

Pioupiou

Unless you are a trader and lock-in P/E re-ratings by selling and moving on to the next target then P/E re-ratings are fairly insignificant to the long term IRR. Why the fascinations in having the market re-rate in the short term?


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## Pioupiou (2 April 2012)

craft said:


> Pioupiou
> 
> Unless you are a trader and lock-in P/E re-ratings by selling and moving on to the next target then P/E re-ratings are fairly insignificant to the long term IRR. Why the fascinations in having the market re-rate in the short term?




Actually, I am not that fussed about a re-rate in the short term, because I substantially buy to hold and live off the dividend (TGA alone gives me more annual dividend than I need to sustain my lifestyle).  Further, yesterday I suggested that my son buy some TGAs, so I hope the SP stays low until he has loaded up.

I only write about TGA because having so many TGA shares I have spent heaps of time understanding it as a business and as a stock worth holding.  I rarely mention the other 19 stocks that I hold, because I do not feel I can contribute much of value there.

When I write target PER, I could just as easily have conveyed the same concepts using RRR - it is just my way of saying that for TGA is cheap relative to what I personally think it is worth, which is why I have been buying them for about five years.


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## Pioupiou (2 April 2012)

odds-on said:


> The market performing an easy rerate from PER 4 to 8 makes sense to me, a company is going from cheap to conservatively priced (Assuming the company has sufficient earnings stability so I can use PE=8.5+0.5*G ). The PER rerate from 4 to 8 is really about whether market believes the company is going to earn money next year rather than is it going to achieve 10% growth for the next 5 years. The rerate from PER from 8 to 12 means that market has got to believe in the future growth.
> 
> IMO stocks which have a business model to grow in economic downturns such as CCV/TGA are no brainers however the problem is when there are economic downturns the market demands a higher discount rate, therefore to make a nice profit you actually have to buy them with a PER 5-7 and start selling near PER 10-12. They are never going to be considered a market darling due to the "inverse" nature of the business model.
> 
> ...




On the matter of growth, some 80% of TGA's customers are on welfare, and there are 3.5 million welfare recipients in Australia, so with 100,000 customers now, TGA has room to find more.  Also, new lines like furniture have been very successful, with furniture being roughly on par with TGA's historical lines (whitegoods and electronic equipment) so the trick is to uncover new product lines.  Outdoor furniture and nursery items (cots, change tables, car seats, bunk beds etc) are under trial currently.

TGA does not have an "inverse" business cycle - it grows in good times and bad.  It is convenient to write that it is counter cyclical to drive home the message that bad times are good times for TGA, but it belies how well TGA performs in good times.

TGA did not give an earnings guidance, but in a relatively recent BRR interview David Hughes said that the brokers have it about right, so you can take it to be between 19.3 cents cents to about 20.4.  When dealing in loose numbers, I use 20 cents for YE 30/03/2012.  TGA tends to understate the situation - more by saying nothing, rather than by proffering low numbers.  

TGA is an easy business to predict because of the fact that it has repetitive revenue and very few large customers who can distort the average.  Historically, management has been accurate insofar as it has given future indications, but as I wrote above, it tends to say little, and then surprise on the up side.

Where I write EPS, I mean the normalised EPS.  If TGA decides to impair goodwill, it could reduce the reported EPS, but not the normalised EPS, which should not impact the SP - but it could.


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## GJD05 (3 April 2012)

Question, when is the next Dividend date?


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## Pioupiou (3 April 2012)

GJD05 said:


> Question, when is the next Dividend date?




Going on last year when Friday, 17 June was the ex-div date and Friday, 22 July, was the payment date, I would suggest that Friday, 15 June, and Friday, 20 July, will be the two dates for 2012.  Last year's final dividend was 4.95 cents.  It could be 6 cents this year. TGA tends to pay out about 50% of EPS, so the total dividend should be about 10 cents.  4 cents was paid on 20 January, so 6 cents is a reasonable guesstimate for 20 July.


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## kermit345 (4 April 2012)

Bought some today at $1.54 with a target price between $2.00 and $2.20 following an estimated EPS of $0.195 or above in the upcoming full year results.

I think the stock deserve a P/E of approx 11 hence my target price range. It was about this time last year where TGA achieved this P/E and beyond.

Either way even if TGA hovered at the same P/E it currently trades at, with an EPS of around $0.195 your still looking at a price increase to approx $1.80 which is a healthy gain in itself.

Guess we'll have to wait and see how this one plays out.


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## skc (4 April 2012)

Looking at the very short term market depth the seller is quite enthusiastic although there are substantial buys all the way down to $1.50. With the full year result coming mid May there "should" be a run up towards it if everything is fine. A trade here with $1.50 stop should offer decent reward/risk.


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## kermit345 (4 April 2012)

Also to note is that the ex-div date is coming up as well, not that there is a huge yield on offer but may still attract some and push the price up as well. Is there any chance that the dividend could increase in line with an increasing EPS?

Essentially everywhere i've read and/or looked has a fair value / target price of approx $2.00 - is the wider market waiting for EOFY reports as confirmation of the EPS growth or is there something else a large number of people are missing?


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## Klogg (4 April 2012)

kermit345 said:


> Essentially everywhere i've read and/or looked has a fair value / target price of approx $2.00 - is the wider market waiting for EOFY reports as confirmation of the EPS growth or is there something else a large number of people are missing?





I've been asking this exact question to myself... But after hours, possibly days of research, I've left it down to the fact that the general investor sentiment is to wait for the next set of reports to see the impact of the NCML acquisition.


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## oldblue (4 April 2012)

I imagine that Pipoupiou won't agree with me here but I wouldn't be buying TGA while the SP trends down, often a sign that someone knows more about a stock than I do!

Time to reassess when the trend reverses, IMO.


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## skc (4 April 2012)

Or just the simple fact that the market only wishes to price TGA at PE 8x or there abouts.


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## Klogg (4 April 2012)

oldblue said:


> I imagine that Pipoupiou won't agree with me here but I wouldn't be buying TGA while the SP trends down, often a sign that someone knows more about a stock than I do!
> 
> Time to reassess when the trend reverses, IMO.




Unless it's director selling, I can't imagine that this is the case. Otherwise, each time there is a downward trend, it'd correlate to someone knowing more than I do.

For example, take a look at how the downward trend (looking at the 1yr chart) continued in November, not long after they announced a great profit increase... Nothing to really know there, just odd behaviour in my opinion.

I'm not doubting it can't happen, just that I don't think it's very likely. (With any luck, I'll be right, lol)


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## Klogg (4 April 2012)

And given the announcement, I'd imagine it's just because Perpetual are dumping shares.

1,576,019 shares to be exact.


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## Klogg (4 April 2012)

Sorry should probably have stated that I think they're still dumping shares (that 1.5mil finished at 02/04/12)


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## Ves (4 April 2012)

Had a sneaky little order filled at $1.505 today. Happy with that - thanks Perpetual.


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## Klogg (4 April 2012)

Ves said:


> Had a sneaky little order filled at $1.505 today. Happy with that - thanks Perpetual.




Lol, we must think alike. I just bought a few more at $1.51 

I've also been listening to the interim results presentation here:
http://www.brrmedia.com/event/89694...arshall-general-manager-radio-rentals--rentlo

Their customer relations team that they talk about for the Radio Rentals business is very impressive IMO.


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## Huskar (4 April 2012)

Interesting blog post that makes you consider the possible downsides to what has been a great business for shareholders. TGA is not expressly mentioned but similar reasoning applies.

http://www.iifunds.com.au/bristlemouth/rent-try-buy-youre-better-loan-sharks

In summary downsides to be aware of are: 

1. customers might one day wake up to the raw deal they are in fact getting from rent-try-buy schemes; 

2. government takes it out of the customers' hands and regulates the industry (cf the proposed new regulations for the lending industry of which all CCV shareholders will be aware)

Would be interested to hear people's thoughts


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## So_Cynical (4 April 2012)

oldblue said:


> I imagine that Pipoupiou won't agree with me here but I wouldn't be buying TGA while the SP trends down, often a sign that someone knows more about a stock than I do!
> 
> Time to reassess when the trend reverses, IMO.




I seem to remember you posting pretty much the same thing in the Beach thread after i posted my buy in at 67 cents on a falling share price 18 months ago...SP now over $1.40 and was $1.70 a couple of weeks ago.

You seem to lack a bit of vision oldblue...or perhaps faith. :dunno:

https://www.aussiestockforums.com/forums/showthread.php?t=299&page=28


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## tinhat (5 April 2012)

Today TGA closed below the lower Bollenger boundary both on the daily and weekly chart. I would expect a minimum 50% retracement to the most recent high of  1.70 which would be a target of $1.59

I think the market is unhappy with NCML's loss of the ATO contract. TGA recently announced that this loss would be about a $1 million hit to EBITA. with more cost to come. NCML hasn't yet replaced this revenue with new work.

http://www.macquarie.com.au/dafiles...retail-newsletter/docs/2012-03/TGA150312e.pdf

I own TGA.


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## Tightwad (5 April 2012)

the macquarie report is a bit of a concern to me, with flat growth forecasts making me rethink a bit.


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## oldblue (5 April 2012)

So_Cynical said:


> I seem to remember you posting pretty much the same thing in the Beach thread after i posted my buy in at 67 cents on a falling share price 18 months ago...SP now over $1.40 and was $1.70 a couple of weeks ago.
> 
> You seem to lack a bit of vision oldblue...or perhaps faith. :dunno:
> 
> https://www.aussiestockforums.com/forums/showthread.php?t=299&page=28




Not at all, S_C.

I didn't buy BPT as low as you but managed to ride the trend up from the mid 90's to sell on 28 Feb at $1.595.

Not a matter of vision or faith. I just don't believe that I can buy at the bottom and sell at the top so I try to wait for some stength in an upturn upturn and sell when I judge that the uptrend has run out of puff. But each to his own!

By the way, I hold a few TGA and may add a few more.


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## robusta (5 April 2012)

Tightwad said:


> the macquarie report is a bit of a concern to me, with flat growth forecasts making me rethink a bit.




Sometimes I love it when the big end of town goes cold on a business I like, picked up a small parcel today.


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## ROE (5 April 2012)

Huskar said:


> Interesting blog post that makes you consider the possible downsides to what has been a great business for shareholders. TGA is not expressly mentioned but similar reasoning applies.
> 
> http://www.iifunds.com.au/bristlemouth/rent-try-buy-youre-better-loan-sharks
> 
> ...




These mob are Joe average, most of their analysis are dud...
They Bear banks stocks for yonks, then nothing happen now they pro banks.
Banks stock may turn bear soon

TGA is nothing like Silverchef, their customers based are vastly apart, same reasoning cant be applied
TGA is cheap at this price  at this price you can live with EPS 16-17c for decades and not worry 
about price movement


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## Ves (5 April 2012)

ROE said:


> TGA is nothing like Silverchef



I actually had a look at Silverchef recently.

You are dead right; the main thing that stands out is the debt level. Silverchef rely on third party sources (whether it be investors - see the recent capital raising or the bank - see the $110 million credit facility).  SIV is basically a financial intermediatry. They have to borrow in bulk as their cash flow is insufficient to finance their own asset purchases. Honestly, as they as growing rapidly it is very hard to identify what the actual underlying operating cash flow of this business - but since their borrowing facility keeps getting bigger and bigger you would have to assume it is strongly negative at the moment, would you not?


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## McLovin (6 April 2012)

Topped up on TGA today at $1.50.


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## McLovin (6 April 2012)

Huskar said:


> Interesting blog post that makes you consider the possible downsides to what has been a great business for shareholders. TGA is not expressly mentioned but similar reasoning applies.
> 
> http://www.iifunds.com.au/bristlemouth/rent-try-buy-youre-better-loan-sharks
> 
> ...




1. TGA's customers are on welfare. They are unlikely to have access to any other means of finance. Silverchef's are not (start a cafe and watch coffee suppliers throw furniture/espresso machines etc at you). Whether you like it or not, a lot of thier customers probably don't have any idea how much it's actually costing them. There was actually a very interesting essay recently in the Journal of Finance about how little payday borrowers actually understand about what they are doing...
http://www.afajof.org/journal/abstract.asp?ref=0022-1082&vid=66&iid=6&aid=2&s=-9999

2. Wrt to TGA's business, no I don't see it as an issue. Tell someone who can't afford a TV that you are going to take away any ability they have of getting one.


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## Klogg (6 April 2012)

McLovin said:


> 1. TGA's customers are on welfare. They are unlikely to have access to any other means of finance. Silverchef's are not (start a cafe and watch coffee suppliers throw furniture/espresso machines etc at you). Whether you like it or not, a lot of thier customers probably don't have any idea how much it's actually costing them. There was actually a very interesting essay recently in the Journal of Finance about how little payday borrowers actually understand about what they are doing...
> http://www.afajof.org/journal/abstract.asp?ref=0022-1082&vid=66&iid=6&aid=2&s=-9999




On a similar note (not related to TGA directly, but to the idea that people don't know what the service is costing them), I know one of the big banks is noticing a similar trend in areas of unemployment in NT. The following scenario is something they're trying to overcome with their ATM fees:

Basically, each 'payday' for the unemployed, they're constantly checking their accounts so that they can pay each other back for any loans they may have taken out over the course of the past 2 weeks. During this time, they constantly query their account balance for $2.00 a hit at a foreign ATM, sometimes chewing through up to 5-10% of their 'pay'!

They're now working with the state government there to either remove ATM fees, or find another work-around.

And from this, I can only draw the conclusion that a good portion of the population will never realise they're getting ripped off.

Makes TGA look good to me, lol.


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## ROE (6 April 2012)

Klogg said:


> On a similar note (not related to TGA directly, but to the idea that people don't know what the service is costing them), I know one of the big banks is noticing a similar trend in areas of unemployment in NT. The following scenario is something they're trying to overcome with their ATM fees:
> 
> Basically, each 'payday' for the unemployed, they're constantly checking their accounts so that they can pay each other back for any loans they may have taken out over the course of the past 2 weeks. During this time, they constantly query their account balance for $2.00 a hit at a foreign ATM, sometimes chewing through up to 5-10% of their 'pay'!
> 
> ...




I dont think ripping off your customers is a good idea whether they know it or not
I like to think that you front up the capital, you took the risk and you charge so it return reasonable return for investors and at 20-25 ROE isnt a ripped off.

there are other business that generate this sort of return, are they a ripped off?

all fees and charges are disclose upfront I dont see anything wrong with it...


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## Klogg (7 April 2012)

ROE said:


> I dont think ripping off your customers is a good idea whether they know it or not
> I like to think that you front up the capital, you took the risk and you charge so it return reasonable return for investors and at 20-25 ROE isnt a ripped off.
> 
> there are other business that generate this sort of return, are they a ripped off?
> ...




Sorry, I worded that wrongly.

I was tying to show that customers dont always realise what a service may cost them - its not a rip off as such.

And TGA provide a great service and deal with significant risk, so I believe their margins are justified.


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## Pioupiou (9 April 2012)

On the matter of the loss of the ATO business being a cause of the recent SP decline, with something like 146.6 million shares, the loss of $1 million EBIT via NCML translates to about $700K after tax, or less than half a cent of EPS, so the impact on the SP should be less than 5 cents.  This is also ancient news, and should not only now come to investors' minds.  On balance, I think acquiring NCML was a mistake, but it is not sufficient a mistake to explain a large decline in SP.

On the matter of somebody knowing something of which we TGA holders are unaware – this could be true.   I have not been aware of any director selling, although David Hughes did not take up his rights issues in the last capital raising, which I interpreted as a negative signal.

On the matter of the Macquarie review's poor growth forecasts – I expect TGA to surprise on the upside, because it can stave off decline by regularly introducing new product lines?  Because we are only weeks away from being able to read the annual report for YE 30/03/2012, I prefer to leave off publicly projecting future years EPS until I have read the annual report.   Besides, even Macquarie had a 12-month target of $1.78

On the ethics of the rental business and its longevity – the bulk of TGA's EPS still springs from Radio Rentals and Rentlo, and some 80% of these customers pay via Centrepay.  Many customers in this demographic, especially women, can never save enough to buy the items they procure via TGA, because bludging spouses and other relatives will “borrow” whatever cash or savings they might have.  This partially explains the rapid success of the furniture lines that TGA introduced relatively recently, and why TGA is trialling outdoor furniture and nursery items (cots, bunk beds, car seats, prams and strollers).  These new lines encourage customers to top up.

Would I sell any TGA shares at below $1.60?  No.   I do not have the free cash to buy more TGA, but I might free up funds by convincing my co-trustee to allow my SMSF to buy a long-held parcel of KFC that I do not want to ditch at current prices, and which stock the SMSF also holds.  This will take time, so I hope TGA's SP stays at circa $1.50 for a few weeks to give me the option to buy more TGA for my personal portfolio (where I am prepared to take bigger risks).


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## robusta (9 April 2012)

Maybe TGA has just gone out of fashion? Anyhow I would expect quality will shine through eventually, meanwhile the dividend yield will keep the wolves from the door.


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## craft (9 April 2012)

Pioupiou said:


> On balance, I think acquiring NCML was a mistake.




Two things attract me to TGA over their competitors.

The first is that it is predominantly equity funded – huge risk reduction in comparison to say TSM. The other is the acquisition on NCML. Leaving aside that in hindsight with the loss of the ATO contract they paid too much – It is the strategic direction I like.  What makes more sense then a company that is so exposed to defaulting customers, then for them to focus on debt collection?  This is the exact culture that can mitigate bad initial credit decisions and give a comparative advantage.


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## skc (9 April 2012)

craft said:


> Two things attract me to TGA over their competitors.
> 
> The first is that it is predominantly equity funded – huge risk reduction in comparison to say TSM. The other is the acquisition on NCML. Leaving aside that in hindsight with the loss of the ATO contract they paid too much – It is the strategic direction I like.  What makes more sense then a company that is so exposed to defaulting customers, then for them to focus on debt collection?  This is the exact culture that can mitigate bad initial credit decisions and give a comparative advantage.




FWIW, earnings from debt purchaser are currently priced somewhat lower. CLH ~8x, FSA ~5.5x. CCP is the exception and its re-rating (from PE 8x to ~11x) was only recent.


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## skc (10 April 2012)

skc said:


> Looking at the very short term market depth the seller is quite enthusiastic although there are substantial buys all the way down to $1.50. With the full year result coming mid May there "should" be a run up towards it if everything is fine. A trade here with $1.50 stop should offer decent reward/risk.




The sellers appear to be still on their Easter break so the share price took the opportunity to rear its head up a bit.

Bought some at $1.52. Stop at $1.50. Due to tightness of the stop, risk is only ~1/3 of the usual.  

As long as there are no gapping announcements I will just sit back and see how far it moves. Immediate resistance at $1.57, followed by ~$1.8.


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## Klogg (10 April 2012)

That's odd - Perpetual had another ~7% they could've dumped. :


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## kermit345 (10 April 2012)

skc, my TA knowledge lacks quite a bit but from looking at TGA's chart it looks like its in a downtrend from approx 4/4/2011 through to now and if you draw a closing price ceiling along this downtrend it looks like it might find some resistance around the $1.65-$1.70 mark in the short term if it were to continue its rise in the next couple of weeks. If it broke through this downtrend ceiling say on the back of a good annual report would you agree it could run up a little back towards $2 possibly?

As I said i'm pretty poor with TA but just from playing around a bit thats how the chart read to me. Can post an image of what I mean if that helps?


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## skc (10 April 2012)

kermit345 said:


> skc, my TA knowledge lacks quite a bit but from looking at TGA's chart it looks like its in a downtrend from approx 4/4/2011 through to now and if you draw a closing price ceiling along this downtrend it looks like it might find some resistance around the $1.65-$1.70 mark in the short term if it were to continue its rise in the next couple of weeks. If it broke through this downtrend ceiling say on the back of a good annual report would you agree it could run up a little back towards $2 possibly?
> 
> As I said i'm pretty poor with TA but just from playing around a bit thats how the chart read to me. Can post an image of what I mean if that helps?




The initial dowtrend from Apr 2011 (coinciding with the NCML acquisition and capital raising) has pretty much "paused" by Nov 2011. Since then it was 4 months of range trading between $1.6 and $1.8. The last 2 weeks saw this range broken to the downside. It may be the start of the continuation of the downtrend, or it may have found a low like it did on that crazy August day. 

The market depth is looking much healthier - whoever made a statement of support for $1.50 showed a fair bit of convition and held its ground. With a stock like TGA that has fallen for no apparent reason and has a following from value investors, I don't really mind a low risk punt without hard TA evidence of a trend reversal. I'd expect it to at least test the bottom of the range ($1.58-$1.60). By that time my stop will be at breakeven, and I get a free shot (barring big gap down) at a more substantial share price reversal. Anything is possible but I am in for a quick hit and will likely be gone before $1.80.


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## Pioupiou (10 April 2012)

kermit345 said:


> skc, my TA knowledge lacks quite a bit but from looking at TGA's chart it looks like its in a downtrend from approx 4/4/2011 through to now and. . .




I have never understood the rationale for TA, and I have presumed that the wiggles in the graphs are useful in that they reflect the collective thinking of Mr Market.  Whether it can usefully inform us what the market is thinking about a tending-to-be illiquid (about $600K a day), micro-cap (less than ($300m) that is relatively tightly held (about half a dozen shareholdes own 60% of the shares), I cannot say, but I suspect not.

For reasons that often make little sense, instos like Perpetual and IOOF may decide to sell a few million dollars of TGA, and this smashes the SP, whereas if it were WOW, that selling pressure is massively muted by the millions that others transact every day.  I suspect that TA is not suited to make much sense of this, but, as I wrote, I do not know.

Fundamentally, nothing significantly has gone awry with TGA's business.  I wish the SP would stay down at circa $1.50 to allow me to garner the funds to buy another 30,000.


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## VSntchr (10 April 2012)

Pioupiou said:


> I wish the SP would stay down at circa $1.50 to allow me to garner the funds to buy another 30,000.




Pretty soon you may be more influential on TGA's share price than perpetual! haha just kidding of course...but if I had the money I would certainly like to own the whole business at the price its shares are currently being offered for.

I have recently increased my holdings in TGA and have been reading everyones responses in this thread with interest.


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## Bibimbap (10 April 2012)

Tonight's your money your call gave the following views.
If the stock price holds at $1.48 support levels, it's likely to head towards $1.70 to $1.80.
But if it breaks below this, wait for next support level at $1.32.
Results due soon, so holders of TGA should wait till then.

I got a small amt last wk at $1.525


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## Klogg (11 April 2012)

Bibimbap said:


> Tonight's your money your call gave the following views.
> If the stock price holds at $1.48 support levels, it's likely to head towards $1.70 to $1.80.
> But if it breaks below this, wait for next support level at $1.32.
> Results due soon, so holders of TGA should wait till then.
> ...




If this thing dropped to $1.32, I would most likely be doubling my position - simply based on the fact that their recurring revenue is so strong and that SP would give an ~6.8% yield fully franked (8.8% gross).

My mouth waters when I hear these figures.


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## skc (11 April 2012)

Pioupiou said:


> I have never understood the rationale for TA, and I have presumed that the wiggles in the graphs are useful in that they reflect the collective thinking of Mr Market.  Whether it can usefully inform us what the market is thinking about a tending-to-be illiquid (about $600K a day), micro-cap (less than ($300m) that is relatively tightly held (about half a dozen shareholdes own 60% of the shares), I cannot say, but I suspect not.




TA is nothing more than an attempt to see how supply and demand is flowing over different timeframes. The movement is "usually" supported by fundamental reasons behind it. 

The share price graph does not represent the collective thinking of the market - it represents the thinking of the marginal buyer / seller. As a long term investor you don't care what the marginal guy does... as a trader I am taking prices from the marginal buyer/seller, and so using TA is sensible imo.



Pioupiou said:


> For reasons that often make little sense, instos like Perpetual and IOOF may decide to sell a few million dollars of TGA, and this smashes the SP, whereas if it were WOW, that selling pressure is massively muted by the millions that others transact every day.  I suspect that TA is not suited to make much sense of this, but, as I wrote, I do not know.




Precisely where TA can be used t suggest that the selling has finished / paused / reversed by looking at price and volume. Fundamental analysis means little when you are faced with just flow - money needs to move out, prices fall unless people step up. 

BTW, TGA has been falling / stalling for pretty much one year, including the release of 2 financial reports. The market isn't stabbing in the dark and usually isn't completely ignorant all the time. Clearly it has re-rated TGA's earning to a lower multiple based on the interpretation of its prospects by the marginal seller.


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## Nutmeg (11 April 2012)

Pioupiou said:


> I have never understood the rationale for TA




There's nothing to understand about technical analysis.  Its pretence to rationality is hokum!  Adapting and adopting what Voltaire said about the Holy Roman Empire, you can say about technical analysis that it is neither technical nor analysis.


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## Julia (11 April 2012)

Nutmeg said:


> There's nothing to understand about technical analysis.  Its pretence to rationality is hokum!  Adapting and adopting what Voltaire said about the Holy Roman Empire, you can say about technical analysis that it is neither technical nor analysis.



 Perhaps consider that by so categorically rejecting something about which you clearly know nothing, you might well be missing some good opportunities.


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## Pioupiou (12 April 2012)

My point was not so much as whether TA works for traders (or for investors in conjunction with FA), but rather does it work well for a small cap like TGA.  TA is in essence applied statistics, and statistical inferences require a reasonable sample to be reliable.  If sustained selling by two instos, Perpetual and IOOF, is forcing down the TGA SP, exacerbated by trend-is-my-friend selling, then I am unsure if we can predict at what price they would stop selling.

The problem with the activity of one or two instos, is that it may not even reflect a rational analysis of the stock –  selling could simply be policy driven (rebalancing, exiting sectors, raising cash, whatever).  TGA would represent a tiny percentage their holdings, so they would not lose much sleep if they dropped a few hundred thousand dollars getting rid of a few million TGAs, which they may have bought for 50 cents.  If you have ever had money invested in these instos, you will know how poorly they perform, so one should not presume that savy stock-market gurus have seen something in the annual reports, or patterns in the heavenly bodies, that we poor laymen have missed.

As a non-TA aside, if TGA never grew again, it would then need to hold back less of the EPS to fund growth, and hence by diverting retained earnings to buybacks it could continue to grow its EPS, which should be about 20 cents for YE 31/03/2012.  This should allow one to establish a basis for calculating a near-worst-case SP.  If you locate the Morning Star metrics for the USA-based Rent-A-Center, you will see that growing EPS via buybacks is what Rent-A-Center has been doing for a few years, and it enjoys a PER of 13.  There is no reason to believe that TGA is suddenly going to stop growing after about 75 years of existence – it has such a few items in its range, that it can easily expand by adding a mere handful of new items each year, and dropping less profitable items.   Rent-A-Center's main rival in the USA, Aaron's, is still growing, and it enjoys a PER of 18 (relative to YE 31/12/2011).  US share prices are over priced generally, so I am not suggesting that TGA should enjoy a similar PER.


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## skc (12 April 2012)

Pioupiou said:


> As a non-TA aside, if TGA never grew again, it would then need to hold back less of the EPS to fund growth, and hence by diverting retained earnings to buybacks it could continue to grow its EPS, which should be about 20 cents for YE 31/03/2012.  This should allow one to establish a basis for calculating a near-worst-case SP.  If you locate the Morning Star metrics for the USA-based Rent-A-Center, you will see that growing EPS via buybacks is what Rent-A-Center has been doing for a few years, and it enjoys a PER of 13.  There is no reason to believe that TGA is suddenly going to stop growing after about 75 years of existence – it has such a few items in its range, that it can easily expand by adding a mere handful of new items each year, and dropping less profitable items.   Rent-A-Center's main rival in the USA, Aaron's, is still growing, and it enjoys a PER of 18 (relative to YE 31/12/2011).  US share prices are over priced generally, so I am not suggesting that TGA should enjoy a similar PER.




Quick tangent off the main discussion. If there is a private business with no growth but the usual business / economic risks, how much %pa return would you demand/pay?


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## odds-on (12 April 2012)

skc said:


> Quick tangent off the main discussion. If there is a private business with no growth but the usual business / economic risks, how much %pa return would you demand/pay?




12% with control and owner perks.


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## skc (12 April 2012)

odds-on said:


> *12% with control* and owner perks.




I agree. 

12% = PE ~8.3.

So without control one would demand a higher return... i.e. a lower PE.


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## oldblue (12 April 2012)

> If sustained selling by two instos, Perpetual and IOOF, is forcing down the TGA SP, exacerbated by trend-is-my-friend selling, then I am unsure if we can predict at what price they would stop selling.




I wouldn't be attempting to use TA to "predict" anything - for TGA or any other stock. But it's a useful tool to overlay one's FA in timing buying and selling. That's all.


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## McLovin (12 April 2012)

skc said:


> I agree.
> 
> 12% = PE ~8.3.
> 
> So without control one would demand a higher return... i.e. a lower PE.




Does the value change if the company is paying no dividends?


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## skc (12 April 2012)

McLovin said:


> Does the value change if the company is paying no dividends?




The premise was no growth and full control... 

- If the company has no growth then what's all the cash for?
- If the owner has full control then dividend will be paid (or any other way to get the cash out).

If there's no control and no dividend... value is much lower.


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## McLovin (12 April 2012)

skc said:


> - If the company has no growth then what's all the cash for?




Just to keep the thing going along at zero growth.

My point being, under that scenario of zero growth, you'd be more concerned with what you have in your hand at the end of the year rather than accounting profit, at least IMHO.

This is probably an even more important aspect when you are buying the entire company from someone who has been looking to offload it.


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## odds-on (12 April 2012)

skc said:


> The premise was no growth and full control...
> 
> - If the company has no growth then what's all the cash for?
> - If the owner has full control then dividend will be paid (or any other way to get the cash out).
> ...




I have read some small business valuation books before, they are very interesting reading as you have to take into account the structure, control, perks, taxation and how to get the cash out. Listed companies cannot be valued using these techniques unless you hold a large % of the company and therefore have a controlling stake. A minority shareholder has no control (or clue of what is actually going on) therefore needs to demand a higher return.


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## odds-on (12 April 2012)

skc said:


> I agree.
> 
> 12% = PE ~8.3.
> 
> So without control one would demand a higher return... i.e. a lower PE.




I would happily buy a no growth private business for a return of 12%, I would just pay myself a nice dividend each year and milk the perks to the max. No control I would want 15% to 20% or PE 6.66 to 5.


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## Nutmeg (13 April 2012)

Julia said:


> Perhaps consider that by so categorically rejecting something about which you clearly know nothing, you might well be missing some good opportunities.




I know enough about technical analysis to know that you don't find real value "opportunities" as a result of technical analysis.  If there is any rationality to technical analysis, it can only be due to something fundamental in the company.  Tell me one great investor who relies _solely_ on TA.  And if they don't rely _solely_ on TA, then ask yourself why not?  The most that any consistently successful investor might - and this is a big "might" - say about TA is that it assists in market timing.  But then again I am yet to hear any consistently successful investor claim that they can consistently time the market.


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## Klogg (13 April 2012)

That's a little harsh IMO. While I prefer FA, I'm sure that there's a time and place for TA and can appreciate where it might be useful.

On that note, has anyone got any additional input from a TA perspective into TGA? Would be greatly appreciated.


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## Boggo (13 April 2012)

Nutmeg said:


> I know enough about technical analysis to know that you don't find real value "opportunities" as a result of technical analysis.  If there is any rationality to technical analysis, it can only be due to something fundamental in the company.




And that statement is a contradiction that highlights the fact that you completely misunderstand tech analysis.



Nutmeg said:


> Tell me one great investor who relies _solely_ on TA.




I could list a dozen but I will just ease you into it with one that's just up the road from you -
https://www.aussiestockforums.com/forums/showthread.php?t=23221&p=695592&viewfull=1#post695592


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## Boggo (13 April 2012)

Klogg said:


> On that note, has anyone got any additional input from a TA perspective into TGA? Would be greatly appreciated.




Weekly charts are more useful on slow moving/low volume stocks such as TGA. 
(Trade the smaller time frame but don't fight the bigger picture)

Any worthwhile upside seems to have ended about a year ago Klogg.
It would have to start breaking back up through around 1.90 before it would make a shortlist imo.

Just my 

(click to expand)


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## Klogg (13 April 2012)

Boggo said:


> Any worthwhile upside seems to have ended about a year ago Klogg.
> It would have to start breaking back up through around 1.90 before it would make a shortlist imo.




Forgive my ignorance, but from an FA perspective, if I were to wait for the $1.90 to come about, the stock will no longer be 'underpriced' as my analysis suggests.
This being the case, how does one use TA to support FA in this scenario?

If the answer is to long, even a reference to the appropriate material would be a great help.

Thanks.


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## Boggo (13 April 2012)

Klogg said:


> Forgive my ignorance, but from an FA perspective, if I were to wait for the $1.90 to come about, the stock will no longer be *'underpriced'* as my analysis suggests.




Stick with your analysis and buy when it is *'underpriced'* I reckon.
(I just love that word !)

Avoid criticising what you don't understand.


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## Klogg (13 April 2012)

That's why I put it in quotes - others may not have the same opinion after their analysis.

Anyway, thanks for the help. Much appreciated.


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## Nutmeg (13 April 2012)

Boggo said:


> I could list a dozen but I will just ease you into it with one that's just up the road from you -
> https://www.aussiestockforums.com/forums/showthread.php?t=23221&p=695592&viewfull=1#post695592




I read the link. And so who are these successful investors? Gary Scott? What is his net worth? How about I reply with two quotes from Seth Klarman, author of Margin of Safety and manager of the hedge fund Baupost. Klar has achieved 20% returns for about 20 years:

“In capital markets, price is set by the most panicked seller at the end of a trading day. Value, which is determined by cash flows and assets, is not. In this environment, the chaos is so extreme, the panic selling so urgent, that there is almost no possibility that sellers are acting on superior information. Indeed, in situation after situation, it seems clear that fundamentals do not factor into their decision making at all.”

And:

“Baupost [the Hedge Fund that Klarman manages] built numerous new positions as the markets fell in 2008. While it is always tempting to try to time the market and wait for the bottom to be reached (as if it would be obvious when it arrived), such a strategy has proven over the years to be deeply flawed. Historically, little volume transacts at the bottom or on the way back up, and competition from other buyers will be much greater when the markets settle down and the economy begins to recover. Moreover, the price recovery from a bottom can be very swift. Therefore, an investor should put money to work amidst the throes of a bear market, appreciating that things will likely get worse before they get better" (emphasis added).


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## skc (13 April 2012)

Nutmeg said:


> I read the link.




Let's not crowd the TGA thread. May be we should start a separate TA vs FA thread. I think there are less than several thousand of these on this forum.


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## Nutmeg (16 April 2012)

I'm just looking at TGA's report to 30 Septmeber 2011.  But for the capital raising, it would've been cash flow negative.  What's going on there? Pioupiou?  Attributable to TGA's acquisition of NCML?


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## Klogg (16 April 2012)

Nutmeg said:


> I'm just looking at TGA's report to 30 Septmeber 2011.  But for the capital raising, it would've been cash flow negative.  What's going on there? Pioupiou?  Attributable to TGA's acquisition of NCML?




I don't think it's attributable to that, as they still had a net decrease in cash of $989,000 (including the ~29mil from capital raising, of which 25mil went to repay debt and about 1mil to interest)

But the thing to keep in mind is that they pay their income tax expense in the first half of the financial year, so 8mil went in tax that won't be in the second half.

Please do correct me if I'm wrong though.


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## oldblue (16 April 2012)

The most important number about TGA's cashflow is it's Operating Cash flow - and this increased to a positive $34m in the last half. This, together with a healthy Working Capital surplus should allay any posssible concerns regarding their financial position, IMO.


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## Pioupiou (16 April 2012)

I cannot see any cash-flow issues that concern me.

Remember that TGA paid $32.5 million for NCML, and it incurred something in the order of $850 interest on the circa $25 million borrowed for that purpose, whereas the capital raising brought in $29.381 million.  This means that $32.5M + $.85M - $29.4 = $3.95M was sucked out of other areas.  To end up with $8 million in cash is damned good, bearing in mind that (normalising the $29.381M out of the picture) the quality of the Balance Sheet improved by $8M too.  That is, the $3.95M is not lurking in the background - e.g., as extended debtors.

I sometimes wonder why TGA did not simply run with the NCML-created debt, decreasing it rapidly via its healthy cash flow.  The capital raising may not have been necessary, but that is spilled milk.


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## Nutmeg (16 April 2012)

Thanks for your thoughts, gents.  I didn't really think that TGA had anything that could be described as a "cashflow issue".  It was just that I have only recently bought into the stock and couldn't account for the apparent negative cashflow evident in its latest report.  I am perhaps inordinately sensitive to cashflow statements and pay more attention to them than to anything else in financial reports.  I've learnt the hard way that reported profit does not necessarily convey a clean bill of health.


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## oldblue (21 April 2012)

FWIW, I see that IOOF is back as a substantial holder of TGA as at 17 April.


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## Nutmeg (23 April 2012)

PPT is dumping TGA stock, I see.


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## McLovin (23 April 2012)

Nutmeg said:


> Thanks for your thoughts, gents.  I didn't really think that TGA had anything that could be described as a "cashflow issue".  It was just that I have only recently bought into the stock and couldn't account for the apparent negative cashflow evident in its latest report.  I am perhaps inordinately sensitive to cashflow statements and pay more attention to them than to anything else in financial reports.  I've learnt the hard way that reported profit does not necessarily convey a clean bill of health.




You have to remember the main investing cashflow is acquisition of rental assets. This cash outflow occurs when a customer signs a contract. It's not your traditional CAPEX, in that it only occurs when there is a defined future cash inflow.


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## odds-on (24 April 2012)

This talk of cashflow checks and substantial holders has got me thinking. Has anybody ever worked at fund managers? The reason I ask, is that I can understand that a fund manager can move in and out of a stock as part of their portfolio management rules but surely if they are moving into a stock this is a sign that the annual report passes some checks (cashflow, balance sheet, etc). I assume an analyst will have reviewed the last 5 years of annual reports, done cashflow checks and so on. All of this will have then been reviewed by somebody competent before taking a position in the stock. I am guessing an analyst may spend a total of 40 hours per year on a stock analysing it, this will be reviewed by somebody competent and so on. If there are a few fund managers holding the stock then surely this means that in total there have been hundreds of man hours spent reviewing annual report, modelling and so on. What edge do I have reading an annual report on a Sunday afternoon while having a cup of tea? Surely my edge comes from NOT having the portfolio management rules and just having a contrarian view of a business? I do not actually need to do balance sheet checks I just need to check some fund managers hold.

I am trying to make my decision making process as efficient as possible having read some articles about how the more information you analyse does not actually improve your decision making.

Cheers

Oddson


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## Klogg (24 April 2012)

odds-on said:


> This talk of cashflow checks and substantial holders has got me thinking. Has anybody ever worked at fund managers? The reason I ask, is that I can understand that a fund manager can move in and out of a stock as part of their portfolio management rules but surely if they are moving into a stock this is a sign that the annual report passes some checks (cashflow, balance sheet, etc). I assume an analyst will have reviewed the last 5 years of annual reports, done cashflow checks and so on. All of this will have then been reviewed by somebody competent before taking a position in the stock. I am guessing an analyst may spend a total of 40 hours per year on a stock analysing it, this will be reviewed by somebody competent and so on. If there are a few fund managers holding the stock then surely this means that in total there have been hundreds of man hours spent reviewing annual report, modelling and so on. What edge do I have reading an annual report on a Sunday afternoon while having a cup of tea? Surely my edge comes from NOT having the portfolio management rules and just having a contrarian view of a business? I do not actually need to do balance sheet checks I just need to check some fund managers hold.
> 
> Cheers
> 
> Oddson




I'll prefix this by saying that I don't work for a fund manager, nor do I have any significant experience in the stock market (approx. 1year) - so please keep this in mind when using what I say as 'advice' of any sort.

In regards to TGA, whilst you and I may be interested in this stock because it's come up on our radar as good value, fundamentally strong, etc., PPT might be dumping because they want to cash out on something they bought at 90c... Or even that they want to take on more risk for higher returns - who knows. You need to make sure that you make your own decisions though, and not base it on short term noise (if you're using FA techniques and a longer term approach)

As for reading financial statements - this is not to give you an "edge". It's so that you understand the underlying events of the company you're about to invest in. These statements might show you something like (not in the case of TGA, but generally):
- Dividends being funded by debt
- Show any segments of the business which are underperforming
- If a company has over-valued their assets significantly (and may therefore write-down these in the future)
- Reported figures do not add up completely (e.g. tax amounts are way-off compared to profit)
... and many other possible nasty scenarios.

From the above, regardless of what other people know, you can now see that you're better informed to *make your own decision*. If you didn't know the details above, how could you possibly invest in the company?



> I am trying to make my decision making process as efficient as possible having read some articles about how the more information you analyse does not actually improve your decision making.




As for creating efficiencies in your decision making, it's true that you should limit your data to *relevant* information. However, the financial health of the company is definitely relevant.


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## skc (24 April 2012)

odds-on said:


> I do not actually need to do balance sheet checks I just need to check some fund managers hold.




I have a friend who's a fund manager (overseas)... he told me that they hold ~80-90% of funds just purely based on market cap. The rest gets shifted around by playing the beta (i.e. skew to higher beta stock when the investment head things the market is going up) and hopefully get outperformance compared to the wider market. They will hold as long as the stock is big enough. In fact, they can't afford not to hold because, if a big stock they don't hold goes up a lot, they will suffer underperformance. They want to be in a position to not get beat by the market first and foremost.

Plenty of fund managers held ABC Learnings for a long time (and till death). You are over estimating the skills, prudence, competence and overall "care factor" of your average fund manager.


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## McLovin (24 April 2012)

skc said:


> Plenty of fund managers held ABC Learnings for a long time (and till death). You are over estimating the skills, prudence, competence and overall "care factor" of your average fund manager.




Exactly. Most of them are most skilled at marketing. Most fundies don't tend to analyse every stock to death, it's often more about "themes".

If an FM has 70 or 80 stocks in their fund, then it's highly unlikely they are spending 40 hours on a microcap like TGA.


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## kermit345 (24 April 2012)

I work in the finance industry and have heard/attended a number of fund manager presentations and webcasts. Note everything I say here is not a proven number but more my estimates.

My take is about 80-90% of fund managers are actually required by their responsible entity to hold majority of their INVESTED funds in the index with which they are most closely aligned.

If you look at the top 10 holdings for a number of various funds in Australia majority of them will be BHP, CBA, NAB, WBC, TLS, RIO, WPL etc etc with weightings that may vary a little. The fund manager only attempts to outperform with their slight weighting adjustments AND a few extra stocks with about 5-10% of their invested funds.

The reason for this is that A) they do not want to drastically underperform the market and lose critical FUM and B) it means they already operate close to their comparison point. Hence why fund managers over-time typically underperform the index simply because they hold the index but charge 1% in fees. The exception is obviously those superior stock pickers who have had their responsible entity allow them more wiggle room with their holdings but these come few and far between.

Also just note that Fund Managers actually prefer down markets then up for their outperformance of an index. The Fund Manager typically has the ability to move 20-50% into cash and get outperformance - the index does not have this ability.


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## odds-on (24 April 2012)

Thanks for the feedback. I like the sound of being a fund manager, it is bit like being a politician, difficult to win but you get paid handsomely for playing the game.

So, what is the key relevant information  to be used for making a decision to buy or sell TGA? No more than 5 points please.


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## odds-on (24 April 2012)

McLovin said:


> Exactly. Most of them are most skilled at marketing. Most fundies don't tend to analyse every stock to death, it's often more about "themes".
> 
> If an FM has 70 or 80 stocks in their fund, then it's highly unlikely they are spending 40 hours on a microcap like TGA.




Thanks. Do you think it is wise to own shares in a FM company? I doubt the industry is going to go away.


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## Klogg (24 April 2012)

odds-on said:


> So, what is the key relevant information  to be used for making a decision to buy or sell TGA? No more than 5 points please.




For me, these are:

- Very low debt company
- Great RoE as a result of great management
- Recurring profits (~50%)
- A consistent trend of profit growth (although I don't expect this)
- Ability to get their payment from Centrelink, rather than expect it from clients (very important when dealing with finance to sub-prime customers IMO)

And a nice payout ratio to match all of this


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## odds-on (24 April 2012)

Klogg said:


> For me, these are:
> 
> - Very low debt company
> - Great RoE as a result of great management
> ...




Thanks Klogg. To continue this further, where did you find out your information? The low debt, ROE and profit growth can be found from just looking at ft.com or MSN money.


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## ROE (24 April 2012)

Nutmeg said:


> PPT is dumping TGA stock, I see.




Their dumping is justified they bought them bloody cheap during the GFC, they would made
a couple hundred percent gain so by getting out and drive down share price by 10-20% it's still a nice little earner...


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## McLovin (24 April 2012)

odds-on said:


> Thanks. Do you think it is wise to own shares in a FM company? I doubt the industry is going to go away.




You just have to consider that you are buying a marketing company. Lots of companies do very well with inferior products because they market them well. Personally, unless there is some other competitive advantage, I'd rather stick with companies that have a good product. Look at the difference between Perpetual and Platinum. PTM has ~$6b less in FUM but is more than twice as big as PPT by market cap. They don't spend money trying to get advisers to sell their product and instead let the results do the talking. Of course, Kerr Nelsons are fairly thin on the ground and there's no doubt there's some key man risk in there but I think it's good to illustrate the point.


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## Klogg (24 April 2012)

odds-on said:


> Thanks Klogg. To continue this further, where did you find out your information? The low debt, ROE and profit growth can be found from just looking at ft.com or MSN money.




This can be found by just looking at any stats posted by Morningstar, but you have to ask yourself, are they correct.

You'll find that there was a bit of capital raising that occured recently which skewed all the data - so for this you have to go and do the research yourself. (There are other reasons too, but this is just an example)

As for other information, my sources include:
- Past company announcements
- Presentations/Interviews of management (google searches, this and other forums, other websites, show this)
- Reviews done by other institutions (For example, the Macquarie one, which was quite bearish IMO)
- Visiting the actual store(s) - I went to the Hoppers Crossing (VIC) store. This gives you an idea of how things run.
- Similar sources for competitors and how their financials and processes stack up (and whether you think there's more value in this than others)

For me, google is my friend. I'm willing to go through hundreds of pages of crap if it means I find something useful. Probably not the most effective use of my time, but if it gives me confidence that I'm not going to uncover something terrible after I've bought into the company, then I'm happy with that.


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## kermit345 (24 April 2012)

McLovin said:


> You just have to consider that you are buying a marketing company. Lots of companies do very well with inferior products because they market them well. Personally, unless there is some other competitive advantage, I'd rather stick with companies that have a good product. Look at the difference between Perpetual and Platinum. PTM has ~$6b less in FUM but is more than twice as big as PPT by market cap. They don't spend money trying to get advisers to sell their product and instead let the results do the talking. Of course, Kerr Nelsons are fairly thin on the ground and there's no doubt there's some key man risk in there but I think it's good to illustrate the point.




Absolutely correct. I'd be careful about investing anywhere in the finance industry at the moment with the FoFA legislation that is going on to protect the consumers/clients. A lot of finance companies are going to struggle with the loss of some commission streams (depending on grandfathering) and also with outlining exactly what they are charging their clients for. Funds Management is also now in the spotlight as people recognise indexing with their super produces the same if not a better return in most circumstanes and possibly holding 'tilts' to the Kerr Nelson's etc. This points to possibly a reduction in FUM to a lot of fund managers and/or they will be forced to reduce fees.

Financial Planning companies which are listed and Fund Managers that are listed who can weather the legislative storm on the horizon will be great companies to be invested in IMO. It's identifying these companies which will be the difficult thing without some insider knowledge. Theres also likely to be a lot of company consolidation as the administrative burden and reduced fees hurt some smaller firms.

Also back to TGA, the 5 points Klogg has referenced are a big part of what encouraged me to buy shares in TGA. Although I was unable to find any reference in recent announcements by the company in relation the recurring revenue. Interested in where you obtained the 50%+ figure from Klogg.


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## odds-on (24 April 2012)

McLovin said:


> You just have to consider that you are buying a marketing company. Lots of companies do very well with inferior products because they market them well. Personally, unless there is some other competitive advantage, I'd rather stick with companies that have a good product. Look at the difference between Perpetual and Platinum. PTM has ~$6b less in FUM but is more than twice as big as PPT by market cap. They don't spend money trying to get advisers to sell their product and instead let the results do the talking. Of course, Kerr Nelsons are fairly thin on the ground and there's no doubt there's some key man risk in there but I think it's good to illustrate the point.




Thanks, this was my suspicion. Another one to add to my ASX playbook.


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## odds-on (24 April 2012)

kermit345 said:


> Absolutely correct. I'd be careful about investing anywhere in the finance industry at the moment with the FoFA legislation that is going on to protect the consumers/clients. A lot of finance companies are going to struggle with the loss of some commission streams (depending on grandfathering) and also with outlining exactly what they are charging their clients for. Funds Management is also now in the spotlight as people recognise indexing with their super produces the same if not a better return in most circumstanes and possibly holding 'tilts' to the Kerr Nelson's etc. This points to possibly a reduction in FUM to a lot of fund managers and/or they will be forced to reduce fees.
> 
> Financial Planning companies which are listed and Fund Managers that are listed who can weather the legislative storm on the horizon will be great companies to be invested in IMO. It's identifying these companies which will be the difficult thing without some insider knowledge. Theres also likely to be a lot of company consolidation as the administrative burden and reduced fees hurt some smaller firms.
> 
> Also back to TGA, the 5 points Klogg has referenced are a big part of what encouraged me to buy shares in TGA. Although I was unable to find any reference in recent announcements by the company in relation the recurring revenue. Interested in where you obtained the 50%+ figure from Klogg.




Thanks Kermit. I am bullish on the Fund Management and Financial Planning industry. The reason for my bullish view is the size of the Australian super industry and investors short term memory. 5-10 years down the track the GFC will be long forgotten but there will be trillions of dollars that need to be invested and thousands of investors requiring assistance. Somebody, somewhere will be making money from this. Feel free to PM me if you have ideas or suggestions of FM or Financial Planning companies worth looking at, I only have the internet.


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## kermit345 (24 April 2012)

odds-on said:


> Thanks Kermit. I am bullish on the Fund Management and Financial Planning industry. The reason for my bullish view is the size of the Australian super industry and investors short term memory. 5-10 years down the track the GFC will be long forgotten but there will be trillions of dollars that need to be invested and thousands of investors requiring assistance. Somebody, somewhere will be making money from this. Feel free to PM me if you have ideas or suggestions of FM or Financial Planning companies worth looking at, I only have the internet.




I'll make this my last post on the finance industry. There is great potential with the size of Australian Superannuation funds but don't be so quick to assume this will go to the bottom line of today's companies. The proposed MySuper has the potential to drastically reduce the flow of funds into Fund Managers and Financial Planners in combination with the new Fee For Service models. Financial Planners will be remunerated more and more for their strategic work and not their investment skills earning FUM payments and commissions.

The financial planning and funds management landscape is changing through government legislation so tread very carefully until the legislation is passed and in place. There's a huge potential out there for business consolidation and for the banks to expand on their range of solutions and basically control every aspect of a persons financial position. Due to their scale, even though fees are being compressed my view is the banks can potentially earn mega bucks through scale and providing the whole financial picture for people. Mortgage, Insurance, Savings, Financial Strategies, Investment, Superannuation. You may think they do it all now, but with the administrative burden smaller businesses may feel (depending on legislation) in the next 2-5 years the scale of the banks could become much more. All my view by the way but if you delve deep enough many share my view.


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## odds-on (24 April 2012)

kermit345 said:


> I'll make this my last post on the finance industry. There is great potential with the size of Australian Superannuation funds but don't be so quick to assume this will go to the bottom line of today's companies. The proposed MySuper has the potential to drastically reduce the flow of funds into Fund Managers and Financial Planners in combination with the new Fee For Service models. Financial Planners will be remunerated more and more for their strategic work and not their investment skills earning FUM payments and commissions.
> 
> The financial planning and funds management landscape is changing through government legislation so tread very carefully until the legislation is passed and in place. There's a huge potential out there for business consolidation and for the banks to expand on their range of solutions and basically control every aspect of a persons financial position. Due to their scale, even thougwh fees are being compressed my view is the banks can potentially earn mega bucks through scale and providing the whole financial picture for people. Mortgage, Insurance, Savings, Financial Strategies, Investment, Superannuation. You may think they do it all now, but with the administrative burden smaller businesses may feel (depending on legislation) in the next 2-5 years the scale of the banks could become much more. All my view by the way but if you delve deep enough many share my view.




Thanks for this Kermit, food for thought. I live in NZ and do not work in the finance industry therefore it is good for you to post your view. I shall leave this idea alone for while as i will only be speculating.


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## So_Cynical (24 April 2012)

odds-on said:


> Thanks. Do you think it is wise to own shares in a FM company? I doubt the industry is going to go away.




Oddson there are fund managers and then there are fund managers..the majority are uninspiring, predictable nobody's and some stick their neck out and think outside the box.

I like investing in the ones that think out side the box and do things a little different... otherwise you would do just as well with an index fund.

---------------

On the subject of TGA it annoys the hell out of me that such a mediocre stock receives so much attention.


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## Ves (24 April 2012)

So_Cynical said:


> On the subject of TGA it annoys the hell out of me that such a mediocre stock receives so much attention.



 Curious as to why you would say this?  We could certainly do with some alternative opinions to the glowing reviews.


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## Pioupiou (25 April 2012)

Kermit345 wrote, "Interested in where you obtained the 50%+ figure from Klogg?"

We know that the average rental contract runs for 27 months, so one could guesstimate the average for any forthcoming 12 months to be 12/27, which is about 45%.  I am unsure of the mathematical soundness of my arithmetic, but the 45% reconciles to the approximate percentage that I was told by TGA staff when I visited a Radio Rentals outlet some months ago. The non-rental lines of TGA's business distort the picture somewhat, but we can run with the 45% to 50% that David Hughes, MD of TGA, opined in the closing words of BRR:

http://www.brrmedia.com/event/89694...arshall-general-manager-radio-rentals--rentlo 

Further, 40% of clients recommit to new contracts when their contracts expire, so TGA can reasonably assume a higher percentage of business will come in during the twelve months under consideration from the customer base that existed at the close of the previous year.  All management has to do is ensure they pick up enough new business to replace the annual decay, and then some for expansion - something they have done successfully for years.


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## oldblue (25 April 2012)

Fair enough, Pioupiou, but that seems to me to be putting the very best possible interpretation on the numbers. An alternative, less optimistic one would be to say that TGA needs to replace 60% of its contracts as they mature/expire. merely to stand still.
But yes, they seem to be able to achieve this.


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## kermit345 (26 April 2012)

Fair enough Pioupiou. As oldblue said it depends how you look at and interpret those numbers yourself. Essentially the recurring revenue's are more like 40% rather than 50% which starts to become less reassuring. Also not sure I like the idea of classing it as recurring revenue anyway when its only an average of 27 months that a person stays on with TGA.

This is pretty different when compared to companies who achieve high recurring revenues through 3-5+ year binding contracts.

Anyhow I still like TGA and you can see the recent downtrend channel since roughly start of March could be largely attributed to Perpetual's constant selling. I'll be watching closely for the volume to taper off a bit and the share price to stabilise to possibly add to my position in anticipation of a turn back towards $1.80+ once the selling pressure has eased. Note if TGA achieves $0.195 EPS they would be on a P/E of 7.5 which appears to be good value to me, not to mention the div yield creeping above 6%.


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## Klogg (26 April 2012)

> On the subject of TGA it annoys the hell out of me that such a mediocre stock receives so much attention.




Interesting - SC, can I please get your view as to why you think this?


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## Nutmeg (26 April 2012)

What amazes me looking at TGA's share price touch $1.40 this morning is that a company that reported a 30% rise in net profit for the half year and indicated that net profit for the full year would be about the same (subject to trading conditions remaining stable - which they appear to have done) can be sold off as heavily as it has been.  So much for the efficient market hypothesis!  

I accept that some institutions are selling out of positions from which they have doubled or tripled their money but that does not make the sell-down any more rational or efficient in the absence of evidence of a fundamental deterioration in the company.   Rather, it just shows that some are willing to forfeit making more money despite the fundamentals of the business being stronger than they were when those initial positions were taken.


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## skc (26 April 2012)

Nutmeg said:


> What amazes me looking at TGA's share price touch $1.40 this morning is that a company that reported a 30% rise in net profit for the half year and confirmed net profit for the full year to be about the same can be sold off as heavily as it has been.  So much for the efficient market hypothesis!




The market is only efficient over time and on average.

You rely on the market being inefficient for your entry, and rely on the market being efficient (and price it back appropriately) for your exit.

But since PPT appears committed to backing up the dump truck, there's nothing a trader should do but standback. There's plenty of time to get back in upon confirmation of the full year results imho.


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## Boggo (26 April 2012)

Klogg said:


> Forgive my ignorance, but from an FA perspective, if I were to wait for the $1.90 to come about, the stock will no longer be 'underpriced' as my analysis suggests.




How is that 'underpriced' analysis holding up today.

Guys, all this banter and posting is irrelevant, one look at a chart and a four year old could tell you what the reality is.

Reality - the price is going down, unless you are short it will cost you money


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## Nutmeg (26 April 2012)

Correction: $1.34 - this is beautiful!  This is almost certainly the most undervalued stock in the ASX at the moment - in my view, of course.  

One word describes today's sell-off: PANIC!  Clearly, the herd-mentality is alive and well in the Australian stock market.


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## Nutmeg (26 April 2012)

skc said:


> You rely on the market being inefficient for your entry, and rely on the market being efficient (and price it back appropriately) for your exit.




Buy low and sell high - it's the essence of business in general.  I am not a trader so I'm not bothered by low prices staying down for a day, a week, a month or 6 months.  The longer prices stay down, the more opportunity I have to buy at depressed prices.

In this regard, I've started reading an interesting book on market mispricings: _The Handbook of Equity Market Anomalies: Translating Market Inefficiencies into Effective Investment Strategies_.   It's addressed more to those studying finance.  Traders will find it useless.  Investors will find it invaluable.


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## Nutmeg (26 April 2012)

Boggo said:


> How is that 'underpriced' analysis holding up today.
> 
> Guys, all this banter and posting is irrelevant, one look at a chart and a four year old could tell you what the reality is.
> 
> Reality - the price is going down, unless you are short it will cost you money




I really don't understand the logic behind this quote above.  Why will someone "lose" money if they buy a share at $1.40 that is worth $2.00? Is it solely because an investor could have had it at $1.35 instead of $1.40? But you don't lose money in such a scenario - you make more money because you've gotten a bigger discount.  

I have carried out both a DCF valuation and an enterprise valuation on TGA and each values TGA at up around $2.00 per share - and my inputs have been extremely conservative.

I suspect that the fear that you will "lose" money buying TGA under $2 per share is based upon the fact that traders mostly don't know the value of what they are buying.  All they know are prices.


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## Klogg (26 April 2012)

Boggo said:


> How is that 'underpriced' analysis holding up today.
> 
> Guys, all this banter and posting is irrelevant, one look at a chart and a four year old could tell you what the reality is.
> 
> Reality - the price is going down, unless you are short it will cost you money




I don't disagree for a second that there's a solid downtrend... But I'm not really looking to make money within weeks or months.

What I'm looking for is a great company to invest in, at a price that I deem 'cheap'. If I can find one that is performing well, growing its profits, paying a nice dividend, why do I care if there's a downtrend?
Yes, in a months from now is it likely that people will be paying less for that slice of the company, but I'm not focussing on short-term trends. If the company continues to perform stronly, there's no reason for earnings not to have increased substantially in years to come.

Anyway, don't want to get into the whole FA/TA thing, that's not for this thread. I have an average entry price on this at about $1.57 and I can't see a reason for me not to average down.


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## Klogg (26 April 2012)

Nutmeg said:


> In this regard, I've started reading an interesting book on market mispricings: _The Handbook of Equity Market Anomalies: Translating Market Inefficiencies into Effective Investment Strategies_.   It's addressed more to those studying finance.  Traders will find it useless.  Investors will find it invaluable.




Nutmeg, may I ask what you think of this book so far? 

I don't have any formal education in finance, but I've a strong enough knowledge to understand _most_ things finance... Is this book over my head?

As for TGA, my 'valuation' came in a little lower than $2, but I was also very conservative.


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## robusta (26 April 2012)

Picked up a handful more today, I must admit this one feels a bit strange, this stock has way too much support on ASF for my liking.


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## Nutmeg (26 April 2012)

Klogg said:


> Nutmeg, may I ask what you think of this book so far?
> 
> I don't have any formal education in finance, but I've a strong enough knowledge to understand _most_ things finance... Is this book over my head?
> 
> As for TGA, my 'valuation' came in a little lower than $2, but I was also very conservative.




Hi Klogg, the book is pretty heavy going.  But its conclusions are simple to understand and easy to apply.  For example, it has a good section on analysing the quality of earnings based upon accruals - the more accruals, the lesser the quality of the earnings.  If you buy it, I recommend getting it from Fishpond, the online bookstore, rather than a bricks-and-mortar bookstore.  There's a price difference of over $50 if you get it online.

As for our difference in TGA's valuation, perhaps you were more conservation than I.


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## Nutmeg (26 April 2012)

robusta said:


> Picked up a handful more today, I must admit this one feels a bit strange, this stock has way too much support on ASF for my liking.




If you picked it up at its intraday low of $1.34, all power to you!  You're already up over 7%.


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## odds-on (26 April 2012)

I bought today. A large % of my portfolio is now TGA. Looking forward to the annual report.


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## oldblue (26 April 2012)

All this enthusiasm for TGA as it trends down is starting to worry me. In a long "career" investing I've learnt to take notice of market trends and I don't average down until the trend reverses.

Pioupiou, can you say something reassuring?


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## robusta (26 April 2012)

Nutmeg said:


> If you picked it up at its intraday low of $1.34, all power to you!  You're already up over 7%.




No $1.395, still happy though.


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## Ves (26 April 2012)

Boggo said:


> Reality - the price is going down, unless you are short it will cost you money



 Is it? Looks like a massive reversal bar on huge volume today.

Interested to hear your thoughts.


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## Klogg (26 April 2012)

Ves said:


> Is it? Looks like a *massive reversal bar* on huge volume today.
> 
> Interested to hear your thoughts.




That's exactly what I was thinking...


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## slooi1 (26 April 2012)

I have TGA shares. When are the results out?
The price action currently appears to be Perpetual getting out.
Regardless, I've been around long enough to look at the trend before backing the truck.

slooi1


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## Pioupiou (26 April 2012)

oldblue said:


> All this enthusiasm for TGA as it trends down is starting to worry me. In a long "career" investing I've learnt to take notice of market trends and I don't average down until the trend reverses.
> 
> Pioupiou, can you say something reassuring?




I am still a believer - tried to buy 30,000 more this afternoon, but only got 7K+.

The ASX queried the SP drop today, and TGA responded immediately with a know-nothing announcement.  This is important, because management would be in strife if things turned out otherwise.  Consequently, I think we can rely on the forward comments that management made when the 1H results were published, which was that in spite of the loss of the ATO business, the 2H results will be as good as 1H.  The Interim Report closes with the following Outlook: "The company expects a substantial increase in earnings FY12 due to a full year contribution from NCML and solid organic earnings growth from the existing divisions‟.  The  http://www.brrmedia.com/event/89694/...entals--rentlo) BRR is positive - listen to it carefully.

The only negative of reasonable significance that I can conjure to mind is NCML.  The acquisition of NCML cost each TGA share about 22 cents, so that cannot explain the massive retraction of SP.  If TGA exited NCML at half the price it paid for it, that would be 11 cents a share lost.

I still expect the EPS for the year to be 20.35 cents.  When the annual report comes out I expect it to be positive.  PCs and flat screens will be soft.  Furniture will be a bonanza.  Thorn Equipment Finance will have gained traction, and its outlook will be good.  Cash First will continue to improve. 

On growth, even if customer growth slows, new lines can increase revenue per customer and increase the contract extension rate of the Radio Rentals/Rentlo business.  Outdoor furniture and nursery (infants, not plants) products are currently on trial. Additionally, as I hint in the previous paragraph, Cash First and Thorn Equipment Finance are added revenue fillips.  Initiatives alluded to in the BRR - providing customer management services (screening to final debt collection) to third parties) - could pop out of the woodwork.

You do not have to believe me, because about four weeks hence the annual report will be published.  From memory, it is expected on 22/05/2012.  You can glean from it what TGA's prospects are.


----------



## So_Cynical (26 April 2012)

Klogg said:


> Interesting - SC, can I please get your view as to why you think this?




Mediocre because its nothing special, people have stopped spending and that includes the less capable of paying to, bricks and motor selling of anything is in trouble.

But i have no desire to get into a slanging match with a bunch of VI's




robusta said:


> I must admit this one feels a bit strange, this stock has way too much support on ASF for my liking.




Reminiscent of Matrix isn't it?


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## Julia (26 April 2012)

Nutmeg said:


> Buy low and sell high - it's the essence of business in general.  I am not a trader so I'm not bothered by low prices staying down for a day, a week, a month or 6 months.  The longer prices stay down, the more opportunity I have to buy at depressed prices.



Really?  So you're happy to look at a capital loss for how long?
Why wouldn't you instead cut your loss and buy into something that's trending up so your capital is growing?
Or at least sell at a predetermined % down from your buy price and buy back IF and WHEN the stock starts to trend up again.

I don't know anything about TGA.  Does it have an amazing yield that allows you to justify holding onto a falling stock?


----------



## Ves (26 April 2012)

Julia said:


> I don't know anything about TGA.  Does it have an amazing yield that allows you to justify holding onto a falling stock?



About 9.5% fully franked.  EPS accretion in 2012 will see this go to double figures. 

Why would you sell a business that is growing your own personal cash flow for no reason other than short-term capital fluctuations caused by a majority holder dumping stock?


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## Boggo (26 April 2012)

Julia said:


> I don't know anything about TGA.  Does it have an amazing yield that allows you to justify holding onto a falling stock?




I don't think that they understand this formula Julia...
[Dividend Yield = annual dividend per share/stock's price per share]

Put simply, price goes down - yield goes up, I will take the price going up anyday.


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## Nutmeg (27 April 2012)

Julia said:


> Really?  So you're happy to look at a capital loss for how long?
> Why wouldn't you instead cut your loss and buy into something that's trending up so your capital is growing?
> Or at least sell at a predetermined % down from your buy price and buy back IF and WHEN the stock starts to trend up again.
> 
> I don't know anything about TGA.  Does it have an amazing yield that allows you to justify holding onto a falling stock?




Mate, it sounds like you don't really have the stomach for investing if you take fright at initial capital losses.  You really need to ask yourself: what is the rock-bottom or intrinsic value of the stock I'm buying and how have I arrived at that valuation?  If you can't answer that question, then you'll be forever enthralled and dominated by share market prices.  Personally, I can't think of a more unenviable position be in than to have my investment decisions dictated by share price movements.


----------



## Boggo (27 April 2012)

Nutmeg said:


> Mate, it sounds like you don't really have the stomach for investing if you take fright at initial capital losses.  You really need to ask yourself: what is the rock-bottom or intrinsic value of the stock I'm buying and how have I arrived at that valuation?  If you can't answer that question, then you'll be forever enthralled and dominated by share market prices.  Personally, I can't think of a more unenviable position be in than to have my investment decisions dictated by share price movements.






Nutmeg said:


> If investors were prepared to own VOC at over $3.00 last April, are VOC's business fundamentals and prospects any less favourable now that it's trading on a P/E of 11.5, reported a 66% half year rise in NPAT, has no bank debt, has a top management team and its future prospects for growth have improved even further than they were back in April?  Of course not.  The investment case for VOC's worth at $3 last April remains just as valid then as it is now that it is trading at $1.93.  In fact, it is more so.
> 
> Of course, that is not to say that I would have bought VOC at $3.00.  At that level, it didn't then and doesn't now offer any margin of safety.  Still, if I had, I am reasonably confident that, providing I held on to it, I wouldn't lose money.




Do you actually read some of the nonsense you post


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## oldblue (27 April 2012)

> The only negative of reasonable significance that I can conjure to mind is NCML. The acquisition of NCML cost each TGA share about 22 cents, so that cannot explain the massive retraction of SP. If TGA exited NCML at half the price it paid for it, that would be 11 cents a share lost.




Thanks, Pioupiou.
Of course, if NCML does turn out to be a poor investment, the downside for TGA may not be limited to half the price paid for it. It may be difficult to sell promptly at any price, particularly if it makes ongoing losses - which will also contribute to reducing the value of TGA.

No evidence at present that this is the case though - and let's hope that it isn't!


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## Klogg (27 April 2012)

oldblue said:


> Thanks, Pioupiou.
> Of course, if NCML does turn out to be a poor investment, the downside for TGA may not be limited to half the price paid for it. It may be difficult to sell promptly at any price, particularly if it makes ongoing losses - which will also contribute to reducing the value of TGA.
> 
> No evidence at present that this is the case though - and let's hope that it isn't!




I remember hearing that even though they lost the ATO contract, they had picked up two smaller contracts, which made up for a portion of the revenue loss.
IMO, the fact that they're still finding work and winning bids shows that all is not lost.


----------



## Nutmeg (27 April 2012)

Boggo said:


> How is that 'underpriced' analysis holding up today.
> 
> Guys, all this banter and posting is irrelevant, one look at a chart and a four year old could tell you what the reality is.
> 
> Reality - the price is going down, unless you are short it will cost you money




You mean "nonsense" like the above?  But, Bog, I made money yesterday buying at $1.35.  Did I lose money because the price of the stock went down for a while to $1.34?  For a few minutes, yes.  But what does that mean?  Nothing.  With respect, the problem with your approach is that the only meaningful thing you can say about a stock is to quote its price and volume and you buy on that basis.  That's why it's called the greater fool theory to making money: you buy in the hope that someone (a greater fool) will pay a higher price than you just did for the same stock out of an equal lack of any notion of how much the stock is actually worth.  But working out how much a stock is actually worth would take effort, wouldn't it.  It's easier to just quote prices and look at charts and volume and make herd-mentality predictions like: "the price is going down".  Well done, Sherlock.  How about putting in some analysis?


----------



## Pioupiou (27 April 2012)

Klogg said:


> I remember hearing that even though they lost the ATO contract, they had picked up two smaller contracts, which made up for a portion of the revenue loss.
> IMO, the fact that they're still finding work and winning bids shows that all is not lost.




I thought that I had posted this response about two hours ago, but that reply seems to have escaped into the ether.

TGA picked up debt-management business from two insurance companies.  I do not think NCML will be a disaster – I merely wanted to point out that from an FA perspective, NCML could not account for the size of the SP plunge, because it is a small part of the business.  TGA is chasing up additional business to use the resources that NCML has, and it is trimming the expense side of that business, so any NCML-related impact should be minimal.  Who knows - NCML may in time morph into something worthwhile.

One of the most sensible blurbs (combining FA and TA) on TGA that I have read for many a year was posted on The Boat Show (Facebook) yesterday.   The FA side is not new to me, and I substantially agree on that front, except I expect an EPS that is fractionally higher than 19.5 cents.  TA is not my fortÃ©, but what was written seemed sensible.   See:

http://www.facebook.com/note.php?note_id=449875805029231


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## Ves (27 April 2012)

Pioupiou said:


> One of the most sensible blurbs (combining FA and TA) on TGA that I have read for many a year was posted on The Boat Show (Facebook) yesterday.   The FA side is not new to me, and I substantially agree on that front, except I expect an EPS that is fractionally higher than 19.5 cents.  TA is not my fortÃ©, but what was written seemed sensible.   See:
> 
> http://www.facebook.com/note.php?note_id=449875805029231



 They posted a fundamental perspective today, Pioupiou. Very well written as well.  Same facebook page.


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## Pioupiou (2 May 2012)

The guff below on the topic of Price Earnings Ratios is substantially what I posted in another forum today.  What is missing, and is important, is some idea of what I expect TGA's future years' EPS might be, and this is because I would like to read the upcoming annual report for YE 30/03/2012 before I guesstimate those figures.  If I were forced to proffer numbers, I would use 20 cents for YE 30/03/2012, and grow it by a compound 8% for the subsequent three years. 

According to the 30/04/2012 dated “Weekly Insights” written by By Rudi Filapek-Vandyck, Editor FNArena, the average PER for the ASX is about 9, but this is heavily downward skewed by materials and financials, with the the forward PE for the core market (excluding materials and financials) being 14.8. This suggests that less-than-average stocks (excluding materials and financials) should be below 14.8, and better-than-average stocks should be above 14.8. Rudi suggests 14.8 may be too high, which is fair enough. I would be inclined to think that a stellar stock like TGA should enjoy a PER of at least 14, but I accept that it will take time to get there, and by then the EPS would have grown, so the SP will get a double booster – some day!

To highlight how a good forward prognosis uplifts the PER, and a poor one depresses it, Rudi mentions two stocks, Invocare (IVC) and JB Hi-fi (JBH). IVC has a steady market interring/cremating people, and it has a PER of about 20, whereas JBH has a fickle market that has dubious growth/margin potential, and it has a PER of about 8 to 9. Where do these PERs suggest TGA's PER should be – somewhere between 8 and 20 - the midpoint is 14?

I do not want to write about IVC, or the PERs that Rudi has mooted, but I'll supply some information. This afternoon (02/05/2012) the IVC SP was $8.31, which is 24.5 times the normalised EPS for 2011. IVC's last annual accounts gave the normalised EPS historicals as:

- - - - - - - - - 2007 - - - - - 2008 - - - - - 2009 - - - - - 2010 - - - - - 2011
EPS - - - -- - - 22.2 - - - - - 27.2 - - - - - - 28.3 - - - - - 32.3 - - - - - 33.9

There were two other sets of EPS figures given in the annual report, but I did not invest time in reconciling them to figure what set was the most apt, because this forum relates to TGA, not IVC.  My first instinct is to opine that IVC is overpriced.

JBH's diluted EPS metrics are:

- - - - - - - - - 2007 - - - - - 2008 - - - - - 2009 - - - - - 2010 - - - - - 2011
EPS - - - - - - -  38.1 - - - - - 60.7 - - - - - - 87.6 - - - - 108.4 - - - - 101.1

WOW's reported PER today (Westpack broking) is 14.86 Its diluted EPS historicals taken from annual reports are:

- - - - - - - - - 2007 - - - - - 2008 - - - - - 2009 - - - - - 2010 - - - - - 2011
EPS - - - - - - 107.9 - - - - -133.6 - - - -- 149.7 - - - -- 163.2 - - - - 173.6 

The equivalent metrics for TGA are:

- - - - - - - - - 2007 - - - - - 2008 - - - - - 2009 - - - - - 2010 - - - - - 2011
EPS - - - - - - 5.05 - - - - - - 8.3 - - - -- - - 9.4 - - - - - -14.9 - - - - - 16.7

TGA's EPS for YE 30/03/2012 should be about 20 cents, so a PER of 14 would suggest a fair value SP of $2.80. Obviously, one can pick any PER one likes – but be reasonable, and recognise what loosely comparable stocks enjoy.   As I wrote earlier, your future years' EPS guestimates should have a great deal of relevance when inventing a PER for TGA. 

In conclusion, TGA outshines the stocks mentioned, and many others on the ASX, and to ascribe it a PER of 8 is daft. If you do not agree, give your reasons please - not a vacuous one-liner.


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## Nutmeg (3 May 2012)

Pioupiou said:


> TGA's EPS for YE 30/03/2012 should be about 20 cents, so a PER of 14 would suggest a fair value SP of $2.80. Obviously, one can pick any PER one likes – but be reasonable, and recognise what loosely comparable stocks enjoy.   As I wrote earlier, your future years' EPS guestimates should have a great deal of relevance when inventing a PER for TGA.




Quality post, Pioupiou! It's confirmation (if confirmation were needed) that TGA is presently one of the most undervalued stocks in the ASX.  Whatever the valuation method used, even the most conservative values TGA at around $2.  Once the ATO and other vicissitudes are netted out, TGA's current depressed share price can clearly not be attributed to anything fundamental behind it.  Personally, I am loading up as much as I can while it remains under $1.50.  I suspect that once it reports it will get a lift.


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## tinhat (3 May 2012)

Thanks Pioupiou for your analysis.

Looking at yesterday's close of 1.44, I've got a PE reading of 7.65. One problem may be their payout ratio which is about 50%. March 2012 forecast EPS is 19.40cps. Forecast annual dividend is 10cps. Historically the dividend payout ratio has been well below 50%.

There has been quite a shift to defensive income stocks and hybrids in recent times and with consumer discretionary on the nose, I think investors are probably just more interested in hybrids, banks and TLS.


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## McLovin (3 May 2012)

tinhat said:


> Thanks Pioupiou for your analysis.
> 
> Looking at yesterday's close of 1.44, I've got a PE reading of 7.65. One problem may be their payout ratio which is about 50%. March 2012 forecast EPS is 19.40cps. Forecast annual dividend is 10cps. Historically the dividend payout ratio has been well below 50%.
> 
> There has been quite a shift to defensive income stocks and hybrids in recent times and with consumer discretionary on the nose, I think investors are probably just more interested in hybrids, banks and TLS.




If the business is slowing, then you'd expect the payout ratio to rise. TGA"s biggest cash drain is investment in rental equipment. I'm happy to take either the business growing and using internally generated funds to invest in new customers, or if it is slowing for that cash to instead be paid out. Sort of like when a boat slows down and the wake catches up to it.


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## Boggo (3 May 2012)

Amid all this sometimes eloquent 'I need to justify the pyschology of why I am still holding/averaging down' banter with meaningless numbers thrown in to back up my amateur buffetology opinion comes a time for the reality check.

Here it is, not my opinion, just the facts.
TGA is back where it was 18 months ago and has dropped in just over 12 months from a high of 2.27 to a new closing low of 1.44 yesterday.
Another "bargain at these prices" stock maybe but that is not a good look at the moment.
(click to expand)


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## Nutmeg (3 May 2012)

Boggo said:


> Amid all this sometimes eloquent 'I need to justify the pyschology of why I am still holding/averaging down' banter with meaningless numbers thrown in to back up my amateur buffetology opinion comes a time for the reality check.
> 
> Here it is, not my opinion, just the facts.
> TGA is back where it was 18 months ago and has dropped in just over 12 months from a high of 2.27 to a new closing low of 1.44 yesterday.
> ...




Such penetrating analysis, Boggo!  Can you explain why?  And don't just give us: it's because there are more sellers willing sell down than buyers willing to pay up.  That simply begs the question: why are they willing to sell down a company that is making more money than it was a year ago?


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## odds-on (3 May 2012)

Boggo said:


> Amid all this sometimes eloquent 'I need to justify the pyschology of why I am still holding/averaging down' banter with meaningless numbers thrown in to back up my amateur buffetology opinion comes a time for the reality check.
> 
> Here it is, not my opinion, just the facts.
> TGA is back where it was 18 months ago and has dropped in just over 12 months from a high of 2.27 to a new closing low of 1.44 yesterday.
> ...




I want the price to drop further as I have spare cash...........

Timeframe is key. I have a medium term view (5 years).


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## Boggo (3 May 2012)

Nutmeg said:


> Such penetrating analysis, Boggo!




On a par with some of the previous in depth psychological justification posts, why thank you !


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## Pioupiou (3 May 2012)

McLovin said:


> If the business is slowing, then you'd expect the payout ratio to rise. TGA"s biggest cash drain is investment in rental equipment. I'm happy to take either the business growing and using internally generated funds to invest in new customers, or if it is slowing for that cash to instead be paid out. Sort of like when a boat slows down and the wake catches up to it.




Spot on - if TGA's business slows, funding can be diverted to shareholders.

To begin with, I do not think TGA's upward EPS trajectory will slow.  On the Radio Rentals and Rentlo business, the electronics stuff will give lower margins, but furniture and any new lines can compensate for that.  The MD made the point recently that the target demographic, financially stressed households, are currently growing faster than households generally.  There are other niche markets - e.g., anybody who does not want the hassle of sorting out repairs (e.g., landlords) and those who do not want the problem of disposing of stuff at the end of a defined stint (e.g., a contract to work away from home, or a the term of a tertiary course).  Add to this the fact that the Cash First and Thorn Equipment Rental businesses are travelling nicely.  As you wrote, if the total business does slow down, the cash normally required to fund growth can be diverted to shareholders as a higher pay-out ratio.  Rent-A-Center in the USA has been growing its EPS for years via buybacks, which translate into more dividends even if the payout ratio is constant.

At the current SP, one can get something like 6% fully franked dividends, with the near-certain event of a capital appreciation over time, plus a growing dividend.  Why bother with convertible bonds and the like?  I have yesterday paid for the last 30,000 TGAs that I bought last week (funded by selling other stocks and $20K of short-term borrowing that I can pay off circa 1 July).  I put my money where my mouth is (or rather, where my two typing fingers are).

The issue of what the future holds is something I would prefer to guesstimate after I have read the YE 30/03/2012 annual report, but I expect that EPS will grow faster than what most investors dare to think in these negative days.


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## Klogg (3 May 2012)

Boggo said:


> Amid all this sometimes eloquent 'I need to justify the pyschology of why I am still holding/averaging down' banter with meaningless numbers thrown in to back up my amateur buffetology opinion comes a time for the reality check.
> 
> Here it is, not my opinion, just the facts.
> TGA is back where it was 18 months ago and has dropped in just over 12 months from a high of 2.27 to a new closing low of 1.44 yesterday.
> ...




Boggo, I can definitely see your point of view here...

You are correct, this is the medium term price of the company - definite fact. Another fact, is PPT have sold off a huge number of shares, causing an oversupply, thus the drop in price.

However, if a company is earning more, paying a larger dividend and getting a larger market share (without dilution of shares or debts), as measured by EPS and yield, wouldn't this mean that my ownership in that particular company is more earning more than it was previously?
And if that's the case, why wouldn't I hold onto (and potentially buy more of) a company that is more productive than last year and at a cheaper price to comparitive companies and the company's own previous price (the P/E ratio)?

Agree with you that there is a downtrend, but I'm not investing for the medium term. I'm just looking to own part of a particular company that is outperforming the general economy, has good prospects for the future and is not overpriced in terms of market values (a P/E of 7.5ish is not demanding in the least).

Anyway, I'm sure that's a big enough slab of text.

Bring on the annual report!


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## Nutmeg (3 May 2012)

Boggo said:


> Amid all this sometimes eloquent 'I need to justify the pyschology of why I am still holding/averaging down' banter with meaningless numbers thrown in to back up my amateur buffetology opinion comes a time for the reality check.
> 
> Here it is, not my opinion, just the facts.
> TGA is back where it was 18 months ago and has dropped in just over 12 months from a high of 2.27 to a new closing low of 1.44 yesterday.
> ...




I meant to add: A book that should be a must read for every trader and investor is _The Greatest Trade Ever Made_ by Gregory Zuckerman.  It is a must read because for more than 18 months before the US subprime mortage collapse John Paulson and his team were buying up credit default swaps despite soaring house prices and everything mortgage-related considered manna from heaven.  Paulson and his team were laughed at for betting against a collapse in housing prices.  The herd was uniformly bullish on US house prices continuing to rise.  But Paulson and his team had studied the fundamentals of the US housing market and concluded that the picture was dire.  The question that you need to ask yourself Boggo is: Which side of the subprime mortage trade would I have been on?  The one that kept looking at the chart showing housing prices going up and up?  Or the one that looked at the fundamentals of the mortgage market and said that this is unsustainable?  

For what's worth, my view is that the fall in TGA's share price is not sustainable.  And that for a  fundamental reason: TGA is worth more as a company than it was a year ago.


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## Nutmeg (3 May 2012)

odds-on said:


> I want the price to drop further as I have spare cash...........
> 
> Timeframe is key. I have a medium term view (5 years).




Hear, hear!


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## Nutmeg (3 May 2012)

Boggo said:


> On a par with some of the previous in depth psychological justification posts, why thank you !




I note that you didn't answer the question.


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## Nutmeg (3 May 2012)

Boggo is a guy who knows the price of everything and the value of nothing.


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## recruit2 (3 May 2012)

I've just loaded up on a chunk of TGA at $1.45.

Definitely appears to be undervalued and in any case the dividend is decent.

Can't see much more potential downside from here.


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## Ves (3 May 2012)

Boggo said:


> Here it is, not my opinion, just the facts.



I don't think your chart is factual at all.  You have picked a subjective time-frame to suit your case and based your analysis on this.

On a 5-year daily chart the share price has retraced from peak high of the post-GFC trend to the 38.2% fib level.  Arguably if it finds support here we could, according to your precious elliot wave methodology  (cannot remember any rich chartists who have compounded this over 20% pa for 40 years by the way) see the start of an impulsive third wave on the long term trend.


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## oldblue (3 May 2012)

There seems to be a trend in this thread to rubbish any attempt at Technical analysis of TGA.

As far as I can tell, the Fundamental analysis says that TGA is a sound, profitable company. All that Boggo is saying is that he wouldn't buy it *at the present time.*

It took me over 40 years of investing to learn to overlay my Buy and Sell decisions with an eye for the TA picture. In this case, I'd agree with Boggo and wait before adding to my modest holding.


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## VSntchr (3 May 2012)

oldblue said:


> There seems to be a trend in this thread to rubbish any attempt at Technical analysis of TGA.
> 
> As far as I can tell, the Fundamental analysis says that TGA is a sound, profitable company. All that Boggo is saying is that he wouldn't buy it *at the present time.*
> 
> It took me over 40 years of investing to learn to overlay my Buy and Sell decisions with an eye for the TA picture. In this case, I'd agree with Boggo and wait before adding to my modest holding.




There's nothing wrong with giving a technical opinion, I think the backlash was based on the way he went about it....


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## Julia (3 May 2012)

Nutmeg said:


> Boggo is a guy who knows the price of everything and the value of nothing.



Why do you feel it necessary to be personally insulting to someone who is simply explaining his different approach?



oldblue said:


> There seems to be a trend in this thread to rubbish any attempt at Technical analysis of TGA.
> 
> As far as I can tell, the Fundamental analysis says that TGA is a sound, profitable company. All that Boggo is saying is that he wouldn't buy it *at the present time.*
> 
> It took me over 40 years of investing to learn to overlay my Buy and Sell decisions with an eye for the TA picture. In this case, I'd agree with Boggo and wait before adding to my modest holding.



+1.  Exactly.




VSntchr said:


> There's nothing wrong with giving a technical opinion, I think the backlash was based on the way he went about it....



If you're looking for a reason to take offence you will find it.
I could see nothing wrong with Boggo's comment.

Why on earth does there have to be this constant personal attack when someone disagrees with what you believe is the best approach?

Is it really so incomprehensible that a different approach could be as good or maybe even better than what you have fixated on?


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## VSntchr (3 May 2012)

Julia said:


> Why do you feel it necessary to be personally insulting to someone who is simply explaining his different approach?
> 
> 
> Why on earth does there have to be this constant personal attack when someone disagrees with what you believe is the best approach?
> ...




Does this post not fit what you have just described? 
"Amid all this sometimes eloquent 'I need to justify the pyschology of why I am still holding/averaging down' banter with meaningless numbers thrown in to back up my amateur buffetology opinion comes a time for the reality check"


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## Julia (3 May 2012)

I wasn't having a go at you, Value Snatcher.
I'm just sick of all the personal snide attacks against one another right across this forum.  
Probably just me being idealistic, I suppose.


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## McLovin (3 May 2012)

oldblue said:


> There seems to be a trend in this thread to rubbish any attempt at Technical analysis of TGA.




Not at all. It's the remarks about FA that come with each chart that cause the problem.


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## Nutmeg (3 May 2012)

Julia, see post 281.  

In any event, the issue here is saying something meaningful about this particular stock.  Saying that more people are selling than buying and, ergo, that that's why the share price is going down is not meaningful.  It's stating the obvious.  Meaningful would be saying why PPT perhaps is getting out of TGA or how TGA might continue to grow or what risks it faces in the future: in short, it would be going beyond the circular reasoning that says the share price is going down because more people are selling than buying and more people are selling than buying because the share price is going down.  That adds nothing to anyone's understanding of TGA.


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## tinhat (3 May 2012)

McLovin said:


> Maybe if we all just stick to commenting about things we understand...




Yikes!, I'd have nothing to say.


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## Boggo (4 May 2012)

oldblue said:


> There seems to be a trend in this thread to rubbish any attempt at Technical analysis of TGA.
> 
> As far as I can tell, the Fundamental analysis says that TGA is a sound, profitable company. All that Boggo is saying is that he wouldn't buy it *at the present time.*




Exactly oldblue, its as simple as that.

I would buy it tomorrow if it shows any sign of a turnaround but until then it is just another stock that has gone back in time to Sept 2010.

My comment regarding the psychology of the postings that has touched a nerve is based on my factual observation that the intensity and detail in the postings is inversely proportional to the price of the stock and seems to be a common trait of those who cannot accept the basic human fault of accepting that they may be wrong.

Regarding value vs price, the only value that I am interested in is the value of my account.
I have learned the hard way that believing in the opinions of those who have a vested interest in their idea of value is of no benefit to me.
Up until it went bust a few days ago there was three brokers with a buy on KZL because of their opinion of its value - a complete fantasy but people believe it, the price told the real story.
Read the real story of Enron or have a look at the documentary 'The Smartest Guys In The Room', the price told the real story but only to those who were wise enough to see it.

If there is value in a stock then the barometer (PRICE) will reflect it, anything else is irrevelant if you are in this business to make money.

I am not trying to rubbish FA, I actually believe that when you get good FA and the price going up then you are on a winner (compare TGA with RRL since Sept 2010 as an example), if you believe that the FA is good but the price is going down then its time for a reality check as something is wrong.


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## So_Cynical (4 May 2012)

TGA is a retail stock that simply has a round about way of selling its stock, i think the market is valuing it as a retailer just like the others, selling it down.

-----------------------

Did anyone else see HVN's quarter on quarter sales figures from today's announcement? 

http://www.asx.com.au/asxpdf/20120503/pdf/4261m500mdjm9w.pdf

Slovenia and Croatia are going gang busters with double digit growth...but everywhere else its a blood bath.


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## VSntchr (4 May 2012)

Julia said:


> I wasn't having a go at you, Value Snatcher.
> I'm just sick of all the personal snide attacks against one another right across this forum.
> Probably just me being idealistic, I suppose.




Ok, my misunderstanding.

Yes I agree, nobody gains from any personal attacks...perhaps a 'reputation' function could help this issue. A system where members can give other members reps for good/informative posts and negative reps for posts that detract from the usefulness of the forum. I guess this is a topic for another thread however.


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## McLovin (4 May 2012)

VSntchr said:


> Ok, my misunderstanding.
> 
> Yes I agree, nobody gains from any personal attacks...perhaps a 'reputation' function could help this issue. A system where members can give other members reps for good/informative posts and negative reps for posts that detract from the usefulness of the forum. I guess this is a topic for another thread however.




Without straying too much further OT, I'd hate to see a "reputation" function introduced. It would basically just become a "consensus" function.


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## Nutmeg (4 May 2012)

Boggo said:


> My comment regarding the psychology of the postings that has touched a nerve is based on my factual observation that *the intensity and detail in the postings is inversely proportional to the price of the stock* and seems to be a common trait of those who cannot accept the basic human fault of accepting that they may be wrong.




Intense the posts may be.  But I suspect that it is more a genuine bewilderment that the share price of TGA can be so depressed relative to other stocks whose fundamentals are equal to TGA's or much poorer.  Even those stocks whose fundamentals might be said to be better cannot fully explain the discount at which TGA is presently trading.  Pioupiou gave some examples yesterday.  It is attempts to account for this discrepancy that a lot of the posts on TGA are engaged in.   Your suspicion is that people who express this bewilderment in the context of an assessment of TGA's fundamentals are trying to convince themselves (in bad faith) that the stock is really sound when in fact they fear it is the contrary.  I would share that suspicion if TGA was being ramped up without reference to fundamentals.  But that is not the case here.  Ultimately, it is the strengh or weakness in the assessments of the fundamentals in the posts here that you should look to in order to consider whether confidence in TGA is well founded.  



Boggo said:


> If there is value in a stock then the barometer (PRICE) will reflect it, anything else is irrevelant if you are in this business to make money.




This is dead wrong.  It assumes markets are 100% efficient.  Prices usually do follow value but on occasions anomalies occur for a variety of reasons.  Have a read of the book _The Handbook of Equity Market Anomalies_.  I referred yesterday to John Paulson's team buying credit default swaps leading up to the US subprime mortgage crisis.  These derivatives were priced at levels out of all proportion to their upside, i.e. they were dirt cheap, because the market had simply failed to price in the prospect that the US housing market would collapse.  And yet the fundamentals of US housing were clear: house prices were at unsustainable levels and a great deal of mortgage lending had gone rogue.  

Ultimately, prices in themselves cannot tell you if a stock is cheap, fair or dear.  This is because there is nothing to know about a price: it is what it is.  And this is not changed by the fact that the price is higher or lower than it was a year ago.  It just means that people were prepared to pay more then than they are now.  However, if you can then explain why people were prepared to pay more for a stock then than they are now and, even better, critically assess the strengths and weaknesses of the reasons why they were so prepared, you'll have something worthwhile to say.  Otherwise, you are just saying: the share price is going down, more sellers are willing to sell down than buyers are willing to pay up.  Or: the share price is going up, more buyers are willing to pay up than sellers are willing to pay down.  Such observations are totally devoid of meaningful content.


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## Nutmeg (4 May 2012)

McLovin said:


> Without straying too much further OT, I'd hate to see a "reputation" function introduced. It would basically just become a "consensus" function.




Agree.


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## Boggo (6 May 2012)

Nutmeg said:


> This is dead wrong.  It assumes markets are 100% efficient.  Prices usually do follow value but on occasions anomalies occur for a variety of reasons.




Can you show or explain an example of how you have or would make money from a stock that has a high perceived value while the price continues to go down ? (apart from shorting).


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## Klogg (6 May 2012)

Boggo said:


> Can you show or explain an example of how you have or would make money from a stock that has a high perceived value while the price continues to go down ? (apart from shorting).




One that comes to mind is the ORL scenario that has played out nicely for a friend not too long ago (My investment started after this).

His valuation came in around the $8.70-ish mark back in May/June last year (can't remember which month exactly, but around 1year ago) - If you take a look at the chart, there was a solid downtrend at that time, and he got in at around $7.70. Since then, the share price has started trending upward again and is now sitting at $8.61 as of Friday's close.

He used no technical analysis in making his decision, but decided solely on the fundamentals of the company, and now has good unrealized profit and a nice dividend to show for it.

And to be honest, the case is a lot stronger for TGA in this case than it was for ORL back then.


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## Boggo (6 May 2012)

Klogg said:


> His valuation came in around the $8.70-ish mark back in May/June last year (can't remember which month exactly, but around 1year ago) - If you take a look at the chart, there was a solid downtrend at that time, and he got in at around $7.70. Since then, *the share price has started trending upward again* and is now sitting at $8.61 as of Friday's close.




Aaaah, the price, that's my point though Klogg.


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## Nutmeg (6 May 2012)

Boggo said:


> Can you show or explain an example of how you have or would make money from a stock that has a high perceived value while the price continues to go down ? (apart from shorting).




I am surprised that you ask that question since I would thought that it was clear that I consider TGA to be presently just such a stock.  But how about McMillan Shakespeare in 2010: I bought 10,000 shares for $3.35 in March 2010 after it had been sold down on fears that the Henry Tax Revue might recommend doing away with the fringe benefit tax of government workers and therefore, if acted upon, more or less wipe out MMS's business.  I sold out of that position this after it hit $11 this year.  Now, there was of course a real risk that the Henry Tax Revue might recommend doing away with the FBT.  However, the question always seemed to me not what Ken Henry might recommend but what the government would do in response to that recommendation.  And there was no way, in my mind, that the government was going to do away with one of the few benefits that made government work attractive.  Further, the possible return for the government of doing away with the FBT was out of all proportion to the strife that it would cause: it never was a very lucrative tax fiscally.  Nevertheless, you might consider that the risk, however small, was real and that MMS was appropriately discounted for that risk.  And I can't disagree.  But the question with all really profitable trades is how real or great is the risk relative to the upside.  And in MMS's case, it was, on my valuation, small.


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## Pioupiou (6 May 2012)

Boggo said:


> Aaaah, the price, that's my point though Klogg.




I think the words below address both what Klogg wrote (great value today . . . blah, blah) , and it accommodates Boggo's comment (had I skipped in and out of TGA more nimbly, I would have done better. . . yahdi yahdi).

Since 2007 I have been buying TGA, and in that time invested $536,302, which even at Friday's SP of $1.435 is worth $645,750 – a paper capital gain of 20%.  If the dividend is accepted to be 10 cents a year now (we do not know exactly what will be announced on 22/05/2012), I get a return of 8.4% fully franked, and being retired, I get the franking back from the ATO, so that is worth 12% to me – very nice.  I can sit out the current share price decline in the belief that the dividends will grow, and  in time the SP will rise to increase my on-paper capital gain.  A black-swan event could upset this fond notion, but such is life.

Had I been smarter and skipped out a year ago at $2.20, and got back in about now, I would have done much better, but that is spilled milk.  Also, the Great Dispenser of IQ, was not that generous with me when I was created, so I only know what I should have done with the benefit of hindsight.  I hung on for a few more cents a year ago - big mistake.

On another matter, could some FA guru explain how Macquarie arrived at a target SP of $1.78 via the EP/EBIT methodology?  See http://www.macquarie.com.au/dafiles...retail-newsletter/docs/2012-03/TGA150312e.pdf  It looks like Macquarie multiplied the expected EBIT by 6 or a fraction more, then tweaked it to accommodate the debt and cash situation.  I would like to review the Macquarie analysis with the benefit of the YE 30/03/2012 annual report, but I am unfamiliar with the EV/EBIT methodology.


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## Nutmeg (6 May 2012)

Klogg said:


> And to be honest, the case is a lot stronger for TGA in this case than it was for ORL back then.




Agree.


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## craft (6 May 2012)

Pioupiou said:


> On another matter, could some FA guru explain how Macquarie arrived at a target SP of $1.78 via the EP/EBIT methodology?  See http://www.macquarie.com.au/dafiles...retail-newsletter/docs/2012-03/TGA150312e.pdf  It looks like Macquarie multiplied the expected EBIT by 6 or a fraction more, then tweaked it to accommodate the debt and cash situation.  I would like to review the Macquarie analysis with the benefit of the YE 30/03/2012 annual report, but I am unfamiliar with the EV/EBIT methodology.




I'm no Guru, but maybe below will help. 

EV/EBIT is best thought about as backing the financial structure out of the business results.

EV is Market Cap + Debt - Cash(excess)

EBIT is earnings before interest and tax (interest creates a tax shield, that’s why tax is included)

If you were going to buy a business ‘outright’ and pay ‘all cash’ for it, this is how you would think about the company. How much would the business return on your capital?

I haven’t read the Macquarie report yet, but I suspect they have just assigned a multiple to the EBIT.  No different than applying a multiple to earnings to come up with what P/E something should be trading at.

Real question is how good they are at gauging an appropriate multiple.


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## craft (6 May 2012)

Pioupiou said:


> It looks like Macquarie multiplied the expected EBIT by 6 or a fraction more,




I ran a quick scan for stocks on an EV/EBIT between 5 and 6 (Based on current price and last reported numbers.{TGA currently 7.14}) – which might help you judge the reasonableness (or otherwise) of a multiple of 6.

KMD	Kathmandu Holdings Limited	5.97
HHL	Hunter Hall International Limited	5.93
VLW	Villa World Limited	5.92
JBH	JB Hi-Fi Limited	5.87
GNG	GR Engineering Services Limited	5.83
HFA	HFA Holdings Limited	5.82
OYM	Olympus Pacific Minerals Inc	5.82
DJS	David Jones Limited	5.81
SNR	Synergy Plus Limited	5.8
SGN	STW Communications Group Limited	5.78
VII	Vietnam Industrial Investments Limited	5.74
IRC	Intermin Resources Limited	5.7
RFV	Rift Valley Resources Limited	5.65
DTL	Data3 Limited	5.63
TTA	TTA Holdings Limited	5.61
COM	Comops Limited	5.61
IDL	Industrea Limited	5.59
HST	Hastie Group Limited	5.55
NFK	Norfolk Group Limited	5.54
NPX	Nuplex Industries Limited	5.53
SCC	Scott Corporation Limited	5.52
PMP	PMP Limited	5.51
RCG	RCG Corporation Limited	5.48
NTC	NetComm Wireless Limited	5.39
KNH	Koon Holdings Limited	5.36
CUE	Cue Energy Resources Limited	5.36
MBD	Marbletrend Group Limited	5.34
PFG	Prime Financial Group Limited	5.33
SSM	Service Stream Limited	5.31
CGR	Careers Multilist Limited	5.29
MOC	Mortgage Choice Limited	5.26
LMR	Lemur Resources Limited	5.26
FLT	Flight Centre Limited	5.22
GLG	Gerard Lighting Group Limited	5.17
AGG	AngloGold Ashanti Limited	5.12
TYO	Treyo Leisure And Entertainment Limited	5.09
IXR	IMX Resources Limited	5.07
WIC	Westoz Investment Company Limited	5.04

ps 

I'm not vouching for the accuracy of the scan results.


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## Pioupiou (6 May 2012)

typo







craft said:


> . . . I haven’t read the Macquarie report yet, but I suspect they have just assigned a multiple to the EBIT.  No different than applying a multiple to earnings to come up with what P/E something should be trading at. . .




You may well be right – Macquarie could simply pick a multiple of about 6, and multiply the EBIT by it.  They could even indulge in apparent sophistication by deriving that multiple by dividing a before-tax-apt required rate of return into 1, which in the 100%-franked setting is the  required rate of return that one would use to invent a baseline PER, adjusted by dividing it by 70%, because company tax is 30%.

I want to know how Macquarie adjusts that baseline multiple (or to put it another way, the baseline required rate of return) to accommodate debt (in particular), growth, cash and potentially other considerations.   A mooted target SP of $1,78 is of little value if one cannot see the arithmetic.

Referring to the methodology of deriving the target SP as an EV/EBIT methodology is misleading, because it is unlikely that EV comes into the calculation if Market Capitalisation is a component of EV.  A target SP is simply a target Market Capitalisation divided by the number of shares.

And yes, the same is true of PER multiples, the PERs are simply 1 divided by baseline required rates of return that are adjusted to accommodate franking, debt, growth, cash and other considerations.   I have never seen a stock valuation where these considerations are patent.


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## Pioupiou (6 May 2012)

craft said:


> I ran a quick scan for stocks on an EV/EBIT between 5 and 6 (Based on current price and last reported numbers.{TGA currently 7.14}) – which might help you judge the reasonableness (or otherwise) of a multiple of 6. . ..




If you used the Morning Star metrics now available, TGA's EBIT is given as $32.7m for YE 30/03/2011.  Macquarie guesstimated the EBIT for YE 30/03/2012 to be about $40m.  If you prorate the 7.14 back by 32.7/40, you will get 5.84, which is typical for the range that you put forward.  Obviously, that 5.84 multiple gives you the current SP (unchecked), so if Macquarie mooted a target SP of $1.78, then you would expect the multiplier to be higher than 5.84.  On the basis of an EBIT of $40m, I have no problem with Macquarie's target SP of $1.78 - I simply wanted to know how the multiplier was derived, rather than retrofitting the calculations to a sample in an attempt to guess what was done.

Anyhow thanks for the response - it was interesting to see how closely clustered those multiples were over an eclectic gaggle of stocks - something over which I'll ponder tomorrow.


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## Klogg (7 May 2012)

Boggo said:


> Aaaah, the price, that's my point though Klogg.




Yeah, but my point is he did his homework using fundamental analysis, then bought in. Your first post stated "It would have to start breaking back up through around 1.90 before it would make a shortlist imo". Had he waited for a 20% increase in the price before buying (as TGA was about $1.55ish when you said this), he'd have a smaller profit margin.

Anyway, I'm happy to agree to disagree on this point. I'm sure everyone has their own style of investment. Appreciate the points you raised though Boggo.


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## Boggo (7 May 2012)

Boggo said:


> Weekly charts are more useful on slow moving/low volume stocks such as TGA.
> (Trade the smaller time frame but don't fight the bigger picture)
> 
> Any worthwhile upside seems to have ended about a year ago Klogg.
> *It would have to start breaking back up through around 1.90 before it would make a shortlist imo.*




Quite correct at the time, it never got to 1.90 so I wouldn't have tried to enter at 1.55, just saved going around 8% in the red based on todays price.
Today, just by looking quickly at the chart I would be reluctant to get too carried away with it until it got through around $1.60.



Klogg said:


> *Yeah, but my point is he did his homework using fundamental analysis, then bought in.* Your first post stated "It would have to start breaking back up through around 1.90 before it would make a shortlist imo". *Had he waited for a 20% increase in the price before buying (as TGA was about $1.55ish when you said this), he'd have a smaller profit margin.*




Doing homework on fundamental analysis is of no value if the market is telling you that the stock is decreasing in value as it has in this case.
When your potential fundamental value and the market value (ie PRICE) are going towards the same target then the price will take over and all that is where the rubber hits the road.

Had he bought at 1.55 he would now be *8% in the red * based on todays market value *( ie PRICE)* because he tried to pre-empt what might have but didn't happen.

Buying on the way down because you believe that it is worth more and that the price will turn up doesn't make sense to me, how do you know how far down it is going to go. Why not let the price behaviour tell you when it has bottomed.
Don't fight the market (the trend) as you will come off second best.

What you fundamentally "value" a stock at is irrelevant really, it is only a potential value, the market price is the actual value at any point in time.


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## Klogg (7 May 2012)

Boggo said:


> Had he bought at 1.55 he would now be *8% in the red * based on todays market value *( ie PRICE)* because he tried to pre-empt what might have but didn't happen.




My average buy-in price is at approx. $1.55 - so this applies directly to me. However, I'm happy to sit on the unrealized loss until sentiment changes and the company continues to perform well. This may take a year, but I'm not day-trading, so that's fine with me.



> Had he bought at 1.55 he would now be 8% in the red based on todays market value ( ie PRICE) because he tried to pre-empt what might have but didn't happen.




Value != Price.
Value is what something is worth, price is what you pay... and they're different.



> Doing homework on fundamental analysis is of no value



Let's use Facebook as an example here... You mean to say that if FB is floated for 99*P/E and the price is trending upward, I should buy? Even though fundamentally speaking, it would take 99years for the company to earn back what I paid for it...


On the topic of 12mth SP targets, may I ask what the most bearish is that you've heard, Pioupiou?


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## Nutmeg (7 May 2012)

Boggo said:


> What you fundamentally "value" a stock at is irrelevant really, it is only a potential value, the market price is the actual value at any point in time.




Boggo, I think you and we will just have to accept that for daytraders or anyone else with an investment horizon of a few weeks at most value and price must be considered synonymous because daytrading's only goal is to profit from relatively miniscule fluctuations in price.  Multibaggers, except where total capital loss is a real risk, is simply not within the ken of daytraders.  

However, I'd be curious to know your response to the following: Back in the depths of the GFC, Kerry Stokes' Seven Media (before it became Seven West Media) was trading in April 2009 on a per share basis for less than the cash of its net working capital, i.e. not only were the shares trading well below net asset value but also below the value of the cash on its books.  In effect, you could buy $1 of Seven's cash for 0.85c (or thereabouts, I can't remember the exact figure) and receive the business for free.  

Seven's share price continued to travel downwards throughout May 2009.  So if you are right that "the market price is the actual value at any point in time", you would have accepted that in April/May 2009 the market's share price for Seven was the "actual" value of Seven, notwithstanding that you could have bought $1 of Seven's cash for 0.85c and had the business thrown in for nothing.

Ultimately, your belief that value is price and price is value is wrong.  However, because of the timeline on which you hold stocks, I can also see why you consider value irrelevant.  Philosophically, your position is equivalent to saying: "Only the present is real".


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## kermit345 (7 May 2012)

Boggo while I agree that entering when a stock is in a downtrend is not the way to go, I don't think you can discount fundamental analysis saying it has no value if the market movements are telling you otherwise. 

I find it hard to believe that the political situation in Europe causing our market to go down today (including TGA) has eroded any of TGA's value. I'm also talking long-term value, not the way in which you have used the word value describing the day to day movements as increasing/decreasing companies value.

What we fundamentally 'value' a company at is a potential price, your correct there, but in my experience companies will meet their fundamental value at some point in time. Now this may mean earnings decrease and so to does the fundamental value so market price meets fundamental value, OR market price increases to meet fundamental value. In my experience over time one of the two occurs.

It's time like these with TGA that provide opportunity for a fundamental investor and in my view I don't think you can discount the fundamental value so easily. I wholeheartedly agree that at least some TA should be used for making an entry as nobody wants to buy a falling stone.

I think it was motorway posted elsewhere an article where some fundamental investors found a happy-medium between FA and TA - Entering a stock with 80% FA and 20% TA analysis, and exiting with 80% TA and 20% FA, seems like a fair enough rationality to me. In the case of TGA it seems the 80% of FA analysis speaks for itself and signals an entry, but were waiting for the 20% of TA to come to fruition which I believe boggo is trying to get across.

Best of luck to all, either way i think theres money to be made with this company particularly if you can get your timing right.


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## Boggo (7 May 2012)

Klogg said:


> Value != Price.
> Value is what something is worth, price is what you pay... and they're different.




I have a car that I reckon is valued at around 30k, the market value of the same is around 25k and that is what they are selling for.
If I can get someone stupid enough to believe my valuation then its theirs, the actual value is what the market dictates.



Klogg said:


> Let's use Facebook as an example here... You mean to say that if FB is floated for 99*P/E and the price is trending upward, I should buy? Even though fundamentally speaking, it would take 99years for the company to earn back what I paid for it...




I have no idea about the 99*P/E etc, if the price has sufficient data and there is an upward trend then yes, it may be a candidate. If someone believes that it is worth $100 and it is at $50 and trending up then bonus, there will be a likelyhood of more momentum in the beneficial direction.

I am not going to be around for 99 years so I am not interested in any formula that may relate to that time period, price goes up - I go with it, price turns down I get out and move on to the next candidate.

When KZL went bust last week there were three brokers with buy recommendations based on formulae that indicated that it was undervalued.
The reality (price) was indicating that it was in more trouble than the first settlers.

Which one have I learned to trust for value - have a guess


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## Nutmeg (7 May 2012)

Boggo said:


> ... If someone believes that it is worth $100 and it is at $50 and trending up then bonus, there will be a likelyhood of more momentum in the beneficial direction.




Boggo, isn't momentum here synonymous with a line of fools, each more foolish than the next, bidding up a stock in the hope that they can sell it to the next fool for more than they bought it for?  But to whom do you pass the steaming baggy when you turn to find no one in front of you?  Don't you just dump it and run?  After all, it has no more value than the price that someone would buy it from you for, right?


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## Boggo (7 May 2012)

Nutmeg said:


> Boggo, I think you and we will just have to accept that for daytraders or anyone else with an investment horizon of a few weeks at most value and price must be considered synonymous because daytrading's only goal is to profit from relatively miniscule fluctuations in price.  Multibaggers, except where total capital loss is a real risk, is simply not within the ken of daytraders.




I am assuming that you are confusing me with a daytrader because I don't have a 99 year plan.
I have held stocks for a few hours and for a few years (currently holding RRL since Aug 2010 - does that meet your multibagger criteria), the time period is determined by the stock, when it stops making money then I no longer have a use for it whether that is one day or 10 years.




Nutmeg said:


> However, I'd be curious to know your response to the following: Back in the depths of the GFC, Kerry Stokes' Seven Media (before it became Seven West Media) was trading in April 2009 on a per share basis for less than the cash of its net working capital, i.e. not only were the shares trading well below net asset value but also below the value of the cash on its books.  In effect, you could buy $1 of Seven's cash for 0.85c (or thereabouts, I can't remember the exact figure) and receive the business for free.
> 
> Seven's share price continued to travel downwards throughout May 2009.  So if you are right that "the market price is the actual value at any point in time", you would have accepted that in April/May 2009 the market's share price for Seven was the "actual" value of Seven, notwithstanding that you could have bought $1 of Seven's cash for 0.85c and had the business thrown in for nothing.




My response - no idea, totally unfamiliar with anyting to do with it and I can't recall having ever held it. As with most of these "bargain at this price" stocks, why aren't the insto's etc all over it if it is such a good deal, they are obviously daytraders too !



Nutmeg said:


> Ultimately, your belief that value is price and price is value is wrong.  *However, because of the timeline on which you hold stocks, I can also see why you consider value irrelevant.*  Philosophically, your position is equivalent to saying: "Only the present is real".




You misunderstand the hold in only one direction only concept, time is irrelevant.


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## Klogg (7 May 2012)

@Nutmeg, Boggo - I'm enjoying this discussion a fair bit, but before I reply to what's been said, we might want to consider moving this to another thread.


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## Boggo (7 May 2012)

Nutmeg said:


> Boggo, isn't momentum here synonymous with a line of fools, each more foolish than the next....




Isn't that a line of fundies who have just googled the last annual report issued six months ago based on the the six months prior to that who have just worked out that it is VALUED at $100 but it has to be a bargain because the market (which really doesn't understand) is pricing it at $50.

I would be a mug not to capitalise on that mob mentality


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## Boggo (7 May 2012)

Klogg said:


> @Nutmeg, Boggo - I'm enjoying this discussion a fair bit, but before I reply to what's been said, we might want to consider moving this to another thread.




Good point.


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## Nutmeg (7 May 2012)

Klogg said:


> @Nutmeg, Boggo - I'm enjoying this discussion a fair bit, but before I reply to what's been said, we might want to consider moving this to another thread.




Agree.


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## Nutmeg (7 May 2012)

Boggo said:


> My response - no idea, totally unfamiliar with anyting to do with it and I can't recall having ever held it. As with most of these "bargain at this price" stocks, why aren't the insto's etc all over it if it is such a good deal, they are obviously daytraders too !




The issue is not whether you know or knew anything about Seven Media in May 2009.  The issue is whether your claim that the "_the market price is the actual value at any point in time_" is a sensible definition of value in the context of the example that I gave you.  Whether you know and knew anything about the particular price/value anomaly that occurred to Seven Media at that time is irrelvant.


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## Julia (7 May 2012)

Nutmeg said:


> The issue is not whether you know or knew anything about Seven Media in May 2009.  The issue is whether your claim that the "_the market price is the actual value at any point in time_" is a sensible definition of value in the context of the example that I gave you.  Whether you know and knew anything about the particular price/value anomaly that occurred to Seven Media at that time is irrelvant.



 Nutmeg, you've made some good points in this discussion but perhaps consider just getting rid of the necessity for "value" when considering the position of the investor/trader who is simply a price action/trend follower.

"Value" imo is a term which is peculiar to so called 'value investors'
As a group they have little in common with those of us who have no interest in other than the price.

It doesn't make one group superior or inferior to the other.  Simply a different approach, perhaps determined by one's personality.


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## So_Cynical (7 May 2012)

Boggo said:


> I have held stocks for a few hours and for a few years *(currently holding RRL since Aug 2010 *- does that meet your multibagger criteria), the time period is determined by the stock




So with your RRL position time has been very relevant in the share price increase.



Boggo said:


> You misunderstand the hold in only one direction only concept, *time is irrelevant*.




And yet now time is somehow irrelevant?

RRL like all the Goldie's has had major ups and downs and yet you have chosen to ignore the small pull backs. :dunno:


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## Boggo (8 May 2012)

So_Cynical said:


> So with your RRL position time has been very relevant in the share price increase.
> 
> And yet now time is somehow irrelevant?




As is quite common you have obviously only picked out the bits that you want, if you had read all of the posts you might understand why I mentioned the period of time that I have held RRL.
You may also establish that time is not the determining factor, it is simply an observation of how long the trend and my position has held (good god, why am I bothering to spell this out  ).

There are two lines on my weekly chart (below) of RRL that tell me everything I need to know about this stock on a constantly updated basis.

Why would I need to be misled by the same out of date and misleading buy recommendations based on potential valuations sucha as those that existed on ONE, HIH and KZL (to name just a few) as they went bust.

You guys would probably be interested in Harris Scarfe, they may be going to relist again ten years after they went bust.

Here is part what Colin Nicholson wrote about them the last time...
_Twelve months ago, Harris Scarfe would have looked quite good on fundamentals. I do not have the data, but my guess is that its historical dividend yield was high and its historical PE ration quite low. So, it would have looked good value. That is, unless you could see the problems the company was running into. I gather in this case that there was fraud involved, so it seems to have been hidden from everyone. I therefore think that you have unfairly blamed the broker for what is effectively failure to know the unknown.
_
_As a technical analyst and trader, Harris Scarfe was on my watch list as a potential buy less that twelve months ago. The reason why I did not buy it was evident on the chart of its share price. Harris Scarfe had seen a long decline and was levelling out in 2000. By mid to late 2000, it had started to look like an ascending triangle, which is a bullish reversal pattern. However, it is never complete and a buy signal given until we get an upward breakout. So, like the broker, I was interested in Harris Scarfe, but awaiting a signal.

In the end the pattern failed, so I never bought it. This is the real advantage of charts. *The fundamental news came only a month or so ago, but someone knew late last year and that was signalled on the chart.*_
(Colin Nicholson)

PS. I am not going to comment further on this thread as we are going around in circles, we are off the topic of TGA and I am off to Zurich on Wed morning.

(RRL - click to expand)


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## McLovin (8 May 2012)

> I do not have the data, but my guess is that its historical dividend yield was high and its historical PE ration quite low




Best FA I have seen yet.


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## kermit345 (8 May 2012)

I was thinking the same McLovin, hasn't seen the data and has only referenced 2 points of an entire companies financial position. Some of us here can see where you coming from Boggo and I agree, its best to enter a stock when its starting/in an uptrend. It seems like Nutmeg is either against this concept or doesn't understand it which is fine, his fundamental approach may be just as successful.

Boggo has a pure technical entry and momentum approach and Nutmeg has a pure fundamentals approach, some of us aim to achieve both if/where possible.

I think we should get back on track with how it applies to TGA without badmouthing or talking down on the opposites approach.

My view is that TGA is fundamentally sounded and grossly undervalued at the moment and that it will at some stage in the future revert back to this valuation (or very close anyway). However since mid February, after trading sideways for a few months, it has resumed its downtrend off the back of continued selling pressure from perpetual. When this downtrend is broken i'll be adding to my position providing the fundamentals do not change drastically.


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## Nutmeg (8 May 2012)

I read Macquarie's valuation of TGA in the lastest analyst's report.  

In the half year TGA grew both revenue and profit.  Revenue grew by 20% while profit grew by 30%.  Up to the half year, therefore, TGA was growing earnings faster than revenue.  At the same time, the Macquarie report estimates lower revenue for TGA for FY2012 compared to FY2011, i.e. $157.6m in 2011 compared to $155.2m for 2012 (estimated).  Is anyone able to make sense of that?  Why would TGA's revenue decline for FY2012 after reporting a 20% rise to the half year?  

The answer may lie the half year report which I'll check later.  But someone might know off the top of their head.


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## Klogg (8 May 2012)

One reason could be this:


> Product mix changing: TGA has seen a change in its product mix over the last few reporting
> periods. TVs and PCs, which have historically been very strong growth contributors, have come
> under pressure in recent times with significant price deflation in the former and cannibalisation of
> desktop PCs in favour of tablets.
> ...


----------



## Pioupiou (8 May 2012)

Klogg said:


> On the topic of 12mth SP targets, may I ask what the most bearish is that you've heard, Pioupiou?




I cannot recall the lowest TA-based opinion has been, but weeks ago one was $1.41, which has turned out to be true.  I have a vague notion somebody mooted $1.31, but that could be the product of my scrambled mind.

As far as relatively recent FA reports are concerned, I think the lowest 12-month target SP is that of Macquarie at $1.78, but buried in that report there is a range of $1.63 to $1.93, so $1.78 is the mid-point.  In the last six months I have seen valuations as high as $2.53, so I suppose the range is $1.63 to $2.53.  My own valuations range from about $1.80 to $2.60 (mid-point $2.20), That the range is wide is not surprising, because TGA's earnings growth and the required rates of return (RRR) used varies from person to person, and each individual will often have a range of possible SPs.

For FA, the two most important factors required to be invented are the RRR and a growth factor to apply to EPS, or dividend per share, or EBIT per share, depending on the valuation methodology used. The methodology used also requires one to tinker with the RRR.

The market and the likes of Macquarie have assumed that TGA's growth will fall away, which may not transpire to be correct.  Even if growth falls away from the primary profit engine, household items under either operating or financial leases, this implies less money will be required to buy the items, and hence dividends can be increased, either directly or by diminishing the number of shares via buyback.  If one thinks growth is going to cease increasing, or even decline, then you will end up with a low target valuation, as will also happen if one uses a high RRR.  As an aside, TGA's tendency to switch from financial leases to operating leases will (because of revenue recognition conventions) lower earnings in the year of goods delivery, but fundamentally, it does not make a difference to the cashflow and the underlying strength of TGA.

One has to tinker with the RRR to accommodate the valuation methodology.  For instance, if one multiplies EBIT by 7, it implies an RRR of 1/7, but if one used an EPS x PER approach, the 1/7 should be adjusted to recognise that EPS has been taxed at 30%, so the equivalent RRR in Australia to be applied to after-tax earnings should be 1/10, which translates to a PER of 10.  For most  valuation methodologies, franking credits should be accommodated too, because one would want to value a firm with franking credits higher than one would if it did not have such credits.

Building up the RRR to be used requires more thought than one suspects occurs in many SP valuations.  If one has funds sitting in other investments earning 6% before tax, for example, why should one require a RRR of 1/7 (14.3%) for TGA before tax, or 10% after tax?  Each investor's RRR should be different, because their baselines differ (a mortgage payer could use that rate as an after-tax baseline), and then each person's risk perceptions are different, as are other factors like their marginal rate of tax – all of which alter the RRR that is apt for each investor's circumstance.  Simple methodologies that do not patently have growth factors, should accommodate growth in the RRR, or to invert it, the PER. 

If you want to use FA to second guess how the market is going to value TGA, then you will have to use more rule-of-thumb approximations of market conventions, rather than those peculiar to your situation. J M Keynes had the view that stock valuation is not a prediction but a convention that facilitates investment and ensures that stocks are liquid despite being underpinned by illiquid businesses.   

My low-end $1.80 SP for TGA springs from a peculiar-to-me set of calculations based on dividends, whereas my high-end $2.60 is based on an expected EPS of about 20 cents for YE 30/03/2012, multiplied by a PER of 13 because that is not unreasonable if one looks at PERs that the market ascribes to ASX stocks of equivalent, and often inferior, quality to TGA.  I believe that when the quality of TGA is better understood, the PER will trend towards 13, but how long this will take I cannot say.  The upcoming annual report (the sixth since listing) could be the catalyst to lift the PER that the market ascribes to TGA.


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## Nutmeg (8 May 2012)

Klogg said:


> One reason could be this:




But where is the "_corresponding impact on revenue_" overall?  Between FY2009 and FY2010 TGA grew revenue by 12.7%.  Between FY2010 and FY2011 revenue grew by 8%.  To 1H2012 revenue grew by almost 20%.  Allowing for a drop-off in finance leases, where is the impact on revenue?


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## Klogg (8 May 2012)

Nutmeg said:


> But where is the "_corresponding impact on revenue_" overall?  Between FY2009 and FY2010 TGA grew revenue by 12.7%.  Between FY2010 and FY2011 revenue grew by 8%.  To 1H2012 revenue grew by almost 20%.  Allowing for a drop-off in finance leases, where is the impact on revenue?




To be honest - I have absolutely no idea. In fact, the report is quite contradictory:



> As announced at the 1H result, TGA has secured a new PDL investment as well as a warehouse contract, which will positively impact 2H12 revenue by $5m and 1H13 revenue by 3m. This should help to offset some of the ATO impact.




I don't quite follow their logic, but it doesn't really bother me to be honest.


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## Nutmeg (8 May 2012)

Klogg said:


> To be honest - I have absolutely no idea. In fact, the report is quite contradictory:
> 
> 
> 
> I don't quite follow their logic, but it doesn't really bother me to be honest.




That makes two of us.   A lot of analysts' reports often appear banged out without a great deal of thought having gone into them - evidence of the cookie-cutter-approach to financial analysis.

As long as TGA continues moderate revenue growth, it seems to me that its operating leverage will be able to translate that growth into relatively higher profit growth.  That's the message, at any rate, that I take away from the half year report.


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## Pioupiou (8 May 2012)

Nutmeg said:


> I read Macquarie's valuation of TGA in the lastest analyst's report.
> 
> In the half year TGA grew both revenue and profit.  Revenue grew by 20% while profit grew by 30%.  Up to the half year, therefore, TGA was growing earnings faster than revenue.  At the same time, the Macquarie report estimates lower revenue for TGA for FY2012 compared to FY2011, i.e. $157.6m in 2011 compared to $155.2m for 2012 (estimated).  Is anyone able to make sense of that?  Why would TGA's revenue decline for FY2012 after reporting a 20% rise to the half year?
> 
> The answer may lie the half year report which I'll check later.  But someone might know off the top of their head.




Klogg has partly answered your question - the shift towards operational leases tends to spread revenue recognition away from Y1.  This will change earnings in Y1, but not change the cashflow.  Revenue recognition when ownership passes is simply an accounting convention - it has little to do with the underlying soundness of the business - something you should accommodate when ascribing a target SP to TGA.

With TGA, the "Sales" metric is misleading, perhaps to the point of suggesting that you should ignore it, because the only items recorded there, I think, are financial leases and returned items sold, rather than rented.  Significant income bypasses the Sales account.  Profit as a percentage of revenue will increase as TGA shifts from thin-margin electronic items to more profitable furniture lines.

Macquarie noted that there had been significant customer growth in recent years, and a modest growth in 1H of YE 30/03/2012, so the analyst assumed that 60% of the earlier growth will drop out on expiry of contracts, and not enough new customers found to retain the growth of the recent past.  This could be countered by opening more rural outlets (where TGA performs well), improving city business via kiosks and stores serviced from hubs of low-rent warehouses, increasing the revenue per customer, growing the customer retention rate (now 40%), adding new product lines  (garden furniture and nursery items like cots and car seats, are currently being trialed) and growing the smaller units like Cashfirst, Thorn Equipment Finance and NCML.  One of the businesses, probably Thorn Equipment Finance, does considerable TAB-related business supplying PCs to pubs and clubs, and TGA is keen to extend this to items like poker machines.  With so many options, I am more bullish about TGA's ability to grow earnings than most folk who have an opinion on the matter.  The upcoming report may shed light on this area.

I had intended to thoroughly analyse the Macquarie report, but I got sidetracked into investigating the so-called EV/EBIT valuation technique that was used.


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## Pioupiou (8 May 2012)

Macquarie states there are 146.4 share in TGA, and it proffers EBITs for YE 30/03/2012 and the following two years as $40.0m, $39.9m and $40.5m.  Actually, TGA's 1H results have the EBIT as $24.852m and $19.515m for the previous year's first half, so it looks like Macquarie is incorrect, and the EBIT that Macquarie should have used is circa $50m. Macquarie has effectively used an EBIT multiplier of 5.2, because 50*5.21/146.4 = $1.78.

With an assumed EBIT for YE 30/03/2012 of about $50 million, the multiple currently applying must be about 4.1, because 50*4.11/146.4 = $1.40.  An EBIT multiple of 4.1 is far below the average of ASX listed stocks.  WOW's EBIT multiplier is about 10.  If we used a multiplier of 6 for TGA, we would get an SP of about $2.05, and if we picked 7, we would get about $2.40, which is within the range of where I think TGA's SP should be, based on fundamentals.


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## Nutmeg (8 May 2012)

Pioupiou said:


> ... the EBIT that Macquarie should have used is circa $50m.




Why would you assume $50m EBIT for FY2012?  That seems a bit high to me.  I agree that Macquarie have probably low-balled estimated EBIT for FY2012 at $40m but not by a difference of $10m.


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## Klogg (8 May 2012)

Nutmeg said:


> Why would you assume $50m EBIT for FY2012?  That seems a bit high to me.  I agree that Macquarie have probably low-balled estimated EBIT for FY2012 at $40m but not by a difference of $10m.




Looking at high level figures, I can't really tell - but does someone know which half usually performs better? (I'm being lazy, lol)

If it's the second, then $50mil is definitely accurate.


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## Nutmeg (8 May 2012)

Klogg said:


> Looking at high level figures, I can't really tell - but does someone know which half usually performs better? (I'm being lazy, lol)
> 
> If it's the second, then $50mil is definitely accurate.




I consider FY2012 EBIT of $50m high because I don't know where Pioupiou has got 1H2012 EBIT of $24.852m from.  It was $21.3m.


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## Pioupiou (8 May 2012)

Nutmeg said:


> Why would you assume $50m EBIT for FY2012?  That seems a bit high to me.  I agree that Macquarie have probably low-balled estimated EBIT for FY2012 at $40m but not by a difference of $10m.




The half year ending 30/09/2011 report reports EBIT thus: 

- - -  - - - - - - - - Rental - - - - Credit Mngmnt - - - - Other - - - - Consolidated
- - - - - - - - - - 2011 - 2010 - - 2011 - 2010 - - - - 2011 - 2010 - -- 2011 - 2010

EBIT($000) -  22,136 20,052 - 2,275 - - nil - - - - - 441- - (537) - 24,852 19,515

I have changed "Earnings before interest and tax" to EBIT so if you search the 1H report (Condensed consolidated interim financial report 30 September 2011) for that, or one of the metrics like "22,136", you should find the spot where the above is recorded. 

If you double the 24,852 for H1, you get about $50,000K for the full year ending 30/03/2012 - it could be a bit lower.  The annual report for 30/03/2011 did not provide an EBIT figure, but in one of the presentations EBITDA was given as $34 million, so EBIT would be higher to the tune of any depreciation and amortisation expenses.  Morning Star has the YE 30/03/2011 EBIT as $32.7m, but this is unlikely to be correct if TGA stated that EBITDA was $34m.  Macquarie may have doubled the 19,515 to get its circa $40,000K EBIT - who knows.


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## Pioupiou (8 May 2012)

Pioupiou said:


> The half year ending 30/09/2011 report reports EBIT thus:
> 
> - - -  - - - - - - - - Rental - - - - Credit Mngmnt - - - - Other - - - - Consolidated
> - - - - - - - - - - 2011 - 2010 - - 2011 - 2010 - - - - 2011 - 2010 - -- 2011 - 2010
> ...




I see where I have erred - the above figures are the operating EBIT - there are other corporate expenses of:

Other corporate expenses (3,597) (3,409)
Net Financing costs (933) (189)
Profit before tax 20,322 15,917

Some of these must come off the operating EBIT that I used.  Elsewhere one can read "This flowed through to a 32.3% increase in earnings before interest and tax at $21.3m, up from $16.1m."

Mea culpa, mea culpa, mea maxima culpa.  I'll order a lashing with birch rods tonight.


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## Nutmeg (8 May 2012)

I think TGA's EBIT multiple of between 5 and 6 to the FY is probably - conservatively - accurate.


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## Pioupiou (8 May 2012)

There is a recent bullish analysis of TGA at http://unconventional-wisdom.com.au/investment/equities/thorn-group-bruised-but-not-beaten/

I do not disagree with the analyst, but I am sure many would, because he suggests a target SP of $2.40, derived by simply multiplying an estimated EPS of 20 cents by a PER of 12.  A PER of 12 is akin to an RRR of 1/12, or 8.33%. A year ago when the SP closed a few times at just under $2.30 on an EPS of 16.7 cents, TGA enjoyed a PER of about 13.6.

If we use the $21.3m EBIT mentioned in the report for the H1 ended 30/09/2011 to estimate the YE 30/03/2012 full year EBIT as $42.6m, then with 146.4 million shares, we need an EBIT multiplier of 8.25 to get a target SP of $2.40, which is also on the high side.  In loose terms, dividing 8.25 by .7 (to accommodate 30% tax) should come close to the PER of 12, which it does - 8.25/.7 = 11.8.


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## Nutmeg (9 May 2012)

Pioupiou said:


> If we use the $21.3m EBIT mentioned in the report for the H1 ended 30/09/2011 to estimate the YE 30/03/2012 full year EBIT as $42.6m, then with 146.4 million shares, we need an EBIT multiplier of 8.25 to get a target SP of $2.40, which is also on the high side.  In loose terms, dividing 8.25 by .7 (to accommodate 30% tax) should come close to the PER of 12, which it does - 8.25/.7 = 11.8.




$2.40 is considerably over anything I've valued TGA at.  The valuation arrived at by Donnelly Wealth Management is a good example of the weakness of using a P/E ratio alone to reach a realistic near term valuation.


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## Pioupiou (9 May 2012)

Nutmeg said:


> $2.40 is considerably over anything I've valued TGA at.  The valuation arrived at by Donnelly Wealth Management is a good example of the weakness of using a P/E ratio alone to reach a realistic near term valuation.




The Donnelly report did not attempt to derive a near-term valuation.  The report does not say so, but target valuations are typically 12 month targets.  Also, in the paragraph where the multiple of 12 is mentioned, the report refers to investors, not speculators.

If you are an investor, and a PER of 12 seems toppy, then use a lower one, or some other FA methodology.  All FA valuation methodologies rely on the concept of a required rate of return (RRR), and all long-term investors use them, sometimes without even knowing that there is an RRR lurking behind the rules of thumb multipliers that they use.  The higher the multiplier, the lower the RRR.

If you want to second-guess a near-term price, then TA is the way to go, or some other empathetic way of guessing what Mr Market is going to do in the immediate future.  

We have done this FA vs TA topic to death.  If you have an immediate craving for avocados, you mosey to the shop and buy them, but if you want to invest in avocados, you plant avocado trees, and wait a few years.  Both approaches to obtaining avocados are valid, and nobody bothers to debate the Buy Avocados vs Grow Avocados topic.


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## Nutmeg (9 May 2012)

Pioupiou said:


> The Donnelly report did not attempt to derive a near-term valuation.  The report does not say so, but target valuations are typically 12 month targets.




12 months _is_ near term.  Otherwise agree.


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## odds-on (9 May 2012)

Pioupiou said:


> The Donnelly report did not attempt to derive a near-term valuation.  The report does not say so, but target valuations are typically 12 month targets.  Also, in the paragraph where the multiple of 12 is mentioned, the report refers to investors, not speculators.
> 
> If you are an investor, and a PER of 12 seems toppy, then use a lower one, or some other FA methodology.  All FA valuation methodologies rely on the concept of a required rate of return (RRR), and all long-term investors use them, sometimes without even knowing that there is an RRR lurking behind the rules of thumb multipliers that they use.  The higher the multiplier, the lower the RRR.
> 
> ...




Pioupiou,

I appreciate your TGA analysis on this thread, please continue. Agree FA vs TA topic has been done to death. The whole PE, DCF, EBIT/EV, RRR, blah blah blah is circular and boring. What this thread does show is that there are a  number of posters who agree that owning a part of TGA business is worthwhile - this is a very important point.  A dozen investors will never agree on the precise value of a business or investment timeframe or required return but they should however agree whether it is worth holding a part of that business.

Has anybody actually got a view against owning a part of the TGA business over the medium term (5 years)?

Cheers

Oddson

Please note I hold a large % of my investment funds in TGA.


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## McCoy Pauley (9 May 2012)

Rudi Filapek-Vandyck and John Murray debate TGA on last Friday's boardroom radio roundtable.  Quite an interesting discussion about why TGA's share price is in a downtrend compared to FXL's share price.

John Murray again noted that he's a big fan of TGA's management (especially its managing director).

FWIW, I believe that TGA is impacted by the cheap prices at which people can now buy TGA's stock outright, rather than going through a hire-purchase arrangement with TGA.  So long as I can buy a TV at ridiculously low prices (compared to a few years ago) why would I go to TGA to buy it?  IMO, there may well be a squeeze on TGA's performance over the last 12 months when the results are released later this month.

Also, I noted Macquarie's point that people are now diversifying their consumption of electronic media away from the TV and onto tablet computers, mobile phones and the like.  IMO, as broadband prices continue to fall, more and more people will start consuming their media needs on non-traditional devices and the need to buy a flat-screen TV, either outright or through TGA, will decline for some market segments.


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## Klogg (9 May 2012)

McCoy Pauley said:


> Rudi Filapek-Vandyck and John Murray debate TGA on last Friday's boardroom radio roundtable.  Quite an interesting discussion about why TGA's share price is in a downtrend compared to FXL's share price.
> 
> John Murray again noted that he's a big fan of TGA's management (especially its managing director).
> 
> ...




Agree 100% on the TV and electronics front. However, you'll notice that management have already taken steps to prevent loss of revenue as a result by opening the furniture and exercise equipment market. They've seen huge amounts of growth in these areas, as the half-yearly shows.

As for cheaper prices, I agree that the person on the average wage would be able to buy things outright, but for those on the lower end, this is alot harder. It's much easier to pay $20 a week for a year, than it is to pay $800 up front (probably not the most accurate figures, but you get the idea).

This is only really an issue though if you see the AUD maintaining above, or close to, parity with the USD. In all honesty, I can't see it maintaining > 90c for too long.


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## Pioupiou (9 May 2012)

Nutmeg said:


> 12 months _is_ near term.  Otherwise agree.




OK, now I presume that we are talking about FA, and we are thinking twelve months ahead. Because we can anticipate that the EPS will be about 20c  for YE 30/03/2012,  what will the EPS then be for 30/03/2013?  Below is EPS history, with YE 30/03/2012 at 20 cents – it could be half a cent either side of that.

5.1 - - - 8.3 - - - - 9.4 - - - - 14.9 - - - 16.7 - - - 20.0
- - - - 62.75% - 13.25% - 58.51% - 12.08% - 19.76%

The foregoing is a compound annual growth of 31.5%, which is too bullish to entertain.  Is it reasonable to use the worst growth year of about 12%?  Probably.   This will give a YE 30/03/2012 EPS of  22.4 cents, and if you multiplied that by 10.7, you would get the $2.40 that the Donnelly report targets.  Some will consider this to be optimistic, but it is not beyond the pale.

It would be useful to focus on the sort of EPS growth that is reasonable for TGA.  Should it be 12%, 11%, 10% for the next three years, or something roughly similar like 10%, 9%, 8%.  Should it be 8%, 8%, 8%, or 5%, 5%, 5%, or no growth?  The YE 30/03/2012 annual report will be available soon, and when I have read it, I'll invent a growth scenario as part of my FA work on TGA.  One can assume that dividends will be about half the EPS.

In summary, what are reasonable forward EPS estimates for TGA?  If one invents a pessimistic scenario too, then to be conservative, onee can settle for the middle.

On points made in later posts about electronic items and things becoming so cheap as not to be worth renting, I think they may not understand the demographic who use TGA - substantially people on welfare. In the countryside, where TGA does particularly well, many customers are Aborigines with large families.  85% of the payments made are effected via Centrepay, and some units added to the basket of items rented are cheap.  The word "renting" is misleading, effectively these are items bought via operational leases.  What happens is that the customers have a certain capacity to service a fund-outflow stream from their welfare receipts.  This capacity may suffice to pay for say $3K of value, so they get what they want, say a large washing machine, and then they top up to match the commitment that they can service.  Many customers cannot accumulate funds to buy items, because relatives/friends will "borrow" the funds, so the operational lease option suits them well - they cannot even give the items to bludgers, because TGA owns them.  A great deal of the business flows from reference selling - Aunty Bella gets in a new lounge suite, a new double bed and something else, and within days her sister-in-law is in line for the same deal.  Visit an outlet, and listen to what the manager has to say. 

Another demographic, although small, are landlords - they want the convenience of TGA ensuring things like washing machines and refrigerators remain operational.  Yet another demographic are folk working away from home on contract - they simply do not want the hassle of disposing of the items when their contracts expire.

TGA is introducing new lines to replace those that become unprofitable - furniture is going ballistic, and the range is improving.  Anyhow, let us see what the YE 30/03/2012 has to report, then decide if all is well, or not.

And yes, I would love to own a piece of this business, and to this end I regularly buy more shares (bought another 10,000 today).  I now have 470,000 TGA shares.


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## Klogg (9 May 2012)

Pioupiou said:


> I now have 470,000 TGA shares.




Wow, impressive. VERY impressive


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## Julia (9 May 2012)

Pioupiou said:


> And yes, I would love to own a piece of this business, and to this end I regularly buy more shares (bought another 10,000 today).  I now have 470,000 TGA shares.






> Wow, impressive. VERY impressive



Or very risky.
That's a whack of funds in just one company, especially one in a clear downtrend.


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## Nutmeg (9 May 2012)

McCoy Pauley said:


> I believe that TGA is impacted by the cheap prices at which people can now buy TGA's stock outright, rather than going through a hire-purchase arrangement with TGA.  So long as I can buy a TV at ridiculously low prices (compared to a few years ago) why would I go to TGA to buy it?




As a general observation this might be true but I'm not sure that there's much evidence to support it. For one thing, I don't believe that the forces that are presently keeping consumers away from HVN and JBH would operate on TGA's demographic any (or much) differently.


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## Klogg (10 May 2012)

Julia said:


> Or very risky.
> That's a whack of funds in just one company, especially one in a clear downtrend.




That's why I say it's impressive. It takes a lot of confidence to back yourself THAT much.


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## Nutmeg (10 May 2012)

Julia said:


> Or very risky.
> That's a whack of funds in just one company, especially one in a clear downtrend.




Many people have as much or more tied up in their homes.  In western Sydney not a few are living in homes with negative equity.  Personally, I think there is less risk, i.e. there is a greater margin of safety built into, buying TGA at current prices than there is buying a Sydney property at the moment.  Yet many Australians have a false sense of comfort that you can't lose money on property.


----------



## McLovin (10 May 2012)

Nutmeg said:


> Many people have as much or more tied up in their homes.  In western Sydney some are living in homes with negative equity.  Personally, I think there is less risk, i.e. there is a greater margin of safety built into, buying TGA at current prices than there is buying a Sydney property at the moment.  Yet many Australians have a false sense of comfort that you can't lose money on property.




That's ridiculous. For one thing plenty of companies go to zero. Land doesn't.


----------



## odds-on (10 May 2012)

Julia said:


> Or very risky.
> That's a whack of funds in just one company, especially one in a clear downtrend.




The amount of capital Pioupiou has put into TGA is more or less equivalent to what a property investor would use to purchase a property. Purchasing an investment property is one investment decision just like purchasing TGA is one investment decision. The upside and downside are different in each case and need to be evaluated properly for the investors timeframe and personal requirements. How can we say it is "risky"? It actually could be less "risky" than a property investment for Pioupiou's personal timeframe, skills and income requirements. Income, liquidity, valuation skills, exposure, potential upside, permananent loss of capital and so on need proper evaluation. I do not see any difference in allocating $500k to a property or $500k to shares one company - the amount of capital allocated is the same!


----------



## craft (10 May 2012)

Pioupiou said:


> For FA, the two most important factors required to be invented are the RRR and a growth factor to apply to EPS,.




Pioupiou.

In my humble opinion you have missed the most important factor. Profitability.

You can keep the two factors you mention set. Ie your required return fixed and the company can hit the growth rate expected and the value will still be smashed if the profitability falls.

The lower the profitability the more that must be retained to fund the growth resulting in less free cash flow from the investment. An investment is worth the PV of its future free cash flows.


----------



## tech/a (10 May 2012)

> In my humble opinion you have missed the most important factor. Profitability



.

And I think all of those in this dog have missed another---DEMAND!

There isnt any!


----------



## odds-on (10 May 2012)

tech/a said:


> .
> 
> And I think all of those in this dog have missed another---DEMAND!
> 
> There isnt any!




The final year report will be most reliable source to gauge demand. It will be interesting to see the sales figures.


----------



## Nutmeg (10 May 2012)

McLovin said:


> That's ridiculous. For one thing plenty of companies go to zero. Land doesn't.




Clearly, you're confusing stock market cap with the liquidation value of a company.  But you're also wrong on a basic level: residential property can go to $1 which is effectively zero.  Don't believe me?  Check out the price of residential properties in Detroit in the US: http://www.guardian.co.uk/business/2010/mar/02/detroit-homes-mortgage-foreclosures-80 

The issue raised by Julia was the question of risk.  You can't just talk in general terms about the value of "_a company_" potentially going to zero, as you put it.  You need to identify and tie specific risks to specific companies and then weigh up the probabilities of those risks materialising.  That's the context in which my remark about Australians' bias towards property as a safe investment was made.

Is the risk of permanent capital loss to people who bought McMansions out in Sydney's western suburbs pre-GFC that are presently in negative equity higher than the same risk of buying TGA at $1.40 a share?  That's the question.


----------



## Nutmeg (10 May 2012)

tech/a said:


> .
> 
> And I think all of those in this dog have missed another---DEMAND!
> 
> There isnt any!




Demand for TGA's goods and services or demand for TGA's stock? On the first you're wrong.  On the second, who cares?


----------



## Klogg (10 May 2012)

tech/a said:


> .
> 
> And I think all of those in this dog have missed another---DEMAND!
> 
> There isnt any!




You're right, short term there isn't any. But if I'm getting paid 7% FF to hold it, and the companies profits are growing, why do I care about demand right now?


----------



## odds-on (10 May 2012)

Nutmeg said:


> Clearly, you're confusing stock market cap with the liquidation value of a company.  But you're also wrong on a basic level: residential property can go to $1 which is effectively zero.  Don't believe me?  Check out the price of residential properties in Detroit in the US: http://www.guardian.co.uk/business/2010/mar/02/detroit-homes-mortgage-foreclosures-80
> 
> The issue raised by Julia was the question of risk.  You can't just talk in general terms about the value of "_a company_" potentially going to zero, as you put it.  You need to identify and tie specific risks to specific companies and then weigh up the probabilities of those risks materialising.  That's the context in which my remark about Australians' bias towards property as a safe investment was made.
> 
> Is the risk of permanent capital loss of people who bought McMansions out in Sydney's western suburbs pre-GFC that are presently in negative equity higher than the same risk of buying TGA at $1.40 a share?  I'm inclined to say yes.




Great post Nutmeg. I am far from sophisticated in my investment approach but I can differentiate between past experience and future exposure. 

I am often wrong (I am a married man)  but only time will tell regarding TGA.


----------



## tech/a (10 May 2012)

odds-on said:


> The final year report will be most reliable source to gauge demand. It will be interesting to see the sales figures.




Really!

So IOOF ceasing to be a substatial holder
PERPETUAL the same
and a share price visiting the south pole.

Not a consideration?


----------



## tech/a (10 May 2012)

Klogg said:


> You're right, short term there isn't any. But if I'm getting paid 7% FF to hold it, and the companies profits are growing, why do I care about demand right now?




So 12 mths ago you paid $1.90 ish and today you can get $1.30 ish.

Let me see
7% return against 35% loss of capital.

Carry on.


----------



## Klogg (10 May 2012)

tech/a said:


> Really!
> 
> So IOOF ceasing to be a substatial holder
> PERPETUAL the same
> ...




Actually, IOOF just became a substantial holder on 17/04. PPT are dumping their holdings, as they've done with other stocks that are performing well.
The other is kinetic, who have cut down on their holdings.

I still don't understand why I would care if these companies want to take their profits now...? 

The company has virtually no debt, and strong recurring revenue, so it's not going bust anytime soon... so my shares won't be worth $0 in the coming months.

I just fail to see the logic in wanting to sell because you see the guy next to you doing the same thing. I'm human, not a sheep!


----------



## McLovin (10 May 2012)

Nutmeg said:


> The issue raised by Julia was the question of risk.  You can't just talk in general terms about the value of "_a company_" potentially going to zero, as you put it.  You need to identify and tie specific risks to specific companies and then weigh up the probabilities of those risks materialising.  That's the context in which my remark about Australians' bias towards property as a safe investment was made.




In my mind, something with no cashflow is worth nothing. As a minority equity holder, liquidation value means very little. Companies usually die, they don't liquidate their balance sheet. Management are incentivised (ie paid) not to wind up the business. Agency risk is a real thing and shouldn't be discounted. I'm buying cashflow and ultimately that's what drives the assets price. As long as that cashflow continues, I don't particularly care what the asset's price does. Others can and do disagree. To that extent, residential property offers me the most stable cash flow and is the least likely to fall to zero, outliers notwithstanding. I don't own residential property, because I don't like the cash flow. However RRE has the most stable cash flow outside of fixed interest, IMO. 



Nutmeg said:


> Is the risk of permanent capital loss to people who bought McMansions out in Sydney's western suburbs pre-GFC that are presently in negative equity higher than the same risk of buying TGA at $1.40 a share?  That's the question.




I'm not disagreeing with that. I'm disagreeing with the idea that buying one share or one house, all other things being equal, has the same degree of risk. Agency risk alone means they don't.


----------



## Nutmeg (10 May 2012)

tech/a said:


> Really!
> 
> So IOOF ceasing to be a substatial holder
> PERPETUAL the same
> ...




Do you know why they are selling or either's entry point into the stock?  If not, then what's your point?


----------



## Klogg (10 May 2012)

tech/a said:


> So 12 mths ago you paid $1.90 ish and today you can get $1.30 ish.
> 
> Let me see
> 7% return against 35% loss of capital.
> ...




But I didn't buy it 12months ago, as it wasn't 'undervalued', as the FA would suggest.

And the SP drop is due to negative sentiment, not because the company is being run to the ground.

It's like if you bought a house for $200k, that returned 20k a year in rental returns (just an example). The housing market is in a downturn, but that's a yield of 10%. Would you wait until the market comes good before buying (and therefore probably buy the thing at a higher price, because everyone else will be jumping on board)?


----------



## oldblue (10 May 2012)

How much anyone has invested in TGA is their own business.

Personally, I'm with Julia on the general question of diversification - yes, the doubters sometimes deride it as "diworsification" - but I've seen enough apparently sound companies go belly up in my time to put me off the big betting the farm technique! 

Anyone remember Standard Insurance or Reid Murray from the 1960's? No? - well how about Timbercorp, ABC Learning or Babcock and Brown from more recent days!

Nothing to do with TGA, of course, but they demonstrate the downside of concentrated risk when things go wrong.


----------



## Pioupiou (10 May 2012)

On the matter of investing between $500,000 and $600,000 in a rental property versus TGA, I presume the former will make about 5% return a year, and then there is the hoped-for capital appreciation. If you bought TGA shares at $1.40, and got 10 cents fully franked dividend, the dividend and the franking credit would be worth 14.3 cents, a return of 10.2%.  In my case my 470,000 TGAs cost me $564,392, and I'll presume that the dividends received suffices to ignore the time value of money.   My current return on 14.3 cents a share is 11.9%, and I expect my capital appreciation in the next few years will surpass that of a rental property, but it might not.  How the value of my TGAs, or the value of a rental property, may wobble for a year or so does not unduly bother me, the $67K of dividend and franking credits allows me to sit through the wobbles.  If TGA slips into decline it will be a slow process because of its strong cashflow and near-zero debt, rather than an over-night wipe out. Hence the chances of losing it all are low.

The advantage of high-commitment investing is that it implies that one knows the target investment well, and takes the trouble to continually research it – effort and talent that would be misapplied if one merely tossed beer money at it.  I hold 16 other stocks in my portfolio worth roughly as much in total as TGA, and I find that with most of them, I do not invest the time to understand them, which is why I am gradually whittling down the number (was 30 stocks some years ago).  I would rather hold five stocks that I understood very well, rather than thirty that I do not. 

The more one knows, the less the risk, and hence the more comfortably one is with the risk.   I have no certain knowledge that Black Caviar is going to win its next race, but I know enough to venture that at odds of twenty to one, I would have a flutter, rather than avoid it, because the mare might not win.   It's all a matter of PERCEIVED upside versus downside, and one's ability to handle the worst-case downside, which will vary from person to person.  The more you know and evaluate an investment, the better the quality of the PERCEPTION will be. 

TGA could go into decline, as did the Dutch East India Company (started in 1602, went bankrupt in 1800).  The TGA business, commenced in 1937 as Radio Rentals, and I am sure it will see out the next five years.  Investor watching TGA carefully will see the signs (declining ROE, EPS, revenue, customers, etc) before the herd see them, and they will be able to skip out early.  This brings me to what I think we this forum should be debating – that is, what we think TGA's EPS is going to be for the next few years.  In this regard, when wondering what could happen if customers/revenue cease to grow, it is worth considering two long-established TGA-style stocks in the USA.  Aaron's (AAN) is growing revenue and EPS.  Rent-A-Centre (RCII) is not growing, but because it does not need to fund growth, funds have been diverted to buying back shares, and hence its EPS has continued to grow.  You can find their metrics by googling - morningstar aan aarons "annual report" - and - morningstar aan aarons "annual report" - or simply go to:

- http://quicktake.morningstar.com/stocknet/secdocuments.aspx?symbol=aan 
- http://quicktake.morningstar.com/stocknet/secdocuments.aspx?symbol=rcii 

When I looked at these months ago, AAN was trading at 18 times YE 30/12/2011 EPS, and RCII at 13 times YE 30/12/2011 EPS.

Bear in mind that what tends to spook the market (welching Greeks, oil prices, interest levels, unemployment in Patagonia, civil war in Azania, etc) has little impact on TGA's EPS growth, whereas more Australians households on welfare and more of our money hurled at them helps its ROE and EPS growth.

What is your prognosis of the forward EPS metrics?


----------



## Nutmeg (10 May 2012)

McLovin said:


> I'm disagreeing with the idea that buying one share or one house, all other things being equal, has the same degree of risk. Agency risk alone means they don't.




That sounds plausible as a general proposition but it does so precisely because it is so generalised and not specific to any particular stock.  Most investors don't buy "stocks": they buy shares in a particular business.  Do you think the homeowners who bought those properties referred to in the Guardian article take much comfort in general propositions that a house has less risk of capital loss?


----------



## Nutmeg (10 May 2012)

tech/a said:


> So 12 mths ago you paid $1.90 ish and today you can get $1.30 ish.
> 
> Let me see
> 7% return against 35% loss of capital.
> ...




Who are you talking about?  My entry price is $1.48.


----------



## McLovin (10 May 2012)

Nutmeg said:


> That sounds plausible as a general proposition but it does so precisely because it is so generalised and not specific to any particular stock.  Most investors don't buy "stocks": they buy shares in a particular business.  Do you think the homeowners who bought those properties referred to in the Guardian article take much comfort in general propositions that a house has less risk of capital loss?




They may or they may not. How does that article prove that houses are less risky than buying a single share?


----------



## Nutmeg (10 May 2012)

oldblue said:


> Anyone remember Standard Insurance or Reid Murray from the 1960's? No? - well how about Timbercorp, ABC Learning or Babcock and Brown from more recent days!




With respect, the last three companies were never great companies.  The warning signs were always there for all to see.  Their balance sheets were simply awful. You need to compare like to like.


----------



## Klogg (10 May 2012)

Nutmeg said:


> With respect, the last three companies were never great companies.  The warning signs were always there for all to see.  Their balance sheets were simply awful. You need to compare like to like.




You beat me to it - Security Analysis FTW.


----------



## Nutmeg (10 May 2012)

McLovin said:


> They may or they may not. How does that article prove that houses are less risky than buying a single share?




It doesn't.  But I am not trying to prove a general proposition.  You are.


----------



## odds-on (10 May 2012)

McLovin said:


> In my mind, something with no cashflow is worth nothing. As a minority equity holder, liquidation value means very little. Companies usually die, they don't liquidate their balance sheet. Management are incentivised (ie paid) not to wind up the business. Agency risk is a real thing and shouldn't be discounted. I'm buying cashflow and ultimately that's what drives the assets price. As long as that cashflow continues, I don't particularly care what the asset's price does. Others can and do disagree. To that extent, residential property offers me the most stable cash flow and is the least likely to fall to zero, outliers notwithstanding. I don't own residential property, because I don't like the cash flow. However RRE has the most stable cash flow outside of fixed interest, IMO.
> 
> 
> 
> I'm not disagreeing with that. I'm disagreeing with the idea that buying one share or one house, all other things being equal, has the same degree of risk. Agency risk alone means they don't.




Agency risk is part of the valuation. The best an investor can do is try and compare the expected value of two investment opportunities. I love expected value.

Cheers

Oddson


----------



## McLovin (10 May 2012)

Nutmeg said:


> It doesn't.  But I am not trying to prove a general proposition.  You are.




I'm not trying to prove it. Just sayin'.


----------



## McLovin (10 May 2012)

odds-on said:


> Agency risk is part of the valuation. The best an investor can do is try and compare the expected value of two investment opportunities. I love expected value.
> 
> Cheers
> 
> Oddson




But there are so many variables that go into estimating cash flow, that's why the margin of safety is so useful, it acknowledges one's own shortcomings. If I buy in a good inner-city location, I may not generate the same return, but my earnings risk is much lower, at least IMO.

Anyway, well OT now.


----------



## Nutmeg (10 May 2012)

Pioupiou said:


> What is your prognosis of the forward EPS metrics?




You're obviously better versed in TGA's business than most of us.  But I think TGA is at something of a turning point which makes estimating its future earnings with any accuracy fraught with difficulty.  New businesses (NCML) and new business lines (furniture and gym equipment) without a long or any established track record of earnings have been acquired and developed that put TGA on a steady but perhaps not stellar path to growing earnings.  

I've only entered TGA recently, so I will want to consider its FY report before proferring any estimate.  In particular, I want to see if there is any evidence for the assumptions in Macquarie's report that has TGA's business basically treading water for the next two years.  Personally, I think that report has underestimated the ability of TGA's management to grow TGA and the adaptability of the rental business.  Basically anything can be leased/rented if there is a demand for it and it is often very profitable.  In this regard, people should look at MMS when it bought Interleasing.  Ultimately, why stop at leasing only household items and basic office equipment?  I think there's tremendous tax incentives for corporations to lease a whole variety of essential business equipment rather than outright purchasing of it.


----------



## tech/a (10 May 2012)

So all of you have just purchased this?
Pioupiou have you held these (Yours ) for long?


----------



## odds-on (10 May 2012)

McLovin said:


> But there are so many variables that go into estimating cash flow, that's why the margin of safety is so useful, it acknowledges one's own shortcomings. If I buy in a good inner-city location, I may not generate the same return, but my earnings risk is much lower, at least IMO.
> 
> Anyway, well OT now.




Perhaps my view of the world is wrong. Personally I look about 5 years out for any business (including property investment), I calculate expected value taking into account all risks (inflation, financial, earnings etc) and compare it against the expected value of a 5 year term deposit at a leading bank. It is the best I can do. It is when performing this comparison exercise, I do not understand why people property invest in the current market, until the rental yields are double digit it is far from safe, in fact to obtain reasonable returns the investor is reliant on capital growth, which if the property market in general is not rising then the investor is reliant on their skill in picking the right house on the right street in the right suburb and making the right modifications to obtain capital growth for their investment timeframe.  Taking $500k of capital and allocating it to the right house on the right street in the right suburb and making the right modifications is no different to putting $500k into a carefully selected stock it is one investment decision. One must allocate capital into the investment with the highest expected value. This is why putting a lot of money into one stock is not “risky” if you have done your homework, however it is very “risky” just like property investment if you have not done your homework. Agree well OT now.


----------



## Nutmeg (10 May 2012)

tech/a said:


> So all of you have *just* purchased this?
> Pioupiou have you held these (Yours ) for long?




What makes you think that?


----------



## tech/a (10 May 2012)

> Perhaps my view of the world is wrong.




Perhaps a little strange.
But I will use Pioupiou's above post as an example 
which I do find bemusing---when I have a spare minute.

Stay tuned.


----------



## tech/a (10 May 2012)

Nutmeg said:


> What makes you think that?




$1.48 was just reciently or a few years ago.
Your the few years ago?
If so thats fine. Is that the case?
Anyone earlier than $1.20 which is Pioupiou's average?


----------



## Nutmeg (10 May 2012)

tech/a said:


> Perhaps a little strange.
> But I will use Pioupiou's above post as an example
> which I do find bemusing---when I have a spare minute.
> 
> Stay tuned.




Can't wait.


----------



## craft (10 May 2012)

tech/a said:


> .
> 
> And I think all of those in this dog have missed another---DEMAND!
> 
> There isnt any!





Lack of demand for the share is what creates the prices that provide an acceptable return.

Time frame is everything.

Total return since listing.






Not too shabby for a dog.


----------



## Pioupiou (10 May 2012)

I have been accumulating TGA since 2007, and bought them at prices ranging from $0.55 to $2.03 - average $1.201.  I currently have a paper capital gain of of just under $100K.  This is boring history, it is on what the future holds that is likely to be more fruitful.

Looking at TGA as a business, on the basis that in time the SP will reflect the underlying business, I ask again, what do you folk think the EPS metrics are going to be for the next few years?  This will be easier to answer when you have read the YE 30/03/2012.

Debating different valuation methodologies, and RRRs used, is less important, and fairly sterile if we have no thoughts on medium-term EPS metrics to which we can apply these valuation methodologies.  Let us stick to EPS metrics to keep things simple, and assume the payout ratio will be about 50%.


----------



## Klogg (10 May 2012)

tech/a said:


> So all of you have just purchased this?
> Pioupiou have you held these (Yours ) for long?




Probably should clarify - average of $1.55.


----------



## tech/a (10 May 2012)

Klogg said:


> Probably should clarify - average of $1.55.




Before I make a point.
How many of you have held OVER 2 Years

At an average of less than todays price.


----------



## craft (10 May 2012)

Pioupiou said:


> I have been accumulating TGA since 2007, and bought them at prices ranging from $0.55 to $2.03 - average $1.201.  I currently have a paper capital gain of of just under $100K.  This is boring history, it is on what the future holds that is likely to be more fruitful.
> 
> Looking at TGA as a business, on the basis that in time the SP will reflect the underlying business, I ask again, what do you folk think the EPS metrics are going to be for the next few years?  This will be easier to answer when you have read the YE 30/03/2012.
> 
> Debating different valuation methodologies, and RRRs used, is less important, and fairly sterile if we have no thoughts on medium-term EPS metrics to which we can apply these valuation methodologies.  Let us stick to EPS metrics to keep things simple, and assume the payout ratio will be about 50%.




I think you should be looking at profitability! It has and is forecast to continue decreasing.


----------



## Nutmeg (10 May 2012)

craft said:


> I think you should be looking at profitability! It has and is forecast to continue decreasing.




I agree.  I'd like to see TGA's ROE rise.  ROE at over 20% is good.  You won't get that kind of return on your funds in a bank account.  But if TGA is getting less bang for its buck than it has formerly, I'll want to know why.  As for Macquarie's forecast of declining ROE, I query some of the assumptions on which it is based.  However, it's a metric to watch closely.


----------



## Klogg (10 May 2012)

tech/a said:


> Before I make a point.
> How many of you have held OVER 2 Years
> 
> At an average of less than todays price.




None.


----------



## tech/a (10 May 2012)

Klogg said:


> None.




Pioupiou is one.


----------



## oldblue (10 May 2012)

Just for the record, there's quite a few shares available at $1.39 today.

I'm still waiting for the trend to reverse.


----------



## skc (10 May 2012)

tech/a said:


> Pioupiou is one.




Aren't you tired of this mostly pointless exercise?

Even if TGA was to go bankrupt tomorrow you would have proved nothing. You can't prove TA warned about it, you can't prove FA is inferior. The only thing you'd proved is that these FA guys got their analysis wrong... the consequence of which is the same as getting TA wrong.

You can make a case about position size, averaging down, risk management etc. But you would never end the debate of FA vs TA.

Never...


----------



## oldblue (10 May 2012)

It shouldn't be an either/or debate. Surely the two are complementary?


----------



## tech/a (10 May 2012)

> On the matter of investing between $500,000 and $600,000 in a rental property versus TGA, I presume the former will make about 5% return a year, and then there is the hoped-for capital appreciation. If you bought TGA shares at $1.40, and got 10 cents fully franked dividend, the dividend and the franking credit would be worth 14.3 cents, a return of 10.2%. In my case my 470,000 TGAs cost me $564,392, and I'll presume that the dividends received suffices to ignore the time value of money. My current return on 14.3 cents a share is 11.9%, and I expect my capital appreciation in the next few years will surpass that of a rental property, but it might not. How the value of my TGAs, or the value of a rental property, may wobble for a year or so does not unduly bother me, the $67K of dividend and franking credits allows me to sit through the wobbles. If TGA slips into decline it will be a slow process because of its strong cashflow and near-zero debt, rather than an over-night wipe out. Hence the chances of losing it all are low.




I see this mentality---rational often on these boards
PEN
RED
MAD 
to name a few threads.

TGA has twice been to $2.26.
That makes your holding $1,062,200 (470000 shares)---its been there twice.
Your current holding is valued at $655,650
In 12 mths for the sake of $67,000 franked dividends you have 
gladly sacrificed $400K.

Yet we get from other posters



> Taking $500k of capital and allocating it to the right house on the right street in the right suburb and making the right modifications is no different to putting $500k into a carefully selected stock it is one investment decision. One must allocate capital into the investment with the highest expected value. This is why putting a lot of money into one stock is not “risky” if you have done your homework, however it is very “risky” just like property investment if you have not done your homework.




And Pioupiou is seen as one who has definately done his homework.
Today TGA dropped 1.5c or $7,050.

So



> Perhaps my view of the world is wrong.




To let your profit in anything drop 40% when a phone call/mouse click can stop it is in my view *NUTS.*
No matter *HOW* you justify it.

I find people who have spent months analysing a holding and are committed as much as many here become---are blinded to the fact that they are wrong!
a $400K loss in 12 mths---your *WRONG!*

That 400K would buy 287000 more shares today!
or another $41,615 in dividends each and every year!
What on earth are you doing???


----------



## tech/a (10 May 2012)

> Aren't you tired of this mostly pointless exercise



?

I dont see any comparison here?
(In the post above).
Just common sence
which evidently isnt that common.


----------



## Nutmeg (10 May 2012)

tech/a said:


> I find people who have spent months analysing a holding and are committed as much as many here become---are blinded to the fact that they are wrong!
> a $400K loss in 12 mths---your *WRONG!*




Have you ever asked yourself why the most successful investor in the world is a value/FA guy and not a price/TA guy?


----------



## CanOz (10 May 2012)

Nutmeg said:


> Have you ever asked yourself why the most successful investor in the world is a value/FA guy and not a price/TA guy?




I see no evidence of anyone trying to emulate Mr.Buffet in this thread mate.

CanOz


----------



## McCoy Pauley (10 May 2012)

I sold out of TGA slightly more than 12 months ago and I haven't bought back in, though it remains on my watch-list.

I invest on the basis of fundamental analysis, but I also keep an eye on simple trends.  I sold TGA because it had fallen about 10% from its peak.  In fact, I sold most of my holdings because they had all slipped, save for my core holdings.

I admire Warren Buffett's approach to investing, but I don't kid myself that I can emulate his success.  I try to model his approach as far as possible, but to be honest, the Australian market is so concentrated on banks and mining companies, it's difficult to find decent companies in which to invest (IMO).

FWIW, I believe that the "investment quality" of TGA has deteriorated over the last 12 months.  The NCML acquisition was a mis-step and I believe, as I wrote yesterday, that TGA needs to manage the changing nature of the market for its services.  I noted the reference to furniture in the Macquarie report but I haven't fully investigated it yet.

The annual report due out later this month may be a catalyst for TGA breaking its current downtrend or accelerating it.


----------



## tech/a (10 May 2012)

Nutmeg said:


> Have you ever asked yourself why the most successful investor in the world is a value/FA guy and not a price/TA guy?




Buffett buys control in companies and takes control.
Did you know that Buffett missed bankruptcy during the GFC
only because paper work for taking control of credit
Default swaps wasnt correct!

Have you every pondered as to why there is ONE Buffett
And a zillion wanna be's

Still my point is that there is some poor investment decisions being made by some on these boards.
As evidenced in recient posts.


----------



## Nutmeg (10 May 2012)

tech/a said:


> Did you know that Buffett missed bankruptcy during the GFC
> only because paper work for taking control of credit
> Default swaps wasnt correct!




What are you on, crack?


----------



## Nutmeg (10 May 2012)

McCoy Pauley said:


> I believe that the "investment quality" of TGA has deteriorated over the last 12 months.




If that is true, then it is not apparent from TGA's increase in earnings.  It will be the quality of TGA's earnings that I'll be watching in the near term - a quality best measured by TGA's ROE.  Increasing earnings - particularly as a result of acquisitions - but declining ROE paints a questionable bill of health.


----------



## tech/a (10 May 2012)

Nutmeg said:


> What are you on, crack?




Yeh Didn't think so

A copy of "THE QUANTS" by Scott Patterson
may educate you---.


----------



## CanOz (10 May 2012)

Was that a good read TECH?


----------



## Nutmeg (10 May 2012)

tech/a said:


> Yeh Didn't think so
> 
> A copy of "THE QUANTS" by Scott Patterson
> may educate you---.
> ...




“_Beware of geeks bearing formulas_.”
Warren Buffett


----------



## Nutmeg (10 May 2012)

tech/a said:


> Did you know that Buffett missed bankruptcy during the GFC
> only because paper work for taking control of credit
> Default swaps wasnt correct!




Do you even know what credit default swaps are?  If so and if by "_taking control_" of CDFs you mean Buffett issued CDFs (since you can't go bankrupt taking CDFs as any loss is limited to the "premium" paid upfront for the CDF), then find me one internet article in which that is referred to.  Had it occurred, it would have been front page news.


----------



## Ves (10 May 2012)

Nutmeg said:


> If that is true, then it is not apparent from TGA's increase in earnings.  It will be the quality of TGA's earnings that I'll be watching in the near term - a quality best measured by TGA's ROE.  Increasing earnings - particularly as a result of acquisitions - but declining ROE paints a questionable bill of health.



 Why not ROIC? Seems more accurate considering there is debt on the balance sheet.


----------



## Nutmeg (10 May 2012)

Ves said:


> Why not ROIC? Seems more accurate considering there is debt on the balance sheet.




Or ROIC.


----------



## Ves (10 May 2012)

Nutmeg said:


> Or ROIC.




For the 2011 FY I get a ROIC of 16%.  I haven't adjusted for the cash balance, because it isn't a large amount and also I deem it necessary for them to keep buying rental assets.

In a sense return on equity can act like a bit of a "glamour" formula and is easily enough to manipulate.

Another problem with a business like this is that NPAT can be manipulated by the method of accounting for income and expenses.  

It _could_ be more accurate to stabilise a free cash flow figure and use this instead of NPAT in the ROIC calculation.  It would be interesting to note the difference.

Looking at the fluctuations between ROE and ROIC in time; it would appear that there probably is not too much of a moat around this business and the higher ROE of the last two years is more likely due to a growth spurt and the equity / debt on the balance sheet is just catching up.


----------



## Nutmeg (10 May 2012)

Ves said:


> Looking at the fluctuations between ROE and ROIC in time; it would appear that there probably is not too much of a moat around this business and the higher ROE of the last two years is more likely due to a growth spurt and the equity / debt on the balance sheet is just catching up.




Why would the presence or absence of a moat have any impact on growing or declining ROE/ROIC?


----------



## Ves (10 May 2012)

Nutmeg said:


> Why would the presence or absence of a moat have any impact on growing or declining ROE/ROIC?



 Clearly if you have no moat it is much harder to insulate your profits or maintain profitability when competition or harder times come along.  This results in declining return on capital, in fact without a moat I do not know how you can expect to achieve long-term results above and beyond your cost of capital.  There are of course certain situational factors where above average  ROE / ROIC is possible; but they hardly ever translate into long-term out-performance unless you have a competitive advantage.


----------



## odds-on (10 May 2012)

Nutmeg said:


> Or ROIC.




Or this...

http://www.gurufocus.com/news/175393/free-cash-flow-isnt-everything


----------



## tech/a (10 May 2012)

tech/a said:


> I see this mentality---rational often on these boards
> PEN
> RED
> MAD
> ...




The silence is deafening



CanOz said:


> Was that a good read TECH?




Sure is.


----------



## Pioupiou (10 May 2012)

Ves said:


> Why not ROIC? Seems more accurate considering there is debt on the balance sheet.




TGA has virtually no debt - $11 million as against equity of $132.388 million (8.3%) as at 30/09/2011.

On the matter of a moat - this has always worried me in a way, and not in another way.  Firms like Coca Cola and McDonalds only have their names as a moat, but that seems to suffice to allow them to be profitable for a long time.  TGA has a few weak moats.  Its strong balance sheet is one - a new competitor needs a pile of cash to have a business like TGA.  A second moat is that its business is so bloody boring, that it would not excite yuppies as a business option.  TGA's core skill is customer management in the sense of screening them for reliability, and cajoling them into meeting their commitments, a skill that is not as generally available as one may think, and one that carries enough social odium to keep the yuppies away.   Perhaps the limited size to which TGA can grow acts as a minor moat - big money would not be interested. These are not individually strong moats, but collectively they seem to have sufficed for a long time.

Adam Smith noted that odious businesses seemed to do well relative to the skills and effort required.  In his day, butchers (who actually butchered) did relatively well, and Smith noted that hangmen did even better if one considered the few hours that they worked.  This is why Invocare does so well - interring and cremating the departed is not a business that many aspire to own.  I would buy Invocare shares, but its SP is too toppy.


----------



## Ves (10 May 2012)

Pioupiou, I was using the 2011 figures as a financial.  The 2012 financials will be able to enlighten us some more and I don't think we need to go into any more depth until we see those numbers.  Thanks for your points  -  I agree in a sense and they are part of the reason why I have a small holding.


----------



## Julia (10 May 2012)

Pioupiou, if you feel able to disclose the other companies you hold, that would be interesting.
No obligation, of course.


----------



## Pioupiou (10 May 2012)

tech/a said:


> TGA has twice been to $2.26.
> That makes your holding $1,062,200 (470000 shares)---its been there twice.
> Your current holding is valued at $655,650
> In 12 mths for the sake of $67,000 franked dividends you have
> ...




I did not own 470,000 when the price peaked at $2.27, so the loss was not as large as you suggest.  I have bought many TGAs relatively recently.  As the price was rising a year ago, I unfortunately decided to sell at $2.30, but it never got there, and my sell orders expired.  Also, with the benefit of hindsight I should have then sold at a lower price, but then I would have kicked myself for getting out too early, if the slide was reversed.  Lastly, where I may have erred in the past is spilled milk, what I want to know is where is TGA as a business going in the next 18 months and longer, and I'll get out on fundamentals, as I wanted to do when it peaked a year ago, not by the pattern of the graphs.

On the matter of dropping $7,050, my portfolio value bounces around about $10K a day, often three times that, but I do not have the talent to sell and buy so as to always avoid the downs and catch the ups.  If anyone has that talent, then they should be extremely wealthy.

The point is, are they worth buying now at circa $1.40, or are they going to drop further?  Time will tell.


----------



## Pioupiou (10 May 2012)

Julia said:


> Pioupiou, if you feel able to disclose the other companies you hold, that would be interesting.
> No obligation, of course.




Happy to oblige, but I will warn you that I entered the market in late 2007 at its peak with a wad of money to invest, and a poor understanding of shares. Most that I still hold are relics of those heady days.  I have been culling them, so there are now 16, about half of what I had two years ago.  They are ANZ, ARG, BHP, BOL, CCV, CSL, DOW, EGN, FFI, KSC, MLT, QBE, SGH, TGA, UGL, VMG (and VMGO), WBC and WOW.  FFI and SGH are not relics - I acquired them in 2010.  The only one that I really like is TGA.  I should sell most of the others, but then what to buy?  I'll focus on this during 2012 calandar year.

I only have a few CCV - bought at average of 62.2 cents - got out at 83.5 cents with about $10.3K profit, and a 2054 were left behind.  BOL, EGN, and VMG have been huge disasters, and many of the others have been awful. 

This is not the thread to discuss these, we get sidetracked into enough spurious exchanges discussing TGA alone.


----------



## Nutmeg (11 May 2012)

Pioupiou said:


> They are ANZ, *ARG*, BHP, *BOL*, CCV, CSL, DOW, *EGN*, FFI, *KSC*, *MLT*, QBE, SGH, TGA, UGL, *VMG* (and VMGO), WBC and WOW.




As a long term value investor, I would have thought you'd have required a higher ROE than those small caps in bold are giving you.  You can get better returns in most fixed term deposits without the capital risk.


----------



## Nutmeg (11 May 2012)

tech/a said:


> Sure is.




Fess up! You haven't even read that book, have you?  If so, show me the part in it where it claims Warren Buffett was nearly made bankrupt by credit default swaps.


----------



## McCoy Pauley (11 May 2012)

Pioupiou said:


> TGA has virtually no debt - $11 million as against equity of $132.388 million (8.3%) as at 30/09/2011.
> 
> On the matter of a moat - this has always worried me in a way, and not in another way.  Firms like Coca Cola and McDonalds only have their names as a moat, but that seems to suffice to allow them to be profitable for a long time.  TGA has a few weak moats.  Its strong balance sheet is one - a new competitor needs a pile of cash to have a business like TGA.  A second moat is that its business is so bloody boring, that it would not excite yuppies as a business option.  TGA's core skill is customer management in the sense of screening them for reliability, and cajoling them into meeting their commitments, a skill that is not as generally available as one may think, and one that carries enough social odium to keep the yuppies away.   Perhaps the limited size to which TGA can grow acts as a minor moat - big money would not be interested. These are not individually strong moats, but collectively they seem to have sufficed for a long time.
> 
> Adam Smith noted that odious businesses seemed to do well relative to the skills and effort required.  In his day, butchers (who actually butchered) did relatively well, and Smith noted that hangmen did even better if one considered the few hours that they worked.  This is why Invocare does so well - interring and cremating the departed is not a business that many aspire to own.  I would buy Invocare shares, but its SP is too toppy.




Coca-Cola has its formula for its products locked up very tight.  Much imitated; never replicated.

McDonald's moat lies in its franchise system that means that (in theory, not always in practice) what you buy in Melbourne tastes exactly the same as what you buy in Moscow.

IMO, the moats of these companies are much stronger than I think you give them credit for.

Otherwise, I agree with the thrust of your post.


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## tech/a (11 May 2012)

Nutmeg said:


> Fess up! You haven't even read that book, have you?  If so, show me the part in it where it claims Warren Buffett was nearly made bankrupt by credit default swaps.




Damn sprung!!

Youll learn a great deal about Mr Buffett.


----------



## Nutmeg (11 May 2012)

tech/a said:


> Damn sprung!!
> 
> Youll learn a great deal about Mr Buffett.




I knew it.  Do you even know what credit default swaps are?  Don't google it!


----------



## skc (11 May 2012)

McCoy Pauley said:


> Coca-Cola has its formula for its products locked up very tight.  Much imitated; never replicated.




Off topic... Coke was never about its secret formula. It's the world's best marketing organisation... selling an image. It's also the world's best distribution system. If you are thirsty and go and buy a drink, chances are you will see Coke in prominent display. 

The secret formula is probably free on the internet somewhere... but no one would be able to sell the same thing in another label.


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## tech/a (11 May 2012)

Nutmeg said:


> I knew it.  Do you even know what credit default swaps are?




Don't have the book on my desk at the office but ill have a look through it on the W/End.
When i find it Ill post the page up for reference.

Then you'll have to buy the book to verify it.
Ill also take a pik of it in my library with a copy of this post just to appease
your girlish glee.

Do you really want me to type up a post on Credit default swaps?
Happy to if it will help you.


----------



## McLovin (11 May 2012)

Ves said:


> Clearly if you have no moat it is much harder to insulate your profits or maintain profitability when competition or harder times come along.  This results in declining return on capital, in fact without a moat I do not know how you can expect to achieve long-term results above and beyond your cost of capital.  There are of course certain situational factors where above average  ROE / ROIC is possible; but they hardly ever translate into long-term out-performance unless you have a competitive advantage.




I would have thought their moat would come from being the largest (by a wide margin) in their industry. The industry is fairly small too, so that scale probably gives them a cost advantage.


----------



## Nutmeg (11 May 2012)

tech/a said:


> Don't have the book on my desk at the office but ill have a look through it on the W/End.
> When i find it Ill post the page up for reference.
> 
> Then you'll have to buy the book to verify it.
> ...




Let me make it easier for you: find me a single internet reference to Buffett going almost broke because he wrote credit default swaps.  Google it and tell me what you find.


----------



## McCoy Pauley (11 May 2012)

skc said:


> Off topic... Coke was never about its secret formula. It's the world's best marketing organisation... selling an image. It's also the world's best distribution system. If you are thirsty and go and buy a drink, chances are you will see Coke in prominent display.
> 
> The secret formula is probably free on the internet somewhere... but no one would be able to sell the same thing in another label.




I agree with all that (though I don't think you could find the formula anywhere).  The Coca-Cola Company is a brilliant case study in marketing, all the way down to Santa Claus as he's currently envisioned.


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## Nutmeg (11 May 2012)

McCoy Pauley said:


> I agree with all that (though I don't think you could find the formula anywhere).  The Coca-Cola Company is a brilliant case study in marketing, all the way down to Santa Claus as he's currently envisioned.




And it tastes good!  You all seem to have forgotten that.


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## kermit345 (11 May 2012)

tech/a and nutmeg can you take your bickering to pm's or something, its starting to get way off topic from TGA.

See its holding reasonably well at the $1.40 mark, will be interesting if it can hold here until the annual report and then see where it goes from there. If it broke down heavily just before the annual report you'd have to see that as a big warning sign but I guess its time to see how it plays out.


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## McLovin (11 May 2012)

skc said:


> Off topic... Coke was never about its secret formula. It's the world's best marketing organisation... selling an image. It's also the world's best distribution system. If you are thirsty and go and buy a drink, chances are you will see Coke in prominent display.




That, and it's cheap, so there's no need to switch. During the Cola Wars Pepsi was encouraging people to "take the Pepsi challenge" and was winning over consumers because it tasted better. That all came to a head when Coke shot itself in the foot with New Coke.



skc said:


> The secret formula is probably free on the internet somewhere... but no one would be able to sell the same thing in another label.




Nah, it's very much secret. There are a lot of attempts to work out what it is though. If it was widely available, then they wouldn't spend all that effort transporting syrup from Atlanta to all four corners of the globe.


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## Nutmeg (11 May 2012)

kermit345 said:


> tech/a and nutmeg can you take your bickering to pm's or something, its starting to get way off topic from TGA.




Then ignore it, you hippy.


----------



## Joe Blow (11 May 2012)

Back on topic please everyone. TGA and related discussion only in this thread.

And a reminder to all that insults and personal attacks are not permitted.


----------



## Pioupiou (11 May 2012)

McLovin said:


> I would have thought their moat would come from being the largest (by a wide margin) in their industry. The industry is fairly small too, so that scale probably gives them a cost advantage.




Yep - that is true, TGA's size is important. I imagine that a competitor like Mr Rental and Radio Rentals in SA (which is not a TGA unit) probably take their pricing cues from TGA's outlets (Rentlo in SA, Radio Rentals in other states). I would like to know more about TGA's competitors, but I do not, other than what one picks up on the Internet (Mr Rental is a NZ-founded franchising operation with outlets in NZ and Australia). 

One can add TGA's buying clout as a moat. TGA's buying power is huge, because although it is a middling-sized supplier, its narrow product range means that when it plonks down the oof in front of a would-be supplier, TGA has the negotiating dynamics in its favour. In furniture lines, the suppliers would be small if local, and much tempted to pick up the extra volume focused on one or two items they make - economies of specialisation (read all about it in Adam Smith's book).

To put the matter of the series of moats that TGA has in one place, I repeat what I wrote earlier - namely: ". . . Firms like Coca Cola and McDonalds only have their names as a moat, but that seems to suffice to allow them to be profitable for a long time. TGA has a few weak moats. Its strong balance sheet is one - a new competitor needs a pile of cash to have a business like TGA. A second moat is that its business is so bloody boring, that it would not excite yuppies as a business option. TGA's core skill is customer management in the sense of screening them for reliability, and cajoling them into meeting their commitments, a skill that is not as generally available as one may think, and one that carries enough social odium to keep the yuppies away. Perhaps the limited size to which TGA can grow acts as a minor moat - big money would not be interested. These are not individually strong moats, but collectively they seem to have sufficed for a long time.

Now back to valuing stocks – TGA specifically.

When we read the next annual report, we will have a six-year record of a fistful of performance metrics, plus risk-related matters like the debt/equity ratio and management cues as to how well TGA is travelling. We can then invent a growth scenario, subjective as it will be. These things should impact the multipliers (or other bundles of arithmetic) that we use to postulate what a fair-value SP might be. On the moat, we may simply have a 0-9 scale, and factor this into out calculations. If we use a multiplier approach, we should be able to say that a stock with metrics A, B, C, D and E should have a multiplier X (PER, EBIT multiplier, whatever we use). Use the same approach on a few other stocks, just to see if the comparisons with TGA are intuitively digestible.  Consequently, if we value stock X at $3, and it has no moat, and it has high debt, and it has low growth, then we should be able to value it at a higher price if it had a grade 6 moat, 8% debt to equity ratio and we guesstimate that it is growing at rates (for individual outyears) that are respectable.

Why all the intellectualising? Because without knowing how my and other target SPs are invented, one cannot gain much from them. I think many target SPs for TGA are based on facts that cannot stand the light of day.

Why do I own so many other crappy stocks? Because I have delinquently failed to devote time to think about them. When I have honed my way of thinking about TGA, I'll apply much the same approach to stocks that I own, and candidate stocks that I might buy in their stead.  Culling is the easy part – selecting investment candidates for the money realised is where I want intellectual and factual rigour.

Calculating a target SP is like calculating the weight of a pig.  You put it on the end of the shorter arm of a see-saw contraption that has one arm of 2.7653 metres and the other of 3.7988 metres. You counter balance the pig with a large rock.  You then guess the weight of the rock, multiply by 3.7988/2.7653, and voilÃ , you have the weight of your pig.  Is it a reliable technique?  It can be made to appear so if you give the answer to a number of decimal places, and call the technology something like “offset cantilever porcine weighing apparatus”, and if you refer to the resultant calculation as “intrinsic weight” to expunge any notion that subjectivity is involved, or that the result should be questioned.


----------



## McLovin (11 May 2012)

Pioupiou said:


> One can add TGA's buying clout as a moat. TGA's buying power is huge, because although it is a middling-sized supplier, its narrow product range means that when it plonks down the oof in front of a would-be supplier, TGA has the negotiating dynamics in its favour. In furniture lines, the suppliers would be small if local, and much tempted to pick up the extra volume focused on one or two items they make - economies of specialisation (read all about it in Adam Smith's book).




Thorn is a member of NARTA. The prices they pay for electrical goods would be the same as HVN is getting (with some exceptions that where I have been told HVN rort the system a bit). Generally, there are two ways for retailers to get lower cost goods, either through their buying group (eg NARTA) or if they are doing big volume in their own right (which I'm reliably told TGA would qualify for) direct from the manufacturer. Mr Rental is also part of NARTA, however they probably don't do the same volume to qualify for all of the discounts available.


----------



## Pioupiou (11 May 2012)

McLovin said:


> Thorn is a member of NARTA. The prices they pay for electrical goods would be the same as HVN is getting (with some exceptions that where I have been told HVN rort the system a bit). Generally, there are two ways for retailers to get lower cost goods, either through their buying group (eg NARTA) or if they are doing big volume in their own right (which I'm reliably told TGA would qualify for) direct from the manufacturer. Mr Rental is also part of NARTA, however they probably don't do the same volume to qualify for all of the discounts available.




Thanks for that.  TGA also imports direct.  Last annual report states "The increase in gross profit from $86,475,000 to $99,714,000 was favourably impacted by the introduction of a direct import program under the Thorn brand name and the appreciation of the Australian dollar."  Under the heading "Highligts" the report lists "Thorn brand flat panel TVs introduced".  In effect this just solidifies the concept that TGA's buying power is a moat, albeit a shallow one through which big retailers could wade if they wished to get into the TGA-style game.


----------



## Ves (11 May 2012)

tech/a said:


> The silence is deafening



 Did some quick calcs.  Assuming that you loaded up during the GFC at the low of $0.415.  And managed to sell, like Harry Hindsight always does, at the peak of $2.26.  (edit:  You're heavily into analysing volume, what effect does selling 470,000 shares on the market on those particular days have on the share price - would you have been able to sell every single one of them at the peak?)

Accounting for  46.5% tax rate  (less 50% discount for the holding period)  you would have net sell price of  $1.83 per share.  Let's call it  $1.82 after brokerage shall we?  Is 0.5% too generous?

If you had have held you would have stock worth $1.42 at this weeks close.  Plus  $0.0895 per share in fully franked dividends.  Let's say  $1.52.

This is a difference  of  $0.30 per share.   Which is a 16% net difference if you sold at the peak.

Doesn't look as interesting when you look at the real numbers if you ask me.    Including accumulated dividends you'd still be miles ahead of the GFC low in this scenario. With a bigger one coming in July.

Let's revisit this in July after the 2012 figures are known, and the dividend has been paid Tech/A.    I will be interested to see what the gap between selling at the peak and still holding is by then.  I am making no estimates because I do not have a crystal ball to predict the share price.


----------



## craft (11 May 2012)

tech/a said:


> The silence is deafening




My investment philosophy is to exchange capital for cash flow.

There is only one price that really interests me and that is my buy price. It is my buy price that determines my future return.  Everything beyond the buy price is a cash flow stemming from the buy decision. – including the sale price if I decide to sell. So long as nothing is going wrong with the business I would only sell if the market is offering more than my estimation of future cash flows.

TGA, at $2.20 odd was arguably not priced excessively enough to have a margin of safety on the sell decision and pay the CGT.  Sure there may have been some TA signal that would have got you out a bit past the top and will get you back in a bit past the bottom, but the same TA will whipsaw the crap out of you with smaller retracements and it’s only hindsight that tells you the depth. You get the best expectancy by identifying the best stocks, buying them at the right price and sticking with them until the business changes.

I have control of my buy price and hence have some control over initial drawdown but not over what the market will do to the share price subsequently. If the price runs ahead and pulls back then so be it. The risk of trading and loosing exposure to a good business is not worth it. If the price falls further that is no reason to turn my future cash flows into a loss. Only the business performance dictates my actions,  not other peoples onion of its value (aka price)

Successful value investing is about taking meaningful exposure to great businesses and staying the course until the business fundamentals tell you it’s time to leave.  The market can do what it dam well likes in the mean time. I’m not going to listen to the market when I know investing in great businesses is and has been life changing, All I have to do is buy right and hold tight, so long as the business performs how I expect.

If you don’t have the analysis skill or the temperament to sit through whatever the market will throw at you then don’t start down the FA road it will be a disaster for you. If however you do have the aptitude there is plenty of opportunity out there.


----------



## craft (11 May 2012)

tech/a said:


> TGA has twice been to $2.26.
> That makes your holding $1,062,200 (470000 shares)---its been there twice.
> Your current holding is valued at $655,650
> In 12 mths for the sake of $67,000 franked dividends you have
> ...






How about digging us out a technical system for trading TGA since listing and then work out the result from taking *‘every’ *signal.


With history to curve fit, you should be able to quickly work out a system to flog any buy and holder 







tech/a said:


> in this dog



 who has a a 15%+ CAGR since listing.




> Pretty well no one considers tax




Oh yeh - don't forget your tax, or commissions for that matter.


----------



## Pioupiou (12 May 2012)

Pioupiou said:


> Thanks for that.  TGA also imports direct.  Last annual report states "The increase in gross profit from $86,475,000 to $99,714,000 was favourably impacted by the introduction of a direct import program under the Thorn brand name and the appreciation of the Australian dollar."  Under the heading "Highligts" the report lists "Thorn brand flat panel TVs introduced".  In effect this just solidifies the concept that TGA's buying power is a moat, albeit a shallow one through which big retailers could wade if they wished to get into the TGA-style game.




If one swallow makes a a summer, then company culture is another moat.  The two key players in the 4-person rural branch that I visit were astoundingly proud of TGA and its work, pleased to be working there, and they lionised John Hughes, the MD.  They said that employees tended to stay on for many years.  I am sure that if one could secure employment metrics of absenteeism, average length of service and the gender breakdown, perhaps average wage, you will find that TGA's metrics will surpass those of most comparable employers in Australia.

The duo with whom I conversed work in a Radio Rentals outlet with a predominantly Aboriginal customer base.  They said they worked closely with elders and customers who were well connected with the various Aboriginal communities.  This included sending condolences and flowers when certain people died, et cetera.  This relationship made it easy to track down individuals who they wanted to trace, and it helped to obviate problems.  I know from working at Centrelink in Canberra as a contractor that TGA has a close relationship with people there.  These relationships, and TGA's focus on its customers' ability to pay reflect the driving corporate culture that has underpinned TGA's significant and long-term success.  A would-be competitor with a hug bag of funding cannot quickly acquire the expertise and attitudes of the TGA team.

I would give TGA a 6 or 7 score on my 0-9 moat scale.

This is probably enough on moats.  EPS growth will be my next focus.  If I could only find another nine TGA-quality stocks at TGA's current SP vs FV (fair value) ratio, I would instantly sell all my non-TGA shares, and in the interest of balance some TGAs too, and I would without compunction build a share portfolio made in heaven.


----------



## Pioupiou (12 May 2012)

craft said:


> My investment philosophy is to exchange capital for cash flow.
> 
> . . . So long as nothing is going wrong with the business I would only sell if the market is offering more than my estimation of future cash flows.
> 
> . . . If the price falls further, that is no reason to turn my future cash flows into a loss.




Excellent post.  I always think that people must be brilliant if their views accord with mine, or I can easily adopt them if they are better reasoned than mine. The corollary is that when I reject others' views, I am inclined to think that those holding them are odd.  Through the eyes of a crab, men walk sideways.  

What I write below is to underscore that a significant role in the share transaction decisions that one makes springs from one's SMSF trust deed, personal taxation position, estate planning, one's debt situation, age et cetera, and the alternative uses (of which one is aware) to which money realised by selling shares can be devoted.  For illiquid shares, one may have to exit slowly.

From memory, when I tried to sell TGA shares about a year ago, the SP was close to my valuation of circa $2.30, so I was ambivalent, in spite of the fact that the average buy price in that portfolio was 84 cents.  My SMSF co-trustee wanted to make capital gains within the SMSF to reduce capital gains tax in my estate when I die, and because TGA had done well relative to the other stocks held, TGA had had pipped the single-stock limit set in the SMSF trust deed.  I agreed to start selling that portfolio's TGA shares at $2.30, but the SP then retraced, so nothing was sold.  I had no inkling that the SP slide was going to continue for so long, otherwise I would have sold, and bought in later,.

When the SP retreated to about $2.00, and my valuation remained at about $2.30, as it still does, I started to accumulate TGA in my personal portfolio, where I am prepared to take more risks.  My fair-value SP has not moved over the year, because I down-rated TGA because of the NCML acquisition and capital raising, but this is offset by estimating that the EPS is now three cents higher. 

There are two points at which I would sell SOME shares in both portfolios.  One is when the SP  approaches my target SP, say $2.20.  I have explained why I would do this for  shares held within my SMSF portfolio.  In respect to the playpen portfolio, I have debts that I could expunge if I sold part of my personally-held TGA shares.  The second selling point is when, and if, I uncover a share of equal value relative its SP, because then I could diversify without paying a premium to do so.   

There are two points when I would sell ALL my TGA shares – namely: a) when the SP runs ahead of my fair-value SP by a meaningful margin; and b) when I am convinced that there is a better place to park the funds realised if I sold TGA.  Within the SMSF, capital gains is not an immediate issue, but for shares held personally, the tax angle would affect what I would do (perhaps split the selling over two tax years).

Can we shift the conversation to REASONED fair-value guesstimates, time frames and the quality of TGA as a business.  Bouncing numbers around between $1.00 and $3.00 tells us nothing. With the preliminary full-year report due on 22/05/2012, you might prefer to venture your views later. I have no problem with TA-based views, which can be helpful on the matter of timing, but please avoid a TA vs FA polemic.


----------



## tech/a (13 May 2012)

Nutmeg said:


> Fess up! You haven't even read that book, have you?  If so, show me the part in it where it claims Warren Buffett was nearly made bankrupt by credit default swaps.




Seems I misread the passage---page 99 LTCM --- Long Term Capital Management
was in deep do do so shopped around its portfolio after losing 1.9 billion during the GFC to Buffett and Soros. Soros wouldn't have anything to do with it.
Buffett almost purchased the portfolio --the deal was "nixed" at the last minute due to technicalities. Your right the deal wouldn't have bankrupted. Fortunately he avoided an error in judgement.



> When we read the next annual report, we will have a six-year record of a fistful of performance metrics, plus risk-related matters like the debt/equity ratio and management cues as to how well TGA is travelling. We can then invent a growth scenario, subjective as it will be.




But you have 5 yrs already.
You have held with the knowledge of 5 yrs of reporting through a 40% drop in stock price---without even an inkling of concern to your holdings capital value?



> Why do I own so many other crappy stocks? Because I have delinquently failed to devote time to think about them.




Ill suggest another reason inherent in many many investors.--Fear of loss.
There comes a point in every trade that goes south where the loss becomes painful.
At this point they become bottom draw stocks. "You dont have a loss until you sell"--RIGHT??



> I have control of my buy price and hence have some control over initial drawdown but not over what the market will do to the share price subsequently. If the price runs ahead and pulls back then so be it. The risk of trading and loosing exposure to a good business is not worth it. If the price falls further that is no reason to turn my future cash flows into a loss. Only the business performance dictates my actions, not other peoples onion of its value (aka price)




You have complete control over when you sell. Why on earth buy at $2.03 and hold after price falls below a small % of this?---sure sure future growth--
If you sold every purchase that didn't keep above its buy price you'd be way way wealthier IN ALL YOUR HOLDINGS--than you are today.



> I have no problem with TA-based views, which can be helpful on the matter of timing, but please avoid a TA vs FA polemic.




Both you and Craft keep bringing up this ----I have made NO MENTION OF T/A.
I have made and will continue to make reference to* RISK MITIGATION.*

I dont see anything in the way of RISK MITIGATION displayed on this thread.
For the sake of others passively watching I'm bringing it up everywhere I see the need for it.This thread is ANOTHER example of where it is needed.

Much is said elsewhere on trader Psychology and I think here is displayed a great deal in *Pioupiou's* posts. TGA needs to reverse 65% to reach your target.
No amount of number crunching is going to make that happen.

ONLY--







> not other peoples opinion of its value



---other peoples opinions aligning with yours *WILL*.
If your out of sync in any or all of your holdings---best be out of them UNTIL YOU ARE IN SYNC.

Make a pact with yourself that you wont ever place yourself in this position again.
If my post is of no help to any die hard's here they maybe one passive investor watching on who has* a light bulb moment.*


----------



## ROE (13 May 2012)

tech/a said:


> Seems I misread the passage---page 99 LTCM --- Long Term Capital Management
> was in deep do do so shopped around its portfolio after losing 1.9 billion during the GFC to Buffett and Soros. Soros wouldn't have anything to do with it.
> Buffett almost purchased the portfolio --the deal was "nixed" at the last minute due to technicalities. Your right the deal wouldn't have bankrupted.




I read a fair bit on long term capital from many sources not from the book you mentioned but I will get to that book soon...
LTCM went belly up during the Russian default not during the GFC, and there are many version to what happen and different people has a different view on it.

I came to the conclusion LTC went belly up because they leverave too far and cant hold
on to their losing position, their strategy has some merits...on the other hand I reckon Buffett would stand to profit a lot of money should he got control of it...He has deep pocket and can carry those position for many years at a fire sale price before the market turns and it did turn soon after...

Anyway since knowing a bit about Long term I use their strategy myself with Buffet style pocket...No matter what happen I can hold it and comes out un-damaged

Leverage is what kill long term not their strategy...

PS for people who dont know what ltcm is about they are a bunch of very smart marhematician including the options formular creator, went on to invent their own formular to tackle options and abitrage.. their options cater for an orderly market without extreme shock..
Russian default is an extreme shock and it cant handle it..ie they levergae too far with little equity...


----------



## tech/a (13 May 2012)

> I read a fair bit on long term capital from many sources not from the book you mentioned but I will get to that book soon..




You'll enjoy it a tremendous read --- one of those books you cant put down.

Oh and happy to place a technical point of view with chart on TGA if wanted.


----------



## McLovin (13 May 2012)

tech/a said:


> Seems I misread the passage---page 99 LTCM --- Long Term Capital Management
> was in deep do do so shopped around its portfolio after losing 1.9 billion during the GFC to Buffett and Soros.




LTCM was broke back in '98 not '07. It has nothing to do with the GFC. Didn't the Fed end up bailing them out?


----------



## tech/a (13 May 2012)

McLovin said:


> LTCM was broke back in '98 not '07. It has nothing to do with the GFC. Didn't the Fed end up bailing them out?




Yes your pretty well spot on.
from page 99

*



			The winding down of the fund was brutal. Involving 14 US and European banks organised by the federal reserve.Many of the Partners who had invested their life savings in the fund suffered massive personal losses.
		
Click to expand...


*


----------



## CanOz (13 May 2012)

McLovin said:


> LTCM was broke back in '98 not '07. It has nothing to do with the GFC. Didn't the Fed end up bailing them out?




The fed and several wall street firms helped bail them out. Bear stearns was not one of them and some argue that decision was taken into account when Bear failed...interesting.


----------



## craft (13 May 2012)

tech/a said:


> Seems I misread the passage---page 99 LTCM --- Long Term Capital Management
> was in deep do do so shopped around its portfolio after losing 1.9 billion during the GFC to Buffett and Soros. Soros wouldn't have anything to do with it.
> Buffett almost purchased the portfolio --the deal was "nixed" at the last minute due to technicalities. Your right the deal wouldn't have bankrupted. Fortunately he avoided an error in judgement.




If you want t the truth out of the horses mouth re LCTM watch this video from Minute 13.

Oh yeh, if you are interested in learning from somebody with credentials, the rest of the video is worth watching also, better then getting mis-information on a forum.

http://video.google.com/videoplay?docid=-6231308980849895261#


----------



## craft (13 May 2012)

tech/a said:


> Both you and Craft keep bringing up this ----I have made NO MENTION OF T/A.
> I have made and will continue to make reference to* RISK MITIGATION.*
> 
> I dont see anything in the way of RISK MITIGATION displayed on this thread.
> For the sake of others passively watching I'm bringing it up everywhere I see the need for it.This thread is ANOTHER example of where it is needed.




The risk control is based on business analysis. 

You don't get this point - fair enough - but we are not moron's because you fail to understand it.


----------



## craft (13 May 2012)

tech/a said:


> Oh and happy to place a technical point of view with chart on TGA if wanted.






craft said:


> How about digging us out a technical system for trading TGA since listing and then work out the result from taking *‘every’ *signal.
> 
> 
> With history to curve fit, you should be able to quickly work out a system to flog any buy and holder  who has a a 15%+ CAGR since listing.




The silence is deafening 

A TA perspective with *every signal *– since listing we don’t respect no cherry picking with hindsight around here.


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## tech/a (13 May 2012)

craft said:


> The risk control is based on business analysis.




Which is nothing more than opinion.
These opinions even vary on this thread. 



> You don't get this point - fair enough - but we are not moron's because you fail to understand it.




Right I dont get it as a risk mitigation tool.
I've never seen it offered as a risk mitigation tool in any literature.
I fail to see it working as I've never seen anyone sell due to a change in valuation---they always seem to value the same regardless of how smashed price becomes.
Read the PEN thread and you'll see it in action.

A simple sell when price falls below buy price would save a lot of capital.
You and some here just fail to see that.



craft said:


> The silence is deafening




Listen up then.



> A TA perspective with *every signal *– since listing we don’t respect no cherry picking with hindsight around here.




Every signal defined by what parameter/s?
A meaningless statement.


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## McLovin (13 May 2012)

tech/a said:


> Which is nothing more than opinion.
> These opinions even vary on this thread.




You buy and develop property. Do you use a chart to indicate which properties are worthy of being bought?


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## tech/a (13 May 2012)

McLovin said:


> You buy and develop property. Do you use a chart to indicate which properties are worthy of being bought?




Sure do.
There are demographics
Growth
Price patterns
Rental
Occupancy

To name a few.
But most of all
I evaluate risk.
Pure and simple if the maths don't cut it
Then I don't do it.


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## McLovin (13 May 2012)

tech/a said:


> Sure do.
> There are demographics
> Growth
> Price patterns
> ...




So you use fundamentals. Thanks for clearing it up.



			
				tech/a said:
			
		

> To name a few.
> But most of all
> I evaluate risk.
> Pure and simple if the maths don't cut it
> Then I don't do it.




So, your opinion of the risk, correct?


----------



## tech/a (13 May 2012)

McLovin said:


> So you use fundamentals. Thanks for clearing it up.




As a chart generally.





> So, your opinion of the risk, correct?




Risk is just maths. For developments.

But your throwing logic back to an F/A v T/A arguement again.Now on a completely different commodity.

Doesn't avoid the fact that there is very poor risk mitigation shown by those investing in TGA


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## McLovin (13 May 2012)

tech/a said:


> But your throwing logic back to an F/A v T/A arguement again.Now on a completely different commodity.




My only point is that there is more than one way to make money off an asset. . There's a multitude of variables that determine how you might approach that end. I care about it's ability to generate cash flow, not its price. I understand that others have differnet approaches.

I believe you have said, in the property thread, that in your opinion property will trend sideways for at least a few years but you wouldn't sell your IP's because they are providing a steady cash flow (regardless of price movement). Doesn't this run counter-intuitively to your argument in this thread?


----------



## tinhat (13 May 2012)

tech/a said:


> A simple sell when price falls below buy price would save a lot of capital.
> You and some here just fail to see that.




I would get "stop-lossed" out of 90% of stock purchases I make. I might be happy to accept some volatility and some risk because of the expected yield on my investment.


----------



## Ves (13 May 2012)

tech/a said:


> Read the PEN thread and you'll see it in action.



This is an unfair comparison because PEN is a commodity stock.  They're notoriously hard to value (ie: almost impossible) because you cannot look at them with any independence to the underlying commodity price. They're extremely cyclical. In this case, they're generally worth, as you love to say "what someone else is willing to pay."  Your method of stock selection (technical factors) will probably tell you more about this underlying demand.  I'm not interested in it, so I stay right away from those type of stocks (another form of risk mitigation).


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## McLovin (13 May 2012)

Ves said:


> Did some quick calcs.  Assuming that you loaded up during the GFC at the low of $0.415.  And managed to sell, like Harry Hindsight always does, at the peak of $2.26.  (edit:  You're heavily into analysing volume, what effect does selling 470,000 shares on the market on those particular days have on the share price - would you have been able to sell every single one of them at the peak?)
> 
> Accounting for  46.5% tax rate  (less 50% discount for the holding period)  you would have net sell price of  $1.83 per share.  Let's call it  $1.82 after brokerage shall we?  Is 0.5% too generous?
> 
> ...




Great post.


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## tech/a (13 May 2012)

McLovin said:


> My only point is that there is more than one way to make money off an asset. . There's a multitude of variables that determine how you might approach that end. I care about it's ability to generate cash flow, not its price. I understand that others have differnet approaches.
> 
> I believe you have said, in the property thread, that in your opinion property will trend sideways for at least a few years but you wouldn't sell your IP's because they are providing a steady cash flow (regardless of price movement). Doesn't this run counter-intuitively to your argument in this thread?




Not when I purchased them at $95000 
Thats like buying TGA at 50 c that's fine hold on
But if you buy at $2 and let it fall below buy price particularly 50% below
That in my view is very poor M/M Particularly when liquidation is a mouse click away.



tinhat said:


> I would get "stop-lossed" out of 90% of stock purchases I make. I might be happy to accept some volatility and some risk because of the expected yield on my investment.




I'd be looking at my entry.



Ves said:


> This is an unfair comparison because PEN is a commodity stock.  They're notoriously hard to value (ie: almost impossible) because you cannot look at them with any independence to the underlying commodity price. They're extremely cyclical. In this case, they're generally worth, as you love to say "what someone else is willing to pay."  Your method of stock selection (technical factors) will probably tell you more about this underlying demand.  I'm not interested in it, so I stay right away from those type of stocks (another form of risk mitigation).




Regardless of stock type letting a stock fall excessively and in PENS case 15c to 4c
Is plain crazy. Factors (Fundamental)changed but holders STILL held. They had both fundamental and technical signals to sell. Just as there are changes in TGA---Fear of loss froze those participants--- just as I believe many here are frozen by the fear of capital loss.

Rest assured they have made that loss sell or on hold.


----------



## craft (13 May 2012)

tech/a said:


> Every signal defined by what parameter/s?
> A meaningless statement.




What ever parameter you like. Your choice and you have all the historical data to curve fit it to. - All I ask is that you apply your chosen parameter(s) consistently over the entire data set not just cherry pick the last decline. 

I'm sure you know what I meant - I think you are just stalling/deflecting.


----------



## McLovin (13 May 2012)

Nevermind, we're just going round in circles.


----------



## tech/a (13 May 2012)

craft said:


> What ever parameter you like. Your choice and you have all the historical data to curve fit it to. - All I ask is that you apply your chosen parameter(s) consistently over the entire data set not just cherry pick the last decline.
> 
> I'm sure you know what I meant - I think you are just stalling/deflecting.




Ok I can come up with a single set of parameters which take only the trends.
Pointless--- but when I have some time I'll mark up a chart and list the parameters.



McLovin said:


> So, if the cashflow had continued growing as the property declined in value you would have sold it?




Didn't so moot.
With investing I've never held a single stock below a stop loss value.
I've taken as many as 8, 5-10% losses in a group but had at least one often multiple stocks running at 50/100+% my portfolio management ( when trading a portfolio )
Is constantly monitored to deminish risk exposure nd maximize profit exposure.


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## McLovin (13 May 2012)

tech/a said:


> Didn't so moot.




It's not moot, it goes to the heart of the discussion. I'm saying I buy assets for cashflow. You're saying you sell if price falls, regardless of the underlying fundamentals. So I'm asking what do you do in a scenario where the price of an IP is falling but cash flow is being maintained or rising?


----------



## craft (13 May 2012)

Whilst we wait for Tech to show us a systematically system to trade TGA I thought I would run the numbers for a buy and hold approach. 

The IPO price was 0.50 but I will use the very first trade price as the entry. It opened on 13/12/06 at 71 cents.

Since then it has paid fully franked dividends of 28.83 cents.

Closing Price on Friday was $1.42.

Crunching the numbers the IRR is a *CAGR of 19.29% or 21.71% on a grossed up basis *

If we had invested 100K on the first day of trading we would have an unrealised gain of 100K today. This is effectively a no interest loan from the government unless we sell out and trigger a CGT event.


There was a renounceable rights offer in July 2011. Those rights were tradable on the ASX and would have had some value – I don’t know what that was, so have not included – but that would bump the IRR up a bit.




tech/a said:


> Ok I can come up with a single set of parameters which take only the trends.
> Pointless--- but when I have some time I'll mark up a chart and list the parameters.




Eagerly awaiting your results - get those back testing computers buzzing.


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## craft (13 May 2012)

craft said:


> Whilst we wait for Tech to show us a systematically system to trade TGA I thought I would run the numbers for a buy and hold approach.
> 
> The IPO price was 0.50 but I will use the very first trade price as the entry. It opened on 13/12/06 at 71 cents.
> 
> ...




CanOz, if you see this,

Would you be so kind as to also have a look at what parameters could have been used in a systematical system, which if applied consistently between listing and now would have produced a higher CAGR then buy and hold on TGA?


----------



## tech/a (13 May 2012)

McLovin said:


> It's not moot, it goes to the heart of the discussion. I'm saying I buy assets for cashflow. You're saying you sell if price falls, regardless of the underlying fundamentals. So I'm asking what do you do in a scenario where the price of an IP is falling but cash flow is being maintained or rising?




If there was a chance that the property would fall below my purchase price in say 12 mths then I'd sell it. Unless I could do something to improve sale price.

I would look for other profitable opportunity.
I wouldn't hold it negatively geared.


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## sinner (13 May 2012)

craft said:


> Eagerly awaiting your results - get those back testing computers buzzing.




Just as a quick example even though I think this argument is silly:

buying when weekly price closed 2 std dev above the 26 week (6 month) avg and going to cash when weekly price closed 2 std dev below 26 week avg would have participated in the majority of the up-move including associated cashflow and rights offer, with a large reduction in overall investment volatility.

The last bit is where technicals play a big role, you might give up 10% of CAGR for a 50% reduction in volatility.

EDIT: Err just to clarify I meant a 10% portion of CAGR, not 10% of CAGR itself.


----------



## CanOz (13 May 2012)

craft said:


> CanOz, if you see this,
> 
> Would you be so kind as to also have a look at what parameters could have been used in a systematical system, which if applied consistently between listing and now would have produced a higher CAGR then buy and hold on TGA?




LOL! Been trying my Double Sevens system on it. I need to know how much my total equity is to start with., I've been using 100,000.

Double Sevens is mean reversion. Flipper is Trend Following, it'll work better.

CanOz


----------



## CanOz (13 May 2012)

Here is the 20% Flipper - Weekly (300k - 50% risk). I took three or four trades. I'll post the stats later but I've got to go to Mothers day dinner!


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## craft (13 May 2012)

sinner said:


> Just as a quick example even though I think this argument is silly:
> 
> buying when weekly price closed 2 std dev above the 26 week (6 month) avg and going to cash when weekly price closed 2 std dev below 26 week avg would have participated in the majority of the up-move including associated cashflow and rights offer, with a large reduction in overall investment volatility.
> 
> ...




What is the CAGR and drawdown using those parameters? Can somebody do a back test and put up the results so we can consider some actual numbers.


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## McLovin (13 May 2012)

tech/a said:


> If there was a chance that the property would fall below my purchase price in say 12 mths then I'd sell it. Unless I could do something to improve sale price.
> 
> I would look for other profitable opportunity.
> I wouldn't hold it negatively geared.




Thanks for the answer. I disagree, but I can see it's fairly futile for us to keep disagreeing.


----------



## sinner (13 May 2012)

craft said:


> What is the CAGR and drawdown using those parameters? Can somebody do a back test and put up the results so we can consider some actual numbers.




Buy Hold from 0.7:
% Gain: 101.43
% Max DD: 54.48
% Max Runup: 69.04
% Time in market: 100
Sample size: 139 bars

Weekly bollinger(26,2) with delayed entry/exit till next open:
% Gain: 32.03
% Max DD: 28.98
% Max Runup: 42.2
% Time in market: 38.57
Sample size: 113 bars




I don't know about you but a max DD >50% is really rough for me. Even 30% still too high I would be toning down the position size by a factor of 30 (or equivalent stoploss).

If potential drawdown == 100% (which it is with buy and hold) then I would be holding 1% of account value TGA in cash to effectively limit its volatility contribution in the portfolio to that 1%...right?


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## CanOz (13 May 2012)

Sorry folks, had to attend a nice mother's day dinner!

For the sake of the discussion:

Here is the 20% Flipper on TGA, 100k AUD - 2006 - 2012. It took three trades. It didn't even look at TGA until 2009, then got out well before this last downturn all because it uses a moving average as a filter, but this is irrelevant. A systematic approach would never trade 100% of the capital in one issue. None the less it managed to almost equal buy and hold for the entire period of the stocks existence, even though it was exposed to little of it, especially the painful downturns.

What could one have done with the capital while not in TGA? Well for starters, you could trade a universe such as the All Ords....what would that have returned *non compounded* taking the original 100K and dividing it up into 20 equal parts? Check out the 2nd last chart.

_Full compounding using 5% total equity risk_ is the last chart.

I think whats being lost here is that no one knows what stock will be the best performer. So ONE way is to allow price to tell you through an algorithm, which stock meets the criteria of being 'strong'. Apply some good money management techniques over and over, consistently, and it is possible to generate REAL returns above that of an index of choice. This is not new...its what the majority of successful traders do. Many successful hedge funds do similar. Its just much easier to do this as a small retail guy. We just don't have the funds to move the market.

Anyway, there are plenty of ways to skin a wabbit! There are no right or wrong ways in my view. This method is my method of choice. That doesn't mean it has to be everyone else's. 

As for this being a curve fitted system it has *not ever been optimized*. This is the case with robust systems such as the 20% Flipper. It will work and will always work in one way or another, but the basic principle is the same and very simple, strong stocks, strong market, buy high, sell higher. Its all in the book, Unholy Grails.

TGA, you can have your thread back soon!

Cheers,


CanOz

PS - Nice work Sinner,  I'm guessing you just whipped up that BB system on short notice...


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## sinner (13 May 2012)

CanOz said:


> PS - Nice work Sinner,  I'm guessing you just whipped up that BB system on short notice...




Yah dude, it's just the implementation of a statistical statement (with some baked in inferences about momentum),  right?

I think this chart says a lot:



Sure there is balance sheet fundamentals, but in the end that is 25% vs 75% macro fundamentals. Are you taking those into account (lending conditions, unemployment, confidence/sentiment, etc)? If so then all good with me!


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## tech/a (14 May 2012)

Sinner there are many variants to the bb method.
Buy upper band sell cross back below center band for TGA better.

Anyway you and Can oz have proven the technical point.
But a stupid exercise.


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## oldblue (14 May 2012)

> It will work and will always work in one way or another, but the basic principle is the same and very simple, strong stocks, strong market, buy high, sell higher. Its all in the book, Unholy Grails.




Thanks, CanOz, for emphasising this point. For me, it's the essence of the basic TA that I lay over my FA-based decisions.

I'm still not buying TGA, yet.


----------



## Nutmeg (14 May 2012)

tech/a said:


> Seems I misread the passage---page 99 LTCM --- Long Term Capital Management
> was in deep do do so shopped around its portfolio after losing 1.9 billion during the GFC to Buffett and Soros.




How could you get that wrong? Further, as others have pointed out, Long Term Capital Management was not even around during the GFC.  It closed down in 2000 after effectively being broken by the Russian Financial Crisis in 1998.


----------



## craft (14 May 2012)

Thanks CanOz and sinner.

Sinner – the proposition was all data since listing.  

For the data range you selected the results were Buy and hold gain was 101.43% vs 32.03% for your system. Am I reading that correctly?

Can Oz 
Annual Return was 12.28% - I assume that doesn’t take into account any dividends collected along the way or interest whilst out of the market or tax on realised profits? I also assume you stayed out of TGA because of an index filter rather than a filter on the actual share price. What are the results without an index filter?

So the systems to date on TGA are not matching the buy and hold return.  What they are doing well is limiting the draw down.

The whole point of this exercise is that some people do not see risk as price volatility..........

We choose to invest based on the performance of the business not the performance of the price.

Buy and hold has achieved a return of 20% CAGR and the drawdown’s that so freak technical traders are not a concern to fundamental investors when the underlying business is performing as expected. They are in fact opportunities.

I’m sure a great deal of TA investors appreciate there are many ways to skin a cat, including a business analysis approach. I’m sick of with others.

The risk control is based on Business Analysis.

Buying good business at the right price and holding those businesses through thick and thin price action until the business performance dictates that it should be sold produces the highest expectancy that I can generate.

If it is drawdown that is agitating people then I agree and people should not fool themselves about the difficulties. I personally cannot see any way to invest based on cash flow unless you are prepared to hold long enough to realise those cash flows, selling is only commuting the cash flows and the market may not offer a reasonable price EVER.  See what I have posted earlier.



> I have control of my buy price and hence have some control over initial drawdown but not over what the market will do to the share price subsequently. If the price runs ahead and pulls back then so be it. The risk of trading and loosing exposure to a good business is not worth it. If the price falls further that is no reason to turn my future cash flows into a loss. Only the business performance dictates my actions, not other peoples onion of its value (aka price)
> 
> Successful value investing is about taking meaningful exposure to great businesses and staying the course until the business fundamentals tell you it’s time to leave. The market can do what it dam well likes in the mean time. I’m not going to listen to the market when I know investing in great businesses is and has been life changing, All I have to do is buy right and hold tight, so long as the business performs how I expect.
> 
> If you don’t have the analysis skill or the temperament to sit through whatever the market will throw at you then don’t start down the FA road it will be a disaster for you. If however you do have the aptitude there is plenty of opportunity out there.



For those who recognise the market price drawdown issues and are interested more in cash flow then mark to market capital values at any one time, value investing offers wonderful opportunities. The opportunities are probably so great because of the beliefs/arguments that are launched against the approach.

I like to see TA approaches in these company threads. But I’m sick to death of being told by TA exponents how wrong and stupid we are.

Enough


----------



## tech/a (14 May 2012)

> I like to see TA approaches in these company threads. But I’m sick to death of being told by TA exponents how wrong and stupid we are.




Sorry but if I see *poor portfolio management* Im going to point it out.
*NOTHING* to do with T/A.


----------



## craft (14 May 2012)

tech/a said:


> Sorry but if I see *poor portfolio management* Im going to point it out.
> *NOTHING* to do with T/A.




Poor in who’s opinion?

You have shown a complete ineptitude to understand other people’s strategies when they differ from your own which makes some of your post rather annoying.

It’s obvious that you think you are superior and feel the need to correct everybody else. You are not God, perhaps you should take a look again at your avatar – your just a duck head.

Bye all.


----------



## Nutmeg (14 May 2012)

tech/a said:


> Sorry but if I see *poor portfolio management* Im going to point it out.
> *NOTHING* to do with T/A.




How about a poor grasp of your investment source material, do you point that out?  You lack credibility in my view and make too many (incorrect) assumptions about people's investment positions.


----------



## sinner (14 May 2012)

craft said:


> Thanks CanOz and sinner.
> 
> Sinner – the proposition was all data since listing.
> 
> For the data range you selected the results were Buy and hold gain was 101.43% vs 32.03% for your system. Am I reading that correctly?




It only missed a little bit of data to generate the statistical averages. You can assume it would have bought those bars if it makes a difference.

Correct about the raw returns, but so what? I don't measure the pure gain without taking into account what I would have needed to risk to make that gain. Sharpe ratio is much better baseline tool than CAGR if you ask me.



> So the systems to date on TGA are not matching the buy and hold return.  What they are doing well is limiting the draw down.
> 
> The whole point of this exercise is that some people do not see risk as price volatility..........
> 
> We choose to invest based on the performance of the business not the performance of the price.




But without an appreciation of the huge macro factors at play, to not take price risk into account is a logical fallacy of 'investing', right?

Surely you saw the XSO vs TGA chart, and can't disagree with what it implies. The performance of a business as quantified by the numbers in announcements, analysis and reports is based on a *huuuuuuuuuuge* set of underlying macro assumptions.



> The risk control is based on Business Analysis.




You say "risk control" but really you have hijacked the term here to mean something else, as if analysis of the business could account for all potential risks! Surely you don't believe that?

I personally feel there is a large overlap between business information and price movement but haven't fooled myself into thinking *real* price events can occur without information release.



> Buying good business at the right price and holding those businesses through thick and thin price action until the business performance dictates that it should be sold produces the highest expectancy that I can generate.




Please back that up with some numbers. I don't necessarily agree, in fact a lot of evidence indicates its the "bad" businesses which perform the best.



> If it is drawdown that is agitating people then I agree and people should not fool themselves about the difficulties. I personally cannot see any way to invest based on cash flow unless you are prepared to hold long enough to realise those cash flows




Isn't this just painting yourself into a corner? Why do you *have* to invest based on cash-flow? Why can't it form a useful portion of a larger opinion? I'd love to be able to analyse balance sheets like I see you guys doing.



> For those who recognise the market price drawdown issues and are interested more in cash flow then mark to market capital values at any one time, value investing offers wonderful opportunities. The opportunities are probably so great because of the beliefs/arguments that are launched against the approach.
> 
> I like to see TA approaches in these company threads. But I’m sick to death of being told by TA exponents how wrong and stupid we are.




If value investing offers wonderful opportunities which are so great in magnitude, why has it under-performed off the 2008 lows where one would assume there is an almost infinite source of value?

I personally don't think you're wrong or stupid, just like many on this forum suffer from an under-appreciation for entropy and the cyclical nature of dispersion


----------



## notting (14 May 2012)

Just thought I'd voice my appreciation for all the efforts being made in this thread!
I'd also like to say that I for one am *very happy to be corrected* by an experienced trader/s on a regular basis, especially when someone spots a more profitable way that I could be doing something.
It's one reason why it's good to be involved here and what gives value to ASF, apart from trying to offer some of my own insight that seem magnifiicent me!:nunchux:
*Thanks everyone.*
Oh, and to the administrator, if someone called me a hippie, I'd take it as a complement!:southpark


----------



## tech/a (14 May 2012)

craft said:


> Poor in who’s opinion?
> 
> You have shown a complete ineptitude to understand other people’s strategies when they differ from your own which makes some of your post rather annoying.
> 
> ...






Nutmeg said:


> How about a poor grasp of your investment source material, do you point that out?  You lack credibility in my view and make too many (incorrect) assumptions about people's investment positions.




Thanks guys
Its is my opinion.
Anyone who lets a position drop 50% without any management is in my view not managing their portfolio.
Its not compulsary to agree.


> Your just a duck head.




A recient pik for my fans.


----------



## CanOz (14 May 2012)

Tech, you would have allot more fans if you presented your ideas and opinions in a non abrasive manner that would encourage research and factual arguments. Google 'Emotional Intelligence'.

Its an enlightening journey.

Cheers,


CanOz


----------



## Klogg (14 May 2012)

lol - awesome pics tech.


----------



## tech/a (14 May 2012)

CanOz said:


> Tech, you would have allot more fans if you presented your ideas and opinions in a non abrasive manner that would encourage research and factual arguments. Google 'Emotional Intelligence'.
> 
> Its an enlightening journey.
> 
> ...




Can thanks

But Im not here to make friends.
There are enogh ducks in my pond


----------



## sinner (14 May 2012)

tech/a said:


> Can thanks
> 
> But Im not here to make friends.
> There are enogh ducks in my pond




lul, could this response to a request for more 'emotional intelligence' be any more unintelligent?

Get with it tech, this has nothing to do about making friends, this is about your inability to  discuss contentious issues in a productive manner.


----------



## tech/a (14 May 2012)

sinner said:


> lul, could this response to a request for more 'emotional intelligence' be any more unintelligent?
> 
> Get with it tech, this has nothing to do about making friends, this is about your inability to  discuss contentious issues in a productive manner.




I dont know I thought I was doing OK?

If I can save one "investor" from losing his shirt with Value investing based upon his opinion and *no saftey net*---then Im a happy duck.

No big deal-----Ill bugger off then.


----------



## Gringotts Bank (14 May 2012)

tech, you know your contributions are worthwhile.

TGA must be the new PEN!


----------



## notting (14 May 2012)

CanOz said:


> Tech, you would have allot more fans if you presented your ideas and opinions in a non abrasive manner that would encourage research and factual arguments. Google 'Emotional Intelligence'.
> Its an enlightening journey.




Perhaps you should take it!!



CanOz said:


> ROTFLMAO at Notting...forever the skeptic Notting? hahaha!


----------



## Gringotts Bank (14 May 2012)

Has anyone got the AB code for the 20% flipper?  It sounds very straightforward - buy at +20% off a major low and sell at 20% trailing stop, but I'm sure there's more to it.


----------



## CanOz (14 May 2012)

Gringotts Bank said:


> Has anyone got the AB code for the 20% flipper?  It sounds very straightforward - buy at +20% off a major low and sell at 20% trailing stop, but I'm sure there's more to it.




Nick has the code. Some have tried to code it from the book as well.

CanOz


----------



## sinner (14 May 2012)

Gringotts Bank said:


> Has anyone got the AB code for the 20% flipper?  It sounds very straightforward - buy at +20% off a major low and sell at 20% trailing stop, but I'm sure there's more to it.




It's the same as using the 20% parameter in Kagi or ZigZag.


----------



## Gringotts Bank (14 May 2012)

Yeh I also tried to code from the book canoz, using ROC, but my curve looked nothing like Nick's!

I will try that thanks sinner.  20% zig-zag, maybe with some sort of filter to prevent forward looking.


----------



## sinner (14 May 2012)

Gringotts Bank said:


> Yeh I also tried to code from the book canoz, using ROC, but my curve looked nothing like Nick's!
> 
> I will try that thanks sinner.  20% zig-zag, maybe with some sort of filter to prevent forward looking.




There should be no look forward unless you are using the wrong code. It's exactly like you said, +20% off a low (or low close) and exit on -20% off a high (or high close).


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## CanOz (14 May 2012)

notting said:


> Perhaps you should take it!!




I've done it, sometimes i just choose to ignore what I've learned...your like a woman Notting, you never forget those things do you...:horse:

Lets leave this thread to TGA and if further discussion on the Flipper is desired then start a thread on coding the flipper...

Cheers,


CanOz


----------



## McCoy Pauley (14 May 2012)

Back to the stock at hand, I note that TGA is poised to make a positive start to the week, jumping a little more than 3% compared to a basically flat broader market.

I wonder if it's the start of investors/speculators/call them what you will positioning themselves ahead of the release of the annual report next week (I believe).

I'm starting to refresh myself on the past performance of TGA as we speak.


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## Pioupiou (15 May 2012)

McCoy Pauley said:


> Back to the stock at hand, I note that TGA is poised to make a positive start to the week, jumping a little more than 3% compared to a basically flat broader market.
> 
> I wonder if it's the start of investors/speculators/call them what you will positioning themselves ahead of the release of the annual report next week (I believe).
> 
> I'm starting to refresh myself on the past performance of TGA as we speak.




Not sure if last year helps. Below are SPs for dates before and after the 25/05 announcement. Perpetual seemed to start selling about then.

2.150 1/03/11, 2.160 2/03/11, 2.210 3/03/11, 2.140 4/03/11, 2.030 7/03/11,
1.960 8/03/11, 1.920 9/03/11, 1.900 10/03/11, 1.890 11/03/11, 1.840 14/03/11,
1.850 15/03/11, 1.860 16/03/11, 1.850 17/03/11, 1.940 18/03/11, 1.990 21/03/11,
2.000 22/03/11,1.965 23/03/11, 2.000 24/03/11, 1.995 25/03/11, 2.100 28/03/11,
2.090 29/03/11, 2.110 30/03/11, 2.190 31/03/11, 2.200 1/04/11, 2.260 4/04/11,
2.240 5/04/11, 2.150 6/04/11, 2.200 7/04/11, 2.170 8/04/11, 2.200 11/04/11,
2.140 12/04/11, 2.120 13/04/11, 2.120 14/04/11, 2.110 15/04/11, 2.110 18/04/11,
2.070 19/04/11, 2.120 20/04/11, 2.030 21/04/11, 1.990 27/04/11, 2.000 28/04/11,
2.000 29/04/11, 1.950 2/05/11, 1.910 3/05/11, 2.000 4/05/11, 2.020 5/05/11,
2.110 6/05/11, 2.110 9/05/11, 2.080 10/05/11, 2.100 11/05/11, 2.080 12/05/11,
1.985 13/05/11, 1.980 16/05/11, 1.960 17/05/11, 2.040 18/05/11, 2.000 19/05/11,
1.995 20/05/11, 1.980 23/05/11, 2.080 24/05/11, 2.070 25/05/11, 2.060 26/05/11,
2.080 27/05/11, 2.060 30/05/11, 2.080 31/05/11, 2.120 1/06/11, 2.070 2/06/11,
1.950 3/06/11, 1.935 6/06/11.


----------



## oldblue (16 May 2012)

What's this, Pioupiou, looks like a bit of technical analysis?



Just kidding! I value your Fundamental analysis of this stock. Wish I was half as thorough!


----------



## Pioupiou (16 May 2012)

oldblue said:


> What's this, Pioupiou, looks like a bit of technical analysis?
> 
> Just kidding! I value your Fundamental analysis of this stock. Wish I was half as thorough!




Fundamentally, I can make no sense of the SP, so I have been watching for signs in the stars, the flight patterns of bees, the entrails of slaughtered animals, and the like.  I saw nothing in the pattern of numbers that I posted yesterday, so for the hell of it, I decide to list Perpetual's trading announcements - see below.

I have no real idea why TGA's SP dropped back from a high of $2.27 in early 2011 to the current SP.  There was nothing significant in the 24/05/2011 announcement, other than the NCML matter.  If that matter were an unmitigated disaster, it should have at most accounted for a 20 cent retraction.  It could be the drop in customer growth to 4% announced for H1.  Macquarie has bundled the 4% growth matter and the NCML loss of the ATO business into a 27 cent target price retreat to $1.78 ($2.05 previously).

I am inclined to think negative market sentiment generally, with Perpetual's sell off added, has had a major effect pulling the SP down to its current price.  Perpetual seem to have bought and sold up until the end of the 2010/2011 fiscal year.  Its holdings maxed about then – see below, which reflects that Perpetual sold about 8 million shares this tax year. 

*1 There was a change in the interests of the Substantial holder on 14 /09 /2010
The previous notice was given to the company on 23 /03 /2010
The previous notice was dated 19 /03 /2010
Ordinary 14,770,107 11.41% - - - 13,476,274 10.41%

*2 There was a change in the interests of the Substantial holder on 02 /12 /2010
The previous notice was given to the company on 16 /09 /2010
The previous notice was dated 14 /09 /2010
Ordinary 13,476,274 10.41% - - - 12,040,512 9.30%

*3 There was a change in the interests of the Substantial holder on 24 /01 /2011
The previous notice was given to the company on 06 /12 /2010
The previous notice was dated 02 /12 /2010
Ordinary 12,040,512 9.30% - - - 10,559,652 8.16%

*4 There was a change in the interests of the Substantial holder on 17 /03 /2011
The previous notice was given to the company on 27 /01 /2011
The previous notice was dated 24 /01 /2011
Ordinary 10,599,652 8.16% - - - 11,937,797 9.19%

*5 There was a change in the interests of the Substantial holder on 05 /04 /2011
The previous notice was given to the company on 21 /03 /2011
The previous notice was dated 17 /03 /2011
Ordinary 11,937,797 9.19% - - - 10,570,287 8.14%  05/04/11

*6 There was a change in the interests of the Substantial holder on 11 /05 /2011
The previous notice was given to the company on 07 /04 /2011
The previous notice was dated 05 /04 /2011
Ordinary 10,570,287 8.14% - - - 12,106,871 9.32%

*7 There was a change in the interests of the Substantial holder on 30 /06 /2011
The previous notice was given to the company on 13 /05 /2011
The previous notice was dated 11 /05 /2011
Ordinary 12,106,871 9.32% - - - 10,808,060 8.32%

*8 There was a change in the interests of the Substantial holder on 11 /07 /2011
The previous notice was given to the company on 04 /07 /2011
The previous notice was dated 30 /06 /2011
Ordinary 10,808,060 8.32% - - - 14,093,841 9.65%

*9 There was a change in the interests of the Substantial holder on 13 /02 /2012
The previous notice was given to the company on 13 /07 /2011
The previous notice was dated 11 /07 /2011
Ordinary 14,093,841 9.65% - - - 12,494,566 8.54%

*10 There was a change in the interests of the Substantial holder on 02 /04 /2012
The previous notice was given to the company on 15 /02 /2012
The previous notice was dated 13 /02 /2012
Ordinary 12,494,566 8.54% - - - 10,918,547 7.46%

*11 There was a change in the interests of the Substantial holder on 17 /04 /2012
The previous notice was given to the company on 04 /04 /2012
The previous notice was dated 02 /04 /2012
Ordinary 10,918,547 7.46% - - - 9,126,242 6.23%

*12 There was a change in the interests of the
Substantial holder on 24 /04 /2012
The previous notice was given to the company on 23 /04 /2012
The previous notice was dated 17 /04 /2012
Ordinary 9,126,242 6.23% - - - 7,647,598 5.22%

*13 There was a change in the interests of the Substantial holder on 26 /04/2012
The previous notice was given to the company on 27 /04 /2012
The previous notice was dated 24 /04 /2012

ANNEXURE 2 (of *13)

CHANGES IN RELEVANT INTERESTS
Account Security Volume Value Price AsAtDate RegComp
PMWSCS TGA - 417,716 - 584,802 $ 140.00 26/04/2012 PMWSCS
PMWSCS TGA - 250,629 - 358,500 $ 143.04 26/04/2012 PMWSCS
PMWSCS TGA - 699,937 - 983,761 $ 140.55 26/04/2012 PMWSCS
PIMEDA TGA -- 137,878 - 193,788 $ 140.55 26/04/2012 PIMEDA
PIMEDA TGA - -- 82,284 - 115,198 $ 140.00 26/04/2012 PIMEDA
PIMEDA TGA - -- 49,371 -- 70,620 $ 143.04 26/04/2012 PIMEDA

The above totals 1,637815 so I presume it reduced Perpetual's holding to 7,647,598 less  1,637815 = 6009783 shares, which prorates to about 4.1%.  Perpetual does not have to report transactions if its total holding is below 5%, so we do not know what it is now doing.


----------



## CanOz (16 May 2012)

There is of course one other possibility...one of supply vs demand. If there are more :bananasmi than there are monkeys for :bananasmi, then what do you think is going to happen to the price of :bananasmi??

Not being a smartass, just asking if you have considered the other possibility. No demand = no price premium.

CanOz


----------



## Pioupiou (16 May 2012)

CanOz said:


> There is of course one other possibility...one of supply vs demand. If there are more :bananasmi than there are monkeys for :bananasmi, then what do you think is going to happen to the price of :bananasmi??CanOz




Perpetual's heavy selling and the generally negative market sentiment is the reason I put forward to explain TGA's SP retraction.  This translates to: "More bananas, less monkeys, price of bananas goes down.", which is a truism.  Another truism is that bananas do not keep well, and cannot be used to grow more bananas, whereas TGA shares deliver a good and growing dividend, so now might be the time to load up.

What I would like to know is:

a) How long will there be more sellers than buyers?
b) Should one buy TGA now, sell or hold?


----------



## tech/a (16 May 2012)

Pioupiou said:


> Perpetual's heavy selling and the generally negative market sentiment is the reason I put forward to explain TGA's SP retraction.  This translates to: "More bananas, less monkeys, price of bananas goes down.", which is a truism.  Another truism is that bananas do not keep well, and cannot be used to grow more bananas, whereas TGA shares deliver a good and growing dividend, so now might be the time to load up.
> 
> What I would like to know is:
> 
> ...




 So funds selling and not buying is of no concern?


----------



## Nutmeg (17 May 2012)

Pioupiou said:


> What I would like to know is:
> 
> a) How long will there be more sellers than buyers?




As at 10.40 am today, there are 106 buyers for 614,625 units compared to 58 sellers for 455,131 units.  

There's been a preponderance of buyers over sellers all week.


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## oldblue (17 May 2012)

The "declared" buyers and sellers aren't a very good indication of the supply/demand of/for a stock. Often there's a sleeper in the wings waiting until their price is reached - or looks like being reached. Volumes traded and trends are usually better guides to this.


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## kermit345 (17 May 2012)

tech/a said:


> So funds selling and not buying is of no concern?




I'd say funds selling is a concern but not a major one. It's been demonstrated by a number of studies that fund managers struggle to outperform the index's and some have openly admitted themselves that managing funds individually is much easier then managing their funds accounts/portfolios. While this doesn't directly relate to Perpetual's TGA holding, they could be selling for any number of reasons that we are not aware of and that may or may not be directly related to TGA. So hence while it is concerning perpetual are selling, its not what i'd call a major concern.

Personally i'm still waiting for the downtrend to be broken (to the upside) before I add to my small holding.


----------



## tech/a (17 May 2012)

> Personally i'm still waiting for the downtrend to be broken (to the upside) before I add to my small holding




Wise



> There's been a preponderance of buyers over sellers all week.




At Market action is all that matters.


----------



## Pioupiou (17 May 2012)

tech/a said:


> So funds selling and not buying is of no concern?




I assume that your TA logic is telling you not to buy now at circa $1.45, because you did not venture an opinion.  In contrast, I would say buy now.  Am I concerned because Perpetual is selling at circa $1.40, and perhaps below?  The answer is no.  Am I happy with the downward pressure that Perpetual seems to have caused?  The answer is mixed  –  one part of me wants to see my holdings appreciate, and the other wants me to add to my holdings at cheap prices, which I have been doing in recent months.

What is interesting is that at least one other institution, Perennial, is following my path, in a way.  That is, Perennial seems to have a price when it sells, and a price when it buys.  Our buy and sell  points differ, and with the benefit of hindsight I wish mine were closer to those that Perennial seems to have used.  Below are transactions that I have been able to glean from ASX announcements.	

Perpetual – Final notice when it ceased to be a Substantial Holder. 

26/04/12 - Sold on market - $584,802.00 - 417716 - $1.4000
26/04/12 - Sold on market - $358,500.00 - 250629 - $1.4304
26/04/12 - Sold on market - $983,761.00 - 699937 - $1.4055
26/04/12 - Sold on market - $193,788.00 - 137878 - $1.4055
26/04/12 - Sold on market - $115,198.00 - - 82284 - $1.4000
26/04/12 - Sold on market - - $70,620.00 - - 49371 - $1.4304

The above date may, or may not, reflect when the transactions were reported to the ASX, rather than actual date of six separate transactions.  Because the previous announcement was dated 24/04/2012, the reality is not significant.

It seems as though Perpetual has been selling since July 2011 at whatever price it can get, within reason.  The above notice reduced Perpetual's holding to 6,009,783 shares, which prorates to about 4.1%.  Perpetual does not have to report transactions if its total holding is below 5%, so we do not know, and will not know, what it is now doing with the remainder of its TGA holdings.			

Perennial Investment Partners (unit of IOOF)				

Some transactions below predate the 22/11/2011 dated half year announcement, which did not seem to alter Perennial's buy-sell pattern, which roughly suggests that between 26/10/2011 and 17/04/2012 it would buy below $1.66 and sell at above about $1.69 .			

26/10/11 - Purch on mrket - $57,043.15 - 35449 - $1.6092
02/11/11 - Purch on mrket - - $1,716.34 - - 1070 - $1.6041
03/11/11 - Purch on mrket - - $9,017.96 - - 5622 - $1.6040
08/11/11 - Purch on mrket - $20,743.84 - -12606 - $1.6456

22/11/11 - Sold on market - $81,418.91 - - 47936 - $1.6985
07/12/11 - Sold on market -- $8,727.87 - - - 5000 - $1.7456
09/12/11 - Sold on market - $61,772.33 - - 35388 - $1.7456
12/12/11 - Sold on market - $23,832.31 - - 13653 - $1.7456

20/12/11 - Purch on mrket $102,444.33 - - 61622 - $1.6625
23/12/11 - Purch on mrket - $23,715.60 - - 14972 - $1.5840
19/01/12 - Purch on mrket - $16,240.99 - - 10000 - $1.6241
23/01/12 - Purch on mrket - - $3,538.92 - - - 2179 - $1.6241
24/01/12 - Purch on mrket - $97,493.02 - - 60029 - $1.6241
25/01/12 - Purch on mrket - $43,740.79 - - 26994 - $1.6204
30/01/12 - Purch on mrket $286,252.00 -- 177931 - $1.6088				

Perennial Investment Partners (unit of IOOF)				

28/02/12 - Sold on market - - $2,711.43 - - - 1599 - $1.6957

27/03/12 - Purch on mrket - $256,642.48 - 161226 - $1.5918
05/04/12 - Purch on mrket $102,450.56 - - - 68128 - $1.5038
17/04/12 - Purch on mrket - $88,521.32 - - - 58922 - $1.5023

Investors Mutual

Between 6/12/2011 and 19/12/2011 Investors Mutual's trading in TGA was a net purchase, detailed thus:  				

Net purchase - - - - - - - - $3,260,599 - 1899700 - $1.7164

This aggregated report is not as useful as an itemised one would have been.

In summary, I would buy at current prices, if I had the funds.  I had planned to consider buying 10,000 today, but as soon as typed these words I noticed that it was 3.59PM, so I did not have time to consider the matter.   Let's see what happens tomorrow.


----------



## tech/a (17 May 2012)

And it would not have been a bad buying decision.

There is limited risk to the downside in my view.
Its actually in an accumulation phase right at the moment.
The bar on 26/4/12 is the control bar.
The test on the $1.50 high on low volume is a good sign.

I would like to see a clear break of that $1.50 high with either volume
or a gap up over it.
Stop $1.38---8c risk on tonights close.

Personally my buy order would be above $1.51.
So not ready quite yet.


----------



## McLovin (17 May 2012)

kermit345 said:


> I'd say funds selling is a concern but not a major one. It's been demonstrated by a number of studies that fund managers struggle to outperform the index's and some have openly admitted themselves that managing funds individually is much easier then managing their funds accounts/portfolios. While this doesn't directly relate to Perpetual's TGA holding, they could be selling for any number of reasons that we are not aware of and that may or may not be directly related to TGA. So hence while it is concerning perpetual are selling, its not what i'd call a major concern.
> 
> Personally i'm still waiting for the downtrend to be broken (to the upside) before I add to my small holding.




Way too much is being read into this PPT sell down. They have ~$22b in FUM. Their holding in TGA, at its peak, amounted to less than 0.1% of their FUM. Even if TGA doubled in value it would have added 0.1% to their performance. There is an entire universe of reasons why they might have sold. Either way, I'm pretty sure that more time has been spent discussing the fact that PPT was selling out of TGA in this thread, than PPT spent discussing TGA.


----------



## CanOz (17 May 2012)

McLovin said:


> Way too much is being read into this PPT sell down. They have ~$22b in FUM. Their holding in TGA, at its peak, amounted to less than 0.1% of their FUM. Even if TGA doubled in value it would have added 0.1% to their performance. There is an entire universe of reasons why they might have sold. Either way, I'm pretty sure that more time has been spent discussing the fact that PPT was selling out of TGA in this thread, than PPT spent discussing TGA.




Well said.

CanOz


----------



## Pioupiou (17 May 2012)

McLovin said:


> Way too much is being read into this PPT sell down. They have ~$22b in FUM. Their holding in TGA, at its peak, amounted to less than 0.1% of their FUM. Even if TGA doubled in value it would have added 0.1% to their performance. There is an entire universe of reasons why they might have sold. Either way, I'm pretty sure that more time has been spent discussing the fact that PPT was selling out of TGA in this thread, than PPT spent discussing TGA.




Your words encapsulate why I wrote that PPT's selling was not a concern.  I should have written, ". . . PPT's reasons for selling were not a concern".  As much as TGA is percentage-wise a non-entity for PPT, the reverse has not been true, because in July 2011 PPT owned something like 9.65% of TGA  PPT's constant selling to reduce this to zero, or a small %, has probably been a significant factor behind the SP retreat, exaggerated by the corollary of TA activity, and likewise for those who think that PPT would not sell unless it "knew" something that we poor mushrooms do not.  There are of course other reasons why investors may have became fearful of TGA's ability to keep to its historical trajectory, and the forthcoming interim annual report will go a long way to either confirming, ameliorating or gainsaying these fears.  From my past posts on TGA, you can assume that I believe it will transpire to be the last mentioned.


----------



## skc (17 May 2012)

tech/a said:


> And it would not have been a bad buying decision.
> 
> There is limited risk to the downside in my view.
> Its actually in an accumulation phase right at the moment.
> ...




If the market isn't looking so iffy I would have bought around these levels too and just ride into the report next week. 

A lot needs to go wrong fundamentally for the current share price to not look cheap.

Given that the market is iffy, however, I will probably buy the day before the result release with a guaranteed stop...


----------



## Nutmeg (18 May 2012)

tech/a said:


> And it would not have been a bad buying decision.
> 
> There is limited risk to the downside in my view.




I have been saying that for weeks when I started buying at $1.50 and under.  You TA guys are by defintion herd animals.  Your tune has now changed from canning the stock to weighing up whether it is a good buy - simply because all your fellow herd members are doing the same thing.


----------



## CanOz (18 May 2012)

Nutmeg said:


> I have been saying that for weeks when I started buying at $1.50 and under.  *You TA guys are by defintion herd animals*.  Your tune has now changed from canning the stock to weighing up whether it is a good buy - simply because all your fellow herd members are doing the same thing.




Incredible...a technical approach on the market keeps you from being just a :sheep:

He is approaching this as a trade, not buy until i can't stand the pain and sell to buy lower...thats not even  a strategy. Most of the decent fundamental investors don't even do that. You guys are the :sheep:, Tech's probably buying off you guys!!

CanOz


----------



## Nutmeg (18 May 2012)

CanOz said:


> You guys are the :sheep:




If you're buying when everyone else is buying and because everyone else is buying, what else is that but a herd mentality?  You're the reason that bubbles happen.



CanOz said:


> Tech's probably buying off you guys!!




He's not buying from me. 

By the way, nice pictures.  Do you have any love hearts?


----------



## oldblue (18 May 2012)

Just a "technical" point, maybe, but sheep move in flocks, not herds!



Seriously though, some of us do attempt to combine Fundamental Analysis with a little of the Technical variety. It's kept me, for one, from buying anything in the current general market downtrend.


----------



## tech/a (18 May 2012)

Firstly *IM A DUCK!*

Secondly Im not trading TGA and *WOULDNT UNLESS *it traded over $1.50.
A fall below the Control bar zone on a gap or volume will be very bad news for TGA.
A break above the zone with a gap or strong volume would be seen as great news.

This is a time to wait for TGA in a technical opinion.


----------



## Nutmeg (18 May 2012)

tech/a said:


> Firstly *IM A DUCK!*
> 
> Secondly Im not trading TGA and *WOULDNT UNLESS *it traded over $1.50.
> A fall below the Control bar zone on a gap or volume will be very bad news for TGA.
> ...




It's has been said that "if you were to put 1 billion monkeys in front of a computer keyboard they'd eventually type out the works of Shakespeare.  But with the advent of the internet, we now know that that is not true".

Similar reasoning applies to traders staring at charts.


----------



## tech/a (18 May 2012)

Nutmeg said:


> It's has been said that "if you were to put 1 billion monkeys in front of a computer keyboard they'd eventually type out the works of Shakespeare.  But with the advent of the internet, we now know that that is not true".
> 
> Similar reasoning applies to traders staring at charts.




Yes Ive never been able to see the works of Shakespeare in a chart so what you say must be true.

Quite intelligent coming from a Food spice.


----------



## CanOz (18 May 2012)

This thread is not going the way of the fundy/tech argument so lets get back on topic.

Thanks for your chart Daffy. 

CanOz


----------



## tech/a (18 May 2012)

CanOz said:


> This thread is not going the way of the fundy/tech argument so lets get back on topic.
> 
> Thanks for your chart Daffy.
> 
> CanOz




No its not.
More Master Chef!


----------



## Ves (18 May 2012)

Thanks for the chart, tech/a.


----------



## catfish (20 May 2012)

What is the possible range of EPS to be released this week? Management said the result would be a substantial increase on previous.


----------



## Pioupiou (20 May 2012)

catfish said:


> What is the possible range of EPS to be released this week? Management said the result would be a substantial increase on previous.




If one simply doubled the EPS for H1, one would get an EPS for the year of 19.5c. If you increased this by 2.5% to equate to an annual growth of 5%, you will get 20c. A glance at the Westpac estimates gives the following:

Median - - - - 19.4c
High - - - - - - 20.0c
Low  - - - - - - 18.8c
7 Days Ago -- 19.4c		
30 Days Ago - 19.6c		
60 Days Ago - 19.7c		
90 Days Ago - 19.7c

I am at a loss to know what information has come to the notice of analysts in the last week or so to cause them to fractionally adjust their EPS estimates downward. Being herd animals, they probably, collectively retreated when one of their number did so after a seeing negative signs in his teacup.

Invent an EPS at the medium of the lowest in the above table of 18.8c and my 20.3c (see below) to get 19.6c, which will not be far wrong.

TGA's MD has been coy on the matter of suggesting an EPS for 2012, other than to say (when the analysts on average mooted 19.7c) that the analysts had it “about right”, which gives latitude for the final figure to be higher.  Also, remember that there is usually a small difference between basic EPS and diluted EPS to account for bonus shares and options.

I performed a crude calculation and arrived at 20.3c.  My logic to calculate for H2 was to start with the H1 net profit of $14.307M, and adjust it for:

a) the on-off NCML acquisition-related impairment expense of $630K;
b) the higher interest paid in H1 that would have been reduced by reducing debt by $25 million;
c) taking out the contribution to EBIT by the subsequently-lost ATO business;
d) uplifting the residual by 5% to account for growth (annual rate 10%); and then
e) adjusting for 30% tax.

Being a tad lazy, I guesstimated the interest differential by simply deducting what was paid in H1 relative to the previous H1 – that is $1135K less $278K = $857K.  The end result is as follows: $14.307M  plus (($.630M + $.857M - $800) x 1.05 x .7 = $.46309M), which is $14.770M.  Divide the two half years' net profit by 146606000 shares and one gets ($14.307M + $14.770M)/146606000 = 20.324 cents.

As an aside, I looked at the 2006 prospectus, and it pitched the 2007 EPS at an expected 6.5c for 2007, and by using a PER of 8 arrived at the float SP of 8 x $0.0625 = $0.50.  It also stated an EBIT multiplier of 6.  If you multiplied 20c by 8 you would get $1.60, which to me is the bottom end of the fair-value SP range.  After five years of stellar performance, TGA deserves a better PER than 8, so if you picked 10, your fair-value SP could be about $2.00.  If one excludes banks and the mining companies from the ASX, I understand from FNArena's 30/04/2012 dated “Weekly Insights” that the average EPS is 14.8, which may be too high, so a PER of 13 for TGA is not such a silly number, and hence there are analysts' reports that venture12-month target SPs as high as $2.60.


----------



## Nutmeg (21 May 2012)

At the risk of stating the obvious, should TGA merely come in bang on on analyst's forecasts, it will constitute one of the few bright spots relative to the dark cloud hanging over the rest of the market.   In that context, it will be interesting to see what effect, if any, that has on the mood of Mr Market.


----------



## Klogg (21 May 2012)

Nutmeg said:


> At the risk of stating the obvious, should TGA merely come in bang on on analyst's forecasts, it will constitute one of the few bright spots relative to the dark cloud hanging over the rest of the market.   In that context, it will be interesting to see what affect, if any, that has on the mood of Mr Market.




Yeah, I've got TGA and another (RCG) both coming in with good increases in earnings (TGA moreso), and both fundamentally sound.

Waiting to see how the market reacts to TGA's annual and RCG investor update.


----------



## Nutmeg (22 May 2012)

Today is the day of reckoning.


----------



## Klogg (22 May 2012)

Reading through now, but just announced a 26.4% profit increase


----------



## Nutmeg (22 May 2012)

No surprises, really.  Came in bang on on analysts' forecasts.  But I found the following interesting (and promising): 

"_Thorn has been investigating the potential for a Rent Try Buy! ® type product in the used car market and is now sufficiently confident in the concept that it has approved the commencement of a trial in the second half of FY13_".

I had earlier flagged the prospect of TGA initiating further rental lines, notably cars.  MMS leases cars as well and it has turned out very well (although on FBT terms, so the market is slightly different).  

The remarks on TGA's outlook may dampen any buoyancy that we had hoped that the share price might receive following today's announcement:

"_Thorn's rate of growth over the past years has been substantial but market factors may slow this rate in FY13. Among these factors are the subdued economy, poor retail conditions and changing consumer preferences with products such as furniture taking over as the growth drivers from the likes of flat panel TVs and personal computers. There will also be costs associated with continued investment in additional Radio Rentals outlets.
Additionally the Rent Drive Buy! ® trial will have a short term cost impact, however the board feels it is an important strategic opportunity that should not be delayed_".

This outlook accords with Macquarie Bank's recent analysis.


----------



## Klogg (22 May 2012)

I saw that! I'm glad that they're already branching out, given their rent try buy is only just starting to mature (going by customer growth).


----------



## Klogg (22 May 2012)

Nutmeg said:


> No surprises, really.  Came in bang on on analysts' forecasts.  But I found the following interesting (and promising):
> 
> "_Thorn has been investigating the potential for a Rent Try Buy! ® type product in the used car market and is now sufficiently confident in the concept that it has approved the commencement of a trial in the second half of FY13_".
> 
> ...




The Macquarie report shows no growth for the next FY - IMO it's not quite the same msg as TGA management are trying to get across.


----------



## Nutmeg (22 May 2012)

Klogg said:


> The Macquarie report shows no growth for the next FY - IMO it's not quite the same msg as TGA management are trying to get across.




True.


----------



## Pioupiou (22 May 2012)

Pioupiou said:


> If one simply doubled the EPS for H1, one would get an EPS for the year of 19.5c. If you increased this by 2.5% to equate to an annual growth of 5%, you will get 20c. A glance at the Westpac estimates gives the following:
> 
> I performed a crude calculation and arrived at 20.3c.  My logic to calculate for H2 was to start with the H1 net profit of $14.307M, and adjust it for:
> 
> ...




Well, the EPS came in 1 cent below what I expected.  This is substantially because an additional $1,130K was written off NCML-customer relationships (goodwill) in H2.  I had thought this might happen, and in an earlier post I wrote: "If there is a negative to detract from the rosy picture, it will spring from the NCML acquisition, in my opinion - e.g., impairment of goodwill."  An analyst later took this up with John Hughes, and his response led me to think that the $630K impairment in H1 sufficed.

Total impairment was $1,760K, so I presume a further $1,130K was impaired in H2.  Things like provisions and amortisations are not an exact science, and management of companies will often tweak them to suit their purpose.  If one uses EPS numbers to guesstimate future years EPS metrics, these one-off expenses are usually ignored, and hence the "normalised" EPS would be about 8 cents higher, or 20.1c. 

I have not gone through the interim annual report carefully, but it looks positive from the long-term perspective.  This is not a company experiencing the final flare-up just before its last match is snuffed out for the want of fuel.


----------



## oldblue (22 May 2012)

> This is not a company experiencing the final flare-up just before its last match is snuffed out for the want of fuel




No, definitely not - and no-one's saying that!

What I want to determine is whether TGA warrants any more of my hard-earned, and if so, whether it ranks ahead of any other candidates for investment. Still an open question at this stage, for me.


----------



## Pioupiou (22 May 2012)

oldblue said:


> No, definitely not - and no-one's saying that!
> 
> What I want to determine is whether TGA warrants any more of my hard-earned, and if so, whether it ranks ahead of any other candidates for investment. Still an open question at this stage, for me.




If you think of stocks that are nearly as good as TGA, let me know.  I want to rejig my two portfolios to allow me to sell some of the crud that I hold, and perhaps even shed some TGAs if I can find stocks roughly on par with it.  Basically I want candidates that pay a dividend (not necessarily a large dividend), have little debt (will look at debt/equity as high as 35%), have reasonable growth (about 10% will do) and have capitalisations north of $100M.  These are stocks I intend to hold - I am not a trader.  I am already retired, and living off my SMSF and a personal share portfolios.

It would be good to have something other than TGA occupying my mindspace.


----------



## craft (22 May 2012)

Pioupiou said:


> Well, the EPS came in 1 cent below what I expected.  This is substantially because an additional $1,130K was written off NCML-customer relationships (goodwill) in H2.  I had thought this might happen, and in an earlier post I wrote: "If there is a negative to detract from the rosy picture, it will spring from the NCML acquisition, in my opinion - e.g., impairment of goodwill."  An analyst later took this up with John Hughes, and his response led me to think that the $630K impairment in H1 sufficed.
> 
> Total impairment was $1,760K, so I presume a further $1,130K was impaired in H2.  Things like provisions and amortisations are not an exact science, and management of companies will often tweak them to suit their purpose.  If one uses EPS numbers to guesstimate future years EPS metrics, these one-off expenses are usually ignored, and hence the "normalised" EPS would be about 8 cents higher, or 20.1c.
> 
> I have not gone through the interim annual report carefully, but it looks positive from the long-term perspective.  This is not a company experiencing the final flare-up just before its last match is snuffed out for the want of fuel.




This is amortisation of customer contracts. It was original over 7 years – they have bought it back to 5 years. @ 7 years the amort is 1,256 per year @ 5 Years it is 1,759. This charge will continue for another 4 years. It is not impairment of Goodwill.

Change in PDL fair value of 1,897 is a bit of a soft revenue item. 

Tax cost base from NCML has been increased above balance sheet figures for PDL's and Plant and equipment???


----------



## oldblue (22 May 2012)

Pioupiou, this is getting off the thread a bit but CPB is a stock that meets your criteria. It also announced its results yesterday:

27% increase in revenue

+ 57% EBIT

+68% NPAT

+62% EPS

Paid dividends for last 10 years, increasing from 30cps pa to latest $2.25.

ROE 25%

Gearing 28%

Not cheap at around $59, yielding around 3.8%.

Disc: I hold a few at an average cost of about $12.

Past performance is no guarantee for the future of course, so my current search is aimed at stocks with the potential to grow. They won't all meet a strict set of criteria and they won't all be successes. I just hope to get enough of them!


----------



## McLovin (22 May 2012)

craft said:


> Tax cost base from NCML has been increased above balance sheet figures for PDL's and Plant and equipment???




Yeah note 30 has me scratching my head. Although, the tax cost base for the PPE has been revised down not up.


----------



## craft (22 May 2012)

McLovin said:


> Yeah note 30 has me scratching my head. Although, the tax cost base for the PPE has been revised down not up.




Yep PPE was down – looks immaterial but PDLs another matter.

The cynical questions – would PDL revaluation been possible if correct amount was on Balance Sheet? Associated reduction in goodwill probably helped them avoid goodwill impairment. 

How rubbery can you get in establishing a tax cost base for PDL’s?


----------



## McLovin (22 May 2012)

craft said:


> Yep PPE was down – looks immaterial but PDLs another matter.
> 
> The cynical questions – would PDL revaluation been possible if correct amount was on Balance Sheet? Associated reduction in goodwill probably helped them avoid goodwill impairment.
> 
> How rubbery can you get in establishing a tax cost base for PDL’s?




I think we've just seen a clever, and I guess according to AASB 3 legal, way to get around having to write down goodwill associated with the loss of the ATO contract. Instead of writing down the goodwill they just wrote up the cost base. 

Maybe I'm being too cynical.


----------



## skc (22 May 2012)

McLovin said:


> I think we've just seen a clever, and I guess according to AASB 3 legal, way to get around having to write down goodwill associated with the loss of the ATO contract. Instead of writing down the goodwill they just wrote up the cost base.
> 
> Maybe I'm being too cynical.




The market isn't exactly thrilled with the results either. Decent buying initially but distribution started at $1.50 and then sold down into the close. Not the most convincing price action for the day.

Tomorrow imo will be telling, as analysts adjust their forecast and recommendations.


----------



## Pioupiou (22 May 2012)

skc said:


> The market isn't exactly thrilled with the results either. Decent buying initially but distribution started at $1.50 and then sold down into the close. Not the most convincing price action for the day.
> 
> Tomorrow imo will be telling, as analysts adjust their forecast and recommendations.




PPT may still be selling, and that would not reflect that it has given the published TGA results much consideration.  Just like my recent selling of about $1200 worth of CCV at a small loss to my original buy-in price - it was such a relatively small % of my portfolio that it did not merit a row on my spreadsheet.  If I had a forlorn $50K looking for a home, I may well, subject to research, have bought CCV, rather than sold.

We should not attach too much concern to NCML negatives - they only equate to a few cents of the SP.

I have not digested the YE 30/03/2012 report yet, but even if it has negatives, which I am sure it has, the question is - what stock is a better place to park ones wealth?


----------



## tech/a (23 May 2012)

Well you don't park it in a stock at $2.03 and leave it there to $1.50

There is cash?
There is hedging?
There are other vehicles to trade.
There are other time frames ---- other than forever.
There are ways to mitigate risk so your not STUCK in a trade which has decimated capital invested.


----------



## odds-on (23 May 2012)

tech/a said:


> Well you don't park it in a stock at $2.03 and leave it there to $1.50
> 
> There is cash?
> There is hedging?
> ...




Have you thought about creating a thread titled “A guide to portfolio management by Tech/a” ?


----------



## Nutmeg (23 May 2012)

odds-on said:


> Have you thought about creating a thread titled “A guide to portfolio management by Tech/a” ?




Imagine the following that that would have - the power of one!


----------



## tech/a (23 May 2012)

odds-on said:


> Have you thought about creating a thread titled “A guide to portfolio management by Tech/a” ?




Unless you buy and hold to a pre determined (by the power of one--valuation price).
The sheep are not interested in any other suggestion.

The thread is punctuated with followers of the faith for ever regurgitating "evidence" of their conviction.

Carry on.


----------



## Nutmeg (23 May 2012)

tech/a said:


> The sheep are not interested in any other suggestion.




This from a guy who takes his buying cues from the mere fact that others are buying and his selling cues from the mere fact that others are selling.


----------



## tech/a (23 May 2012)

Nutmeg said:


> This from a guy who takes his buying cues from the mere fact that others are buying and his selling cues from the mere fact that others are selling.




Post 541
Is how I would trade this.
Do I detect some anger from the food spice?


----------



## Julia (23 May 2012)

Nutmeg said:


> Imagine the following that that would have - the power of one!



 On the contrary.  As someone relatively new to this forum, you obviously have little comprehension of the number of people Tech has helped over many years.

You might consider not allowing your own lack of understanding of a technical approach to blind you to others' skills.


----------



## Klogg (23 May 2012)

Guys, please lets not go down this path again.

And tech - while I do appreciate your input, please don't refer to me as a 'sheep' or any other farmyard animal, regardless of what you think of my approach.

Thanks.


----------



## tech/a (23 May 2012)

I didnt refer to yourself or anyone specifically.
It was and is a generic sheep.
Infact Ive seen it refered buy others here without concern from ---err myself--as it was directed to moi'
If you have a look at post 541 youll see my suggestions.

The rest is slanging from the sheep.

I note TGA is still struggling in its consolidation.
Its quaterly report un able to attract new buyers.
So the analysis is still "true".

Carry on.


----------



## Klogg (23 May 2012)

tech/a said:


> I didnt refer to yourself or anyone specifically.
> It was and is a generic sheep.
> Infact Ive seen it refered buy others here without concern from ---err myself--as it was directed to moi'
> If you have a look at post 541 youll see my suggestions.
> ...




OK, my apologies then on the slanging.

Interesting point you make on being unable to attract new buyers though. I read it a little differently - I would have thought it's attracted buyers (i.e. higher volumes than the last few weeks, excl. the day of the speeding ticket), but has increased selling too...
That's probably a bit of a moot point anyway - unless you believe PPT are selling into the increased buying.


----------



## tech/a (23 May 2012)

Klogg said:


> OK, my apologies then on the slanging.
> 
> Interesting point you make on being unable to attract new buyers though. I read it a little differently - I would have thought it's attracted buyers (i.e. higher volumes than the last few weeks, excl. the day of the speeding ticket), but has increased selling too...
> That's probably a bit of a moot point anyway - unless you believe PPT are selling into the increased buying.




Someone is---it doesn't really matter who.
Supply (selling) will stop an instrument from rising in price.
Supply either needs to be exhausted in which case there will be little resistance to price rising.
OR
It needs to be over run by new and sustained buying---this will also have the effect of stopping sellers in their tracks --- most will stick around while price is rising.

So the struggle goes on.
To me a clear winner to the upside will be as I have described in #541
Until then its just conjecture.

I'm sure there will be plenty of it---(Conjecture).


----------



## McCoy Pauley (23 May 2012)

The fact that TGA finished today steady in a market that finished more than 1% lower suggests that there might be some buying coming into the company.

Hard to extrapolate from one or two days' price action, though.


----------



## craft (23 May 2012)

Pioupiou said:


> If you think of stocks that are nearly as good as TGA, let me know.  I want to rejig my two portfolios to allow me to sell some of the crud that I hold, and perhaps even shed some TGAs if I can find stocks roughly on par with it.  Basically I want candidates that pay a dividend (not necessarily a large dividend), have little debt (will look at debt/equity as high as 35%), have reasonable growth (about 10% will do) and have capitalisations north of $100M.  These are stocks I intend to hold - I am not a trader.  I am already retired, and living off my SMSF and a personal share portfolios.
> 
> It would be good to have something other than TGA occupying my mindspace.




Have a look at MMS. The company is strong enough to have fleet funding on balance sheet so it doesn't meet your debt/equity ratio but that shouldn't deter you. Even if you decide the company is not for you it will be good background research in fleet management/funding considering TGA's rent/drive/buy proposal.


----------



## Ves (23 May 2012)

craft said:


> Have a look at MMS. The company is strong enough to have fleet funding on balance sheet so it doesn't meet your debt/equity ratio but that shouldn't deter you. Even if you decide the company is not for you it will be good background research in fleet management/funding considering TGA's rent/drive/buy proposal.



Any chance of more whisperings by the media that the government is going to change the FBT / salary packaging rules so we can get it at half-price?  Doesn't look cheap enough at the moment.


----------



## odds-on (23 May 2012)

Pioupiou said:


> I have not digested the YE 30/03/2012 report yet, but even if it has negatives, which I am sure it has, the question is - what stock is a better place to park ones wealth?




How about investing in the good ol U S of A? 

Use the strong AUD + market madness to purchase shares in some of the US global corporations like McDonalds.

Check out this website for ideas www.gurufocus.com.


----------



## ROE (23 May 2012)

I reckon TGA should merge with CCP both similar market cap

Let CCP expertise run NCML and TGA do their usually rental and finance lease stuff

CCP is the expert in this field with their awesome customs built IT system to maximize collection.

No one can beat CCP in this field unless they can come up with similar system to CCP
which they may not have the know how .... between the two of them they should generate enough
cash flow for RentDriveBuy


----------



## Nutmeg (23 May 2012)

Ves said:


> Any chance of more whisperings by the media that the government is going to change the FBT / salary packaging rules so we can get it at half-price?  Doesn't look cheap enough at the moment.




The government will never do away with the FBT: it would merely embitter a bunch of lowly paid civil servants who the government always needs on its side.  In any event, the net revenue gain would be negligible relative to the political cost of doing away with it.  MMS is a great stock - it was a 3 bagger for me - but you're right, it's no longer cheap.


----------



## Ves (23 May 2012)

Nutmeg said:


> The government will never do away with the FBT: it would merely embitter a bunch of lowly paid civil servants who the government always needs on its side.  In any event, the net revenue gain would be negligible relative to the political cost of doing away with it.  MMS is a great stock - it was a 3 bagger for me - but you're right, it's no longer cheap.



 Exactly.  But look what happened to the share price last time there was a rumour.  It's a damn shame I wasn't interested in stocks at that point in time.


----------



## Nutmeg (23 May 2012)

Ves said:


> Exactly.  But look what happened to the share price last time there was a rumour.  It's a damn shame I wasn't interested in stocks at that point in time.




In that case, let the rumours fly - I'd love to get back into it at a good discount.  Personally, I still think it has a long way to go, albeit at a steadily slower growth rate.


----------



## skc (23 May 2012)

Ves said:


> Exactly.  But look what happened to the share price last time there was a rumour.  It's a damn shame I wasn't interested in stocks at that point in time.




Re: MMS. That wasn't a rumour. It was a tax review and their main business was on the agenda to be reviewed. It turned out OK but that wasn't a given at the time. The share price fell because there were real and significant increase in earning risks. Sometimes punts work out but it doesn't mean you were right to take them. If there's another review in 2 years time and you use the same logic - it could easily come back and bite you.

The best reward/risk was gained by buying after the review was cleared - and you could still get in at a good price with very little risk.

Back to TGA: 

I sense the general thought is that, while the quality of earning has somewhat diminished, it is still more than sufficient to justify the relatively low current share price. It may take a few more days yet for the TGA to find the new equilibrium level, particularly given the overall market sentiment. VOC for example took about a week after its results to start flying (and leaving me behind thanks to the 1-week delayed reaction).


----------



## Pioupiou (23 May 2012)

odds-on said:


> How about investing in the good ol U S of A?
> 
> Use the strong AUD + market madness to purchase shares in some of the US global corporations like McDonalds.
> 
> ...




I am trying to simplify my life, and one level of complexity that TGA does not have is exchange rates.  Obviously, investing in the USA is also a currency play. 

Part of my investment strategy is to invest in things I and the SMSF co-trustee understand, which makes Australian firms more obvious candidates.  When I lose my marbles, I want the co-trustee to be able to understand the investments, and perhaps keep them running reasonably well with minimal effort.  The obvious starting point is to reduce debts that I have incurred to buy shares held personally, and I'll start doing that in July.

With interest rates very low in the USA, share prices relative their earnings are high, and when it comes to dividends, USA investors seem happy without them, whereas I like firms that pay about 50% in dividends.  As a retired person living off my shares, I rather get dividends than be regularly selling shares to get cash.  Never getting dividends is like a giant Ponzi scheme (Sorry Warren!).  

Most Australian dividend-paying stocks also offer franking credits, so a 100% franking at a corporate tax rate of 30% means one can divide the dividend by .7 to get the real value of the dividend (4.9% yield thus becomes 7% yield).  At 35% tax, the USA government steals more investors' money than our government.

The best TGA-like stock in the rent-to-buy game in the USA is probably Aaron's, and when I last looked, it had metrics that did not eclipse TGA, and yet it was priced at a PER of about 18 on YE 31/12/2011 EPS.  I have just looked again, and today it is on 15.2 PER of 31/12/2011.  Its EPS growth for 2012 is very bullish, so forward PERs may not be realised. The expected dividend yield is only 2%. See http://quicktake.morningstar.com/stocknet/secdocuments.aspx?symbol=aan 

When I have on rare occasions thought a US-based company should do well on basic themes, rather than actually examining the metrics and the then ruling SPs, my top three picks would have been IBM, Oracle and Caterpillar, and from what I have since read, I probably would have done OK had I had invested on instinct.  I used to work in software procurement, so I was aware of the kind of money that Oracle and IBM make at near-zero marginal cost, and I knew that the trouble in which HP was wallowing sufficed to keep a wise investor away.

I have exposure to foreign investors via various Platinum funds, but they are not shooting the lights out, and I have sold at a large loss the funds that performed even worse.  Exposure to shares like CSL, QBE and others include an exposure to the USA, plus other economies.

Anyhow, within the thousands of ASX-listed stock, not many compare to TGA as a value investment.  That is of course from my perspective, but I doubt there are more than a handful from others' perspective, provided they too are medium-to-long-term investors. 

I do not want this thread to drift away from TGA.  There is a thread, "Companies like CCV and TGA" that looked at stocks like TGA, CCV, CCP – stocks in the business of providing sub-prime credit.  Is there a thread that focuses on on a broader range of good investor-grade ASX-listed stocks, because that is where a useful exchange could take place?  I looked at and liked a few of these (CCV and CCP), but I do not want to have all my investments in a common line of business, and yes ROE, a merger of TGA and CCP would be a marriage made in heaven.


----------



## Nutmeg (23 May 2012)

skc said:


> Re: MMS. That wasn't a rumour. It was a tax review and their main business was on the agenda to be reviewed. It turned out OK but that wasn't a given at the time. The share price fell because there were real and significant increase in earning risks. Sometimes punts work out but it doesn't mean you were right to take them. If there's another review in 2 years time and you use the same logic - it could easily come back and bite you.
> 
> The best reward/risk was gained by buying after the review was cleared - and you could still get in at a good price with very little risk.




I was aware of the Henry tax review.  There is always a reason not to buy.  You assess the likelihood of a risk occurring and act accordingly.  The possibility that the FBT might have been removed only ever arose because of the scope given to Ken Henry to review the entire tax system.  There's a measurable distance in investment terms between what is probable and what is merely possible: it's called opportunity.


----------



## Pioupiou (24 May 2012)

Seeing that looking for TGA-like performers has allowed us to drift on to MMS, I'll add my bit - more an attempt at humour than words of wisdom.

I like stocks whose business carries social stigma.  Adam Smith in his “An Inquiry into the Nature and Causes of the Wealth of Nations ” mentions a few times that odious professions like butchering beasts or hanging criminals rewarded those in it in a way that was disproportionate to the skills and effort required, whereas the genteel professions like being a clergyman were poorly reward relative to the education and effort required.  Hounding debtors is obviously not a genteel profession, and hence my interest in TGA, CCV and CCP, plus a few others.  Burials and cremations is an off-putting business, and hence I would invest in Invocare (IVC) if its PER were lower. Prostitution would be a non-U theme to consider, except there are no such service mongers listed on the ASX.

However, getting back to MMS.  Recent words from Charlie Munger of Berkshire Hathaway made me think of compensation consultants.  The words (paraphrased) are “Berkshire Hathaway don’t have a standard formula. They don’t have a big HR department. Every arrangement  between executives is different. In past years Warren Buffet has made the comment that prostitution would be a step up for most compensation consultants.”

Compensation consultancy is a wonderful business.  All you need is a suit, silver hair, a sage demeanour and the cheek of a whiteman. You approach executives and for an fat fee you promise to deliver a report that suggests a generous, well supported remuneration package for them, which they can put to the board (in effect themselves) with hands as clean as those of Pontius Pilate.  By the time one has written a few such reports, one can sausage machine the work using templates well peppered with consultancy-speak – words like “in our considered opinion”, “fair”, “best practice”, “aligned to shareholder interest”, “attract and hold the best executives” et cetera.  If you do many at the same time, you can drag out the completion time, and hence make it seem as though the expended time was considerable.  Like IVC, I would buy MMS shares if the PER were lower.

Back to TGA - it will take time for analysts to update their published views.  I am fairly confident that now that there is a 5-year growth story, short-listing criteria that include five years of growth will now list TGA for consideration.  I vaguely remember Howard Coleman saying years ago that Teaminvest would not consider a candidate stock that did not have five years of history (five years of growth requires six years of history). Howard Coleman - mmmmm - he wears a suit, has silver hair, has a sage demeanour and the cheek of a whiteman - he could moonlight as a compensation consultant!


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## Nutmeg (24 May 2012)

Personally, I expect that I will need to extend my holding time of TGA considerably beyond 22 May 2012.  I had initially thought that that date would have provided a catalyst for the share price.  In the absence of institutional buying, I think now that it could take between 6 months to a year for TGA to reach fair value.  

That seems extraordinary when you consider that TGA has just reported an almost 30% rise in NPAT, has a ROE of over 20% and has enjoyed 5 years of solid growth - all within the context of a market that is as fickle as autumn skies.


----------



## tech/a (24 May 2012)

Nutmeg said:


> Personally, I expect that I will need to extend my holding time of TGA considerably beyond 22 May 2012.  I had initially thought that that date would have provided a catalyst for the share price.  In the absence of institutional buying, I think now that it could take between 6 months to a year for TGA to reach fair value.
> 
> *That seems extraordinary when you consider that TGA has just reported an almost 30% rise in NPAT, has a ROE of over 20% and has enjoyed 5 years of solid growth *- all within the context of a market that is as fickle as autumn skies.




You and a few here have considered fair value to be $2.30.
Given that all is now known with regard to TGA.
Why is fair value NOT $1.48?
Thats what the market prices it at.
Why should anyone consider a higher value is warrented.
Given that *ALL* is now currently known about TGA.

Are you not just sitting in the stock in HOPE?.


----------



## Klogg (24 May 2012)

tech/a said:


> You and a few here have considered fair value to be $2.30.
> Given that all is now known with regard to TGA.
> Why is fair value NOT $1.48?
> Thats what the market prices it at.
> ...




The reasoning behind this is that over the long term, the share price follows the earnings of a company. If a company grows, the SP will grow with it, as does the yield. If the share price didn't move with earnings, you'd have skewed dividends because the SP is not keeping up with earnings (i.e. *maintainable* yields of 20%)

I'm more than happy for this stock to remain this low for years, given its prospects and financial strength. I'll keep buying till the cows come home...


----------



## Nutmeg (24 May 2012)

tech/a said:


> You and a few here have considered fair value to be $2.30.
> Given that all is now known with regard to TGA.
> Why is fair value NOT $1.48?
> Thats what the market prices it at.
> ...




Find the post in which I estimated TGA's valuation at $2.30.

You just make things up, don't you.


----------



## skc (24 May 2012)

tech/a said:


> You and a few here have considered fair value to be $2.30.
> Given that all is now known with regard to TGA.
> Why is fair value NOT $1.48?
> Thats what the market prices it at.
> ...




Tech/A... from memory you own a earth moving business.

What was the last traded price of your business and how does the price chart look?


----------



## Nutmeg (24 May 2012)

tech/a said:


> You and a few here have considered fair value to be $2.30.
> Given that all is now known with regard to TGA.
> Why is fair value NOT $1.48?
> Thats what the market prices it at.
> ...




As Klogg said, ultimately price follows value.  Value is the NPV of a future stream of earnings.  The future that I envisage or am capable of envisaging doesn't extend much beyond 5 years.  Thus, I have a valuation for TGA in year 6 of $5.06.  But whether you accept that figure or the method of calculation that I have used to arrive at that figure doesn't really matter.  I doubt that you have ever held a stock for 5 months, let alone 5 years.  What matters is that I am quite confident that at its present level TGA is undervalued.  Thus, at my entry price of $1.48, there is a wide margin of safety built in to the stock. 

The reason that you continually refer to the market price of a stock is that you really have no independent value of what you are buying.  You are totally dependent on market prices and have no independent way of knowing whether you are buying gold or dross.  In fact, you'll buy dross if you believe that there is a bigger fool than you who will pay you more for the dross than you paid for it. 

You need to stop pretending that you have conducted any sort of analysis of TGA and have reached a valuation that says that $1.48 is fair value.  If we were having this discussion a year ago, you would have parrotted then whatever the market price of TGA was.  Stick to commenting on charts and daily price fluctuations.  Valuation is for the big boys.


----------



## tech/a (24 May 2012)

Nutmeg said:


> Find the post in which I estimated TGA's valuation at $2.30.
> 
> You just make things up, don't you.




OK was Pioupiou ---you still hold so obviously think it worth more than current market.
So why are you still holding.




skc said:


> Tech/A... from memory you own a earth moving business.
> 
> What was the last traded price of your business and how does the price chart look?




Civil construction --its not listed --- don't see the relevance


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## oldblue (24 May 2012)

> The future that I envisage or am capable of envisaging doesn't extend much beyond 5 years.




With respect, Nutmeg, I don't see the point in trying to envisage the future of a business in 5 years' time, however strong and "permanent" their business model may appear at present. Too much happens, too quickly, these days for that to be a reliable way to invest.

Just IMO, of course.


----------



## skc (24 May 2012)

tech/a said:


> Civil construction --its not listed --- don't see the relevance




Well... 

You are able to make a decision to hold your business in the absence of a price chart. 

Perhaps others are able to do that as well despite the presence of a price chart?


----------



## Nutmeg (24 May 2012)

Pioupiou said:


> I like stocks whose business carries social stigma.




I have no preference for stocks that carry social stigma - just battered down, dumped, dirt cheap stocks like TGA. 

You might have read Peter Lynch's _One Up on Wall Street_.  If not, it's a great investment book and I highly recommend it.  Lynch bought stocks in the kinds of industries that you mentioned.  If memory serves, they included funeral homes (like IVC) and toxic waste disposal companies (like TOX).  Other big winners for Lynch were pizza delivery businesses, motels and discount chain stores like TRS.  I read _One Up on Wall Street_ years ago, so when TRS, IVC and DMP first listed I should have jumped on board, since the likelihood of them outperforming was, according to Lynch, high.  Moreover, they are business that were and are easy to understand.  But it's true, as Buffett says, that one's biggest investment mistakes are typically ones of omission rather than of commission.


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## Nutmeg (24 May 2012)

oldblue said:


> With respect, Nutmeg, I don't see the point in trying to envisage the future of a business in 5 years' time




TGA is a simple business with recurring revenue and excellent management that is largely immune to economic downturns.  For a lot of businesses, a 5 year outlook would need to be based upon too many incalculables and variables.  For TGA, a 5 year outlook can be made at an appropriately discounted rate with a fair degree of accuracy by virtue of the nature of the business.


----------



## Klogg (24 May 2012)

Nutmeg said:


> I have no preference for stocks that carry social stigma - just battered down, dumped, dirt cheap stocks like TGA.
> 
> You might have read Peter Lynch's _One Up on Wall Street_.  If not, it's a great investment book and I highly recommend it.  Lynch bought stocks in the kinds of industries that you mentioned.  If memory serves, they included funeral homes (like IVC) and toxic waste disposal companies (like TOX).  Other big winners for Lynch were pizza delivery businesses, motels and discount chain stores like TRS.  I read _One Up on Wall Street_ years ago, so when TRS, IVC and DMP first listed I should have jumped on board, since the likelihood of them outperforming was, according to Lynch, high.  Moreover, they are business that were and are easy to understand.  But it's true, as Buffett says, that one's biggest investment mistakes are typically ones of omission rather than of commission.




I've read that book - I personally prefer Security Analysis as it takes a far more subjective view and is more detailed on the financial side. 


Also, as for 'forecasting' (I use the term loosely) 5years ahead, sometimes its not possible, but sometimes it is. I don't pretend to know figures for TGA 5years from now, but given TGA's standing (loans on the books, new areas, repeated use of core offerings, strong financial position), it's *very* hard to see the company going backwards. In short, the risks bother me (but have been virtually ruled out), the uncertainties do not.


----------



## Nutmeg (24 May 2012)

Klogg said:


> I've read that book - I personally prefer Security Analysis as it takes a far more *subjective* view and is more detailed on the financial side.




Don't you mean _objective_?  I agree that Security Analysis is probably the greatest book on, well, security analysis ever written.  _One Up On Wall Street_ is more like an entertaining anecdote of a great investor.  But it is still very insightful.


----------



## Klogg (24 May 2012)

Nutmeg said:


> Don't you mean _objective_?  I agree that Security Analysis is probably the greatest book on, well, security analysis ever written.  _One Up On Wall Street_ is more like an entertaining anecdote of a great investor.  But it is still very insightful.




Sorry, yes. I did mean objective.


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## odds-on (24 May 2012)

Pioupiou said:


> I like stocks whose business carries social stigma.




Me too. The market sometimes prices them as if they are not going to survive to the end of the financial year yet they have solid profitable operating histories and recurring revenues. Investing in them is the gentleman’s way to make money on the stock market. Buy then wait for those pesky momentum ruffians to appear 6 months down the line and flog the lot to them.


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## CanOz (24 May 2012)

odds-on said:


> Investing in them is the *gentleman’s way* to make money on the stock market. B




LOL, as opposed to what other way to make money on the stock market?

CanOz


----------



## McCoy Pauley (24 May 2012)

oldblue said:


> With respect, Nutmeg, I don't see the point in trying to envisage the future of a business in 5 years' time, however strong and "permanent" their business model may appear at present. Too much happens, too quickly, these days for that to be a reliable way to invest.
> 
> Just IMO, of course.




As I posted earlier on this thread, I admire the investment philosophy of Warren Buffett.  If the books written by his ex-daughter in law are accurate, the basis of his investment philosophy seems to be to identify those businesses where the future of a business in 10 years time is relatively predictable, especially compared to other companies.  This is based on the past performance of the company over the previous 10 years.

Of course, the share price of Berkshire Hathaway hasn't been as stellar in the last few years as it has been over the journey, so perhaps your comment may be more applicable now than in the past.

Still, there is a simplicity to TGA's business model that is quite appealing compared to some other companies offering investment opportunities in Australia's market.


----------



## recruit2 (24 May 2012)

Kind of surprising that the May 22 news hasn't at least kicked up the price of TGA even a little bit.

In the mean time, I'm happy to scoop up the great dividends, so no rush, happy to hold and wait...


----------



## craft (24 May 2012)

skc said:


> Well...
> 
> You are able to make a decision to hold your business in the absence of a price chart.
> 
> Perhaps others are able to do that as well despite the presence of a price chart?




Very well put post SKC.

Ben Graham first published the Mr Market parable in 1949.

The more things change the more they stay the same. The Psychological issues don’t seem to have changed one little bit.


----------



## tech/a (25 May 2012)

skc said:


> Well...
> 
> You are able to make a decision to hold your business in the absence of a price chart.
> 
> Perhaps others are able to do that as well despite the presence of a price chart?






craft said:


> * Very well put post SKC.*
> 
> Ben Graham first published the Mr Market parable in 1949.
> 
> The more things change the more they stay the same. The Psychological issues don’t seem to have changed one little bit.




 I don't know about it being very well put.

Firstly I own the business not just a small slice of it.
I have a level of control not available to investors.
I can expand or contract the business,hire,fire,liquidate
Or appropriate,I have daily access to cash flows and order book.
I have total control.
But with that I can't open up my computer click on a mouse and sell
It as I can see a down turn coming.

If your an investor in TGA you can of course mitigate your risk
By simply clicking the mouse.

I'm not knocking any investor in any stock who makes a value judgment
* What I am doing * is pointing out the folly of those who pig headedly
Remain with their valuation while their investment decimates their capital base.
If price falls below their " great opportunity to buy at this price "
Level they can click the mouse and take a baby loss and " buy at an even better "
Price when market conditions see their investment consolidate or move forward.

It's not those who buy at the levels TGA trades at today I'm targeting but those who bought at $2+ and just held and held.

My point is purely * RISK MITIGATION * something that gets shot down in all cases where I've made the point. Value investors appear to believe they are immune to risk and loss----purely because they have a valuation that they believe will hold them in profit on the long run. 

I've NEVER seen on any threads here a down grade by a holding investor of their valuation----and hence a closing of a position!

Truth is I suspect--- * The capital LOSS becomes that painful that they believe they have no option other than holding.*

Carry on.


----------



## skc (25 May 2012)

tech/a said:


> I don't know about it being very well put.
> 
> Firstly I own the business not just a small slice of it.
> I have a level of control not available to investors.
> ...




I would argue that the premium of control is more than offset by the lack of liquidity, but that's besides the point. It seems we've agreed that it is possible and rational to buy/hold/sell a business without looking at its price.



tech/a said:


> I'm not knocking any investor in any stock who makes a value judgment




Yet below you seem to suggest that, since the market price is $1.48, anyone consider fair value to be $2.30 must be wrong. And if they don't admit they are wrong they are pigheaded.



tech/a said:


> You and a few here have considered fair value to be $2.30.
> Given that all is now known with regard to TGA.
> Why is fair value NOT $1.48?
> Thats what the market prices it at.
> ...




What would make you sell/exit your business? Perhaps there are many variables you'd look at - but it is not possible for you to make that decision based on the last transaction price, given that your business is not listed. Now assume your business is listed and has a ask/bid price - why would that change your approach suddenly? 

And with regards to "decimated capital base"... the share price has fallen from $2.30 to $1.50... that's ~35% fall. Have you ever experienced a 35% peak-to-trough equity drawdown in your trading? Did you cut your loss and quit trading, or did you review your trading methods and systems to make sure you are still happy with continuing (i.e. holding your trading business depsite the "price" drop)?

Everyone's valuation of TGA here may very well be wrong. But that will not be because of what the market price is. Based on the latest annual report, I personally don't consider it irrational to continue to hold. The same cannot be said for some other threads (PEN, RED), but TGA is not in the same bucket based on the last report.

P.S. Most questions are essentially rhetorical so really don't need to respond to them specifically unless you have a few more hours to kill.

P.P.S. I don't have too many hours to kill so forgive me if I don't get to respond to your respond specifically.


----------



## Klogg (25 May 2012)

tech/a said:


> It's not those who buy at the levels TGA trades at today I'm targeting but those who bought at $2+ and just held and held.




I personally believe that a buy on this at or above $2 was without any margin of safety, so it's not really a great buy from a value investment point of view.

That being said, if this thing dropped to $1 without any fundamental changes to the business, I would continue to hold my shares (average price of $1.55) and keep topping up. (Ofcourse, at that point you'd be looking at an ~10% FF dividend and a very nice NTA/share value)


----------



## tech/a (25 May 2012)

skc said:


> I would argue that the premium of control is more than offset by the lack of liquidity, but that's besides the point. It seems we've agreed that it is possible and rational to buy/hold/sell a business without looking at its price.




Yes of course it is but I don think it's the smartest thing to do.





> Yet below you seem to suggest that, since the market price is $1.48, anyone consider fair value to be $2.30 must be wrong. And if they don't admit they are wrong they are pigheaded.




If they haven't taken steps to mitigate risk and had stood by and watched price sail down through their buy price yet still hold on --- yeh





> What would make you sell/exit your business? Perhaps there are many variables you'd look at - but it is not possible for you to make that decision based on the last transaction price, given that your business is not listed. Now assume your business is listed and has a ask/bid price - why would that change your approach suddenly?




If I held shares in my company or shares were a patr of my package I'd sell so.
Many directors do--- they don't hang on doggedly so do many major investors in listed companies.



> And with regards to "decimated capital base"... the share price has fallen from $2.30 to $1.50... that's ~35% fall. Have you ever experienced a 35% peak-to-trough equity drawdown in your trading? Did you cut your loss and quit trading, or did you review your trading methods and systems to make sure you are still happy with continuing (i.e. holding your trading business depsite the "price" drop)?




19% from memory. Yes I'd did and have exited the market in total--- for position trading and it's recorded in the discussions back in 2008 in the XAO, XJO threads.
I am trading a very small.



> Everyone's valuation of TGA here may very well be wrong. But that will not be because of what the market price is. Based on the latest annual report, I personally don't consider it irrational to continue to hold. The same cannot be said for some other threads (PEN, RED), but TGA is not in the same bucket based on the last report.
> 
> P.S. Most questions are essentially rhetorical so really don't need to respond to them specifically unless you have a few more hours to kill.
> 
> P.P.S. I don't have too many hours to kill so forgive me if I don't get to respond to your respond specifically.




Really 
So you've never seen a stock with a price that's way way over valuation?
Remember Davnet.
So you wouldn't participate in a stock which is going to the moon without fundamental reason?
I'm old enough to remember Posiden.
All I'm saying is participate and value stock however you like just don't throw risk mitigation out the window
I'm sure every fundamental buy and hold value seeking trader could dramatically 
Increase their profitability by taking care of risk,rather than denying it.


----------



## tech/a (25 May 2012)

Klogg said:


> I personally believe that a buy on this at or above $2 was without any margin of safety, so it's not really a great buy from a value investment point of view.
> 
> That being said, if this thing dropped to $1 without any fundamental changes to the business, I would continue to hold my shares (average price of $1.55) and keep topping up. (Ofcourse, at that point you'd be looking at an ~10% FF dividend and a very nice NTA/share value)




So let's say you had a stop at a 10% drop from $ 2
What would your average price be now and how many more shares could you buy if it did go to $1 
You can't tell me your maths wouldn't be much better!


----------



## craft (25 May 2012)

tech/a said:


> I'm sure every fundamental buy and hold value seeking trader could dramatically
> Increase their* [profitability]* by taking care of risk,rather than denying it.




Price volatility is as much opportunity as risk.



craft said:


> How about digging us out a technical system for trading TGA since listing and then work out the result from taking *‘every’ *signal.







craft said:


> What ever parameter you like. Your choice and you have all the historical data to curve fit it to. - All I ask is that you apply your chosen parameter(s) consistently over the entire data set not just cherry pick the last decline.
> 
> I'm sure you know what I meant - I think you are just stalling/deflecting.







craft said:


> Whilst we wait for Tech to show us a systematically system to trade TGA I thought I would run the numbers for a buy and hold approach.
> 
> The IPO price was 0.50 but I will use the very first trade price as the entry. It opened on 13/12/06 at 71 cents.
> 
> ...





*Still waiting.*


----------



## Klogg (25 May 2012)

tech/a said:


> So let's say you had a stop at a 10% drop from $ 2
> What would your average price be now and how many more shares could you buy if it did go to $1
> You can't tell me your maths wouldn't be much better!




I'm not denying that, but you're assuming at the time of the fall it will go all the way back to $1. What if it breaks my stop, then comes back up?

I guess my point is a stop-loss doesn't always work well with a value investing approach.


----------



## Nutmeg (25 May 2012)

tech/a said:


> * What I am doing * is pointing out the folly of those who pig headedly remain with their valuation while their investment decimates their capital base... Value investors appear to believe they are immune to risk and loss----purely because they have a valuation that they believe will hold them in profit on the long run.
> 
> I've NEVER seen on any threads here a down grade by a holding investor of their valuation----and hence a closing of a position!
> 
> Truth is I suspect--- * The capital LOSS becomes that painful that they believe they have no option other than holding.*




I don't think anyone is unaware of the reluctance to sell out of a position after the price declines below one's entry point.  A mix of hope, stubbornness and vanity all enter into persuading one to hang on or, worse, even to average down.  However, once you do it and realise that you were wrong because the company tanks, you learn an invaluable lesson: permanent loss of capital.  You then go over the entrails of the tanked company, read its previous annaul reports and ASIC disclosures, look for the looming signs of disaster that you should have picked up but missed.  Nevertheless, when you identify them after the event, you know what to look for next time and to avoid it.  This happened to me with HST. 

However, the suggestion that one should sell out of a position every time that the price declines below one's entry point and merely because the price declines below one's entry point is silly.  It is evidence that one doesn't know what one is doing.  

Last year I bought SMX at $4.75.  I invested a third of my portfolio in that one company confident that it was cheap and was fundamentally strong.  I valued SMX at between $5.80 and $5.90.  It had declined less than 6 months before from $6.39.  It had and still has no debt, an average ROE of 30%, good margins and more than 7 years of continual growth.  At $4.75 I considered that SMX was cheap and that it provided me with, what I considered to be, a wide margin of safety.  Yet no sooner had I bought it than SMX continued to decline to $4.70, then to $4.65, $4.50, $4.40, then to $4.35.  It bottomed at $4.32.  I was down more than 10% in less than two weeks and with a paper loss of nearly $4,000.  Even at $4.32 I had no way of knowing whether the share price would fall further.  Yet it was clear to me that there was no reason for the sell off, so I held on.  

After bottoming at $4.32 SMX started climbing throughout December 2011.  It continued to do so until April 2012.  I sold out in April at $5.94 for more than a 20% return.      

The moral of the story is that if you have valued a fundamentally strong stock conservatively and bought with a wide margin of safety, you have set yourself up not against further price volatility but against permanent capital loss and with as good an opportunity as I know of achieving an above average return.  Whether that return will happen in 6 weeks, 6 months or a year is impossible to tell.  But the probability of it occurring is more than 50% - barring unforeseeable disasters. 

The point is that you need to learn the _art_ of valuing _conservatively_ a company.  And valuation is an art.  It is not an exact science.  And because it is an art, you need to allow a wide margin between a company's minimum worth and your entry point.  I suspect that traders like you, tech/a, ultimately do not believe that any company has any fundamental value onto which you can grasp when the sharemarket is in tempest other than the share price.  Consequently, when the sharemarket is choppier than Bass Strait, you freak out and sell because share prices are all that exist for you.  When the share price gives, there is no other floor supporting your position. 

Personally, I am not aware of any long term successful investor who has achieved above average returns that invests this way.  

But, tech/a - carry on.


----------



## oldblue (25 May 2012)

This thread is becoming rather repetitive and boring. I'm sure there is merit in both approaches but let's get back to discussing TGA.


----------



## Nutmeg (25 May 2012)

Klogg said:


> I personally believe that a buy on this at or above $2 was without any margin of safety, so it's not really a great buy from a value investment point of view.




I agree.  For the avoidance of doubt, I don't consider TGA the best small cap stock in the ASX.  There are much more superior stocks to it.  MMS, SMX, IRE, BKL, SEK, IVC and DMP are all far superior to TGA on a fundamental basis,  Yet none of them are cheap.  TGA is cheap and it is fundamentally strong.  Therefore, it falls onto my radar.


----------



## Nutmeg (25 May 2012)

oldblue said:


> This thread is becoming rather repetitive and boring. I'm sure there is merit in both approaches but let's get back to discussing TGA.




If it is boring, then leave.  As I read the threads, they are all making relevant contributions to TGA, to the valuation of TGA, to valuation in general and to the merit of holding, continuing to hold and/or of exiting from TGA.  Just because the posts are not dealing directly with TGA's financials and business doesn't mean that they are not instructive.


----------



## Nutmeg (25 May 2012)

craft said:


> Price volatility is as much opportunity as risk.




I don't consider mere price volatility is any risk at all if by price volatility you mean high beta.  Risk is the probability that an investment will result in permanent capital loss.


----------



## kermit345 (25 May 2012)

tech/a you've consistently referred to people purchasing at $2+ and sitting on losses instead of using risk mitigation but i'm not aware of anyone in here purchasing that high and holding unless i've missed something. The only person i've seen discussing the stock thats been on it since the $2.20 days is PiouPiou and hes already stated his reasoning for holding (was already at a reasonable gain, has a large holding delivering consistently high dividends on his cost base for a retirement income stream which he's happy with).

I totally agree with you that risk mitigation is essential and in my short time investing in shares have already made a number of mistakes in holding for too long and ending up with a reasonable loss. However most here are mitigating their risk with cost bases around $1.50-$1.60 which we see as a significant enough margin of safety to a generalised price target of anywhere between $1.80 to $2.60 (personally i think closer to $2.00 is about right).

Your correct, we could have a stop loss of say 10% on our purchase price of $1.50 (my avg cost base) which would mean im stopped out at $1.35. But in that case you need to wait to recognise another bottom which you can't see until you have the hindsight of a broken down trend which invariably may mean you end up buying back in at $1.30 anyway.

Anyway I think risk mitigation is essential and can see where your coming from, however I think your still hung up on margin of safety and valuations and that they are in your view, useless. It would be interesting to know the avg purchase price of everyone around here to see who actually did buy in at the $2 mark.

My avg purchase price - $1.508


----------



## tech/a (25 May 2012)

craft said:


> *Still waiting.*




Craft.

I dont have the time to run this but a simple M/A on TGA would kill everything put of here.
Someone may do the maths--





Will answer others when I have more time.


----------



## VSntchr (25 May 2012)

kermit345 said:


> It would be interesting to know the avg purchase price of everyone around here to see who actually did buy in at the $2 mark.
> 
> My avg purchase price - $1.508




Ive bought TGA in 2 lots, $1.66 and $1.35. AVG = $1.54.

Happy with current yield, although would put funds elsewhere if price approached $2+... I have a couple of stocks that I would like to add to!...no rush though.


----------



## odds-on (25 May 2012)

kermit345 said:


> .My avg purchase price - $1.508




Avg price $1.42.


----------



## ENP (25 May 2012)

1.60, 1.52 and 1.47. 

I love TGA. 

30% odd profit rise and it's still cheap as chips.


----------



## craft (25 May 2012)

tech/a said:


> Craft.
> 
> I dont have the time to run this but a simple M/A on TGA would kill everything put of here.
> Someone may do the maths--
> ...




Could someone with back testing software run this system and give us the entry and exit dates.

This discussion needs some numbers around it rather than just an assertion that the system would kill buy and hold.


----------



## Julia (25 May 2012)

ENP said:


> 1.60, 1.52 and 1.47.
> 
> I love TGA.
> 
> 30% odd profit rise and it's still cheap as chips.



How is the above profit rise actually benefiting you at present?


----------



## Ves (25 May 2012)

12% increase in the dividend is always nice.


----------



## Julia (25 May 2012)

Ves said:


> 12% increase in the dividend is always nice.



 Yes, I suppose it helps to slightly ameliorate the diminished capital.


----------



## Ves (25 May 2012)

Julia said:


> Yes, I suppose it helps to slightly ameliorate the diminished capital.



 I'm down 3%.  I'll hardly lose any sleep over it.  But thanks for your concern all the same.


----------



## Nutmeg (25 May 2012)

Julia said:


> Yes, I suppose it helps to slightly ameliorate the diminished capital.




Come on, Juliar, put away the ouija board and stop trying to channel the snake-oil spirit of tech/a!


----------



## Tightwad (25 May 2012)

The valuation of course is all subject to it being able to sustain growth.. 30% proft is great, but it wasn't too long ago that JBH had a similar result.


----------



## oldblue (26 May 2012)

Tightwad said:


> The valuation of course is all subject to it being able to sustain growth.. 30% proft is great, but it wasn't too long ago that JBH had a similar result.




Now that's one of the most sensible comments I've seen on this thread recently!

Extrapolating recent recents into the future doesn't work as a "valuation" method, IMO, if one doesn't also take into account the state of the real world.


----------



## Ves (26 May 2012)

Tightwad said:


> The valuation of course is all subject to it being able to sustain growth.. 30% proft is great, but it wasn't too long ago that JBH had a similar result.



 What valuation might that be?


----------



## Klogg (26 May 2012)

oldblue said:


> Now that's one of the most sensible comments I've seen on this thread recently!
> 
> Extrapolating recent recents into the future doesn't work as a "valuation" method, IMO, if one doesn't also take into account the state of the real world.




Yes, but JBH and TGA are two completely different companies... Comparing the two means you might want to re-read about TGA's business model...

And by that logic, I shouldn't touch any retailers... But plenty are still making profits!


----------



## Ves (26 May 2012)

By the way,   30%  growth in NPAT  (it's actually closer to 26%)  isn't quite right.

If you take out the fact that the NCML acquisition was barely represented in the 2011 NPAT then organic growth is much lower.

From page 49 of the annual report:

Total  EBIT for rental was   $45,071    _($40,273 in 2011)_

Using these figures organic growth for the main rental business was roughly 11-12% if you ignore interest and taxes.

Despite not being a traditional retailer this is still a cyclical business.   Operating margins over the next few years, and top-line growth, will slow due to industry head-winds. Any in-depth valuation should take this into account.  It will be interesting to see how the company handles it, but I believe their financial position is healthy, and the addition of NCML gives them the missing link in their debt management philosophy. This holds them in good stead to weather the storm.


----------



## Julia (26 May 2012)

Ves said:


> I'm down 3%.  I'll hardly lose any sleep over it.  But thanks for your concern all the same.



  You're welcome, Ves.  Good luck with it.  Truly.



Nutmeg said:


> Come on, Juliar, put away the ouija board and stop trying to channel the snake-oil spirit of tech/a!



If that's the most constructive comment you're able to make, might be best to say nothing.


----------



## Nutmeg (26 May 2012)

Julia said:


> You're welcome, Ves.  Good luck with it.  Truly.
> 
> 
> If that's the most constructive comment you're able to make, might be best to say nothing.




You ain't seen nothing yet, my little poppyseed!


----------



## tech/a (26 May 2012)

*Kermit345*
Lets see if I cant make this a little clearer.

Lets say you are averaging up in TGA.
Im using random entries and round numbers for ease.
Lets also say same size parcels again for ease.

10,000 @ .70 Average .70
10,000 @ 1.00 Average .85
10,000 @ 1.40 Average $1.03
10,000 @ 2.00 Average $1.27
10,000 @ 2.20 Average $ 1.46

Today's price $1.49

(A) holds until now and has a profit of $1500 Plus (Dont know the dividend but say 16c)
$8000.

(B) sells each holding as it crosses back below a buy price
now has a profit of $12,800 Plus $3200.

So your capital isn't at risk and your money is working for you far far harder.
You also have spare funds to either buy more or buy other things.

Just averaging a price and feeling warm and fuzzy because your not below your average price doesn't mean your utilizing your funds to their best potential.

If your managing your own super-fund then THAT means a whole heap!

Im no fundie but for guys who ponder over figures and value their holdings infinitum---why wouldn't you do it to YOUR OWN?---why would you not want (B) in YOUR books?




> Anyway I think risk mitigation is essential and can see where your coming from, however I think your still hung up on margin of safety and valuations and that they are in your view, useless.




Look
Value it as often as you like but if the market falls below your buy price your valuation means diddly.
Same if I view it technically.
If it breaks $1.51 CONVINCINGLY and Ive made comments on a chart Id buy it.

But if it trades back to below my stop or moves in my direction far enough (1R) for me to move my stop to B/E and it takes it out---Ill be selling pronto.
No exposure!!!


----------



## Ves (26 May 2012)

Is anyone willing to share how they are calculating the capex of this business in terms of calculating a free cash flow to firm (FCFF) figure?  Seems to be a few ways you could potentially do it.  You could count all new asset purchases as capex, or you could attempt to define what is the replacement of existing assets at the end of their useful life and what is expansion of the existing asset base  (new investment).   The first method gives me a negative FCFF for all years that it has been listed.


----------



## Ves (26 May 2012)

tech/a said:


> (B) sells each holding as it crosses back below a buy price
> now has a profit of $12,800 Plus $3200.




Tech/A - I have asked you this before and you never answered.  But do you live in a tax-free haven where there are no transactional costs or something?


----------



## odds-on (26 May 2012)

Ves said:


> Tech/A - I have asked you this before and you never answered.  But do you live in a tax-free haven where there are no transactional costs or something?




LOL. It would also be interesting to see the results with different amounts of capital employed.

a) $20k
b) $100k
c) $500k


----------



## tech/a (26 May 2012)

Ves said:


> Tech/A - I have asked you this before and you never answered.  But do you live in a tax-free haven where there are no transactional costs or something?




There are 8 transactions say $20ea
Each trade is a separate trade the profit is still running your only closing trades at their buy price.



odds-on said:


> LOL. It would also be interesting to see the results with different amounts of capital employed.
> 
> a) $20k
> b) $100k
> c) $500k




Off you go then same result different capital base.


----------



## Klogg (26 May 2012)

Ves said:


> By the way,   30%  growth in NPAT  (it's actually closer to 26%)  isn't quite right.
> 
> If you take out the fact that the NCML acquisition was barely represented in the 2011 NPAT then organic growth is much lower.
> 
> ...




Agreed - and this is something that I believe most would have taken into account (or at least I know I have)

That being said, there is the transition from operational to finance leases that the company is undergoing. Given a larger number of their products are now on finance leases (i.e. furniture, whitegoods), their profits from these products are spread over a number of years (as opposed to other leases) - and Hughes does a good job of explaining this during the recent presentation the management team gave.

Personally, I fail to see how the companies profits will shrink, and at this price, it's all that really matters. I don't know by how much they'll grow, but at a P/E of 7.5, the real question is how can you go wrong?
Had they been trading at P/E ratios similar to MND or CPB, the questions would be completely different.


----------



## Ves (26 May 2012)

tech/a said:


> There are 8 transactions say $20ea
> Each trade is a separate trade the profit is still running your only closing trades at their buy price.



OK - I follow now. The last 3 of the 5 trades were closed out at break-even less transactional costs.  Perhaps you may consider that a long-term value investor may not have bought at $2.00 and $2.20 in the first place because market price did not give an entry point in respect of calculated valuation.


----------



## Klogg (26 May 2012)

Ves said:


> OK - I follow now. The last 3 of the 5 trades were closed out at break-even less transactional costs.  Perhaps you may consider that a long-term value investor may not have bought at $2.00 and $2.20 in the first place because market price did not give an entry point in respect of calculated valuation.




This is my first thought as well. In order to have that margin of safety, I wouldn't pay (and haven't) anything above ~$1.65ish. 
Others would have their own limits, but the idea is the same.


----------



## Nutmeg (26 May 2012)

tech/a said:


> *Kermit345*
> Lets see if I cant make this a little clearer.
> 
> Lets say you are *averaging up* in TGA.




Who averages *up*?  Your assumptions set up straw men that don't exist.


----------



## Ves (26 May 2012)

Ves said:


> Is anyone willing to share how they are calculating the capex of this business in terms of calculating a free cash flow to firm (FCFF) figure?  Seems to be a few ways you could potentially do it.  You could count all new asset purchases as capex, or you could attempt to define what is the replacement of existing assets at the end of their useful life and what is expansion of the existing asset base  (new investment).   The first method gives me a negative FCFF for all years that it has been listed.



Perhaps it would be possible to determine how many new rental assets they need to purchase just to maintain current NPAT or revenue  (and call this capex) and the balance will be included as new investment?  Any thoughts?  I feel that interpretation of this facet of their business is essential in arriving at a valuation.


----------



## So_Cynical (26 May 2012)

Nutmeg said:


> Who averages *up*?  Your assumptions set up straw men that don't exist.




Hello...Trend followers average up, its called pyramiding.

http://www.investopedia.com/articles/trading/09/pyramid-trading.asp#axzz1vwTyIbQp


----------



## Julia (26 May 2012)

Nutmeg said:


> Who averages *up*?  Your assumptions set up straw men that don't exist.






So_Cynical said:


> Hello...Trend followers average up, its called pyramiding.


----------



## tech/a (26 May 2012)

Julia said:


>




Better to remain silent and thought a fool
Than to open ones mouth and remove all doubt.


----------



## burglar (26 May 2012)

tech/a said:


> Better to remain silent and thought a fool
> Than to open ones mouth and remove all doubt.




"No comment is a comment" Mossad


----------



## Klogg (26 May 2012)

Pyramiding is more for a trader, rather than a value investor.

If I buy TGA @ 1.50 and think its worth 2.00, if it gets to 1.90, I'm not going to buy more unless the companies fundamentals change and give me a valuation far above the previous $2.00 mark.

So Nutmeg's response to averaging up was probably correct for value investors.


----------



## tech/a (26 May 2012)

Klogg said:


> Pyramiding is more for a trader, rather than a value investor.
> 
> If I buy TGA @ 1.50 and think its worth 2.00, if it gets to 1.90, I'm not going to buy more unless the companies fundamentals change and give me a valuation far above the previous $2.00 mark.
> 
> So Nutmeg's response to averaging up was probably correct for value investors.




Yeh your right
Value investors 
Average down

Also with the trend
The down trend.


----------



## Nutmeg (26 May 2012)

Whether up or down, if you're following it because of some "perceived" trend, i.e. because everyone else is doing it, what is that if not the surrendering of your capacity for any independent decision making. Talk about the herd instinct!  

You lot are the kind who, when your mother asked whether you'd jump off the bridge because all your friends were, would answer yes - and blink!


----------



## ENP (26 May 2012)

Julia said:


> How is the above profit rise actually benefiting you at present?




It's a better company for the same (even less) price. I'm buying more.


----------



## craft (26 May 2012)

tech/a said:


> Craft.
> 
> I dont have the time to run this but a simple M/A on TGA would kill everything put of here.
> Someone may do the maths--
> ...





The maths

I can’t do an exponential MA on lows so will have to settle for the MA on closes.

I get 14 trades which is pretty good – not many whipsaws (see for example last 18 months CBA for whipsaws that can occur with a MA system) So the parameters suit well how TGA has trended strongly *so far*.

Tech’s 180 day EMA system:
Starting 100K
Interest while not in market @ 5%pa =	$18,817
Grossed up Dividends = $25039
Net Realised Gains = $122,447 (commissions 0.12%)
Tax on Capital gains @ 15% -$18,367; @ 30% $36,734


Buy and Hold:

Grossed Up dividends = $ 68,992
Unrealised Capital Gains. $ $109,607 

According to the maths Buy and Hold comes out in front. The facts don’t match your assertion.







> a simple M/A on TGA would kill everything put of here.









tech/a said:


> I'm sure every fundamental buy and hold value seeking trader could dramatically
> Increase their *profitability* by taking care of risk,rather than denying it.






Another assertion you always make is that we don't control our risk. Not true - we control it by the analysing the performance of the business. Now some might not act on their business based exits, but is that anymore reason to dismiss fundametal analysis then it is to dismiss TA because some don't abide by their risk management exits?

The next assertion you always seem to make is that Fundamental Investors buy the Highs - well that's just getting plain tiring. Was there the interest in TGA when it was at $2+ that there is now at sub$1.50? Buying low, below what I conservatively value the cash flows at, is all that I'm interested in - If the price goes above a level that won't make my required return I'm not interested.

And the assumptions you make when you lump TGA with companies like PEN or RED are not warrented either. The visabilty of TGA's cash flows compared to gold explorers is chalck and cheese.


----------



## craft (26 May 2012)

Tightwad said:


> The valuation of course is all subject to it being able to sustain growth.. 30% proft is great, but it wasn't too long ago that JBH had a similar result.




The 30% NPAT is just a meaningless headline number.

One important point should be considered when making the comparison you raise. A little while ago JBH was on something like a PE of 20 which means a lot of growth was priced in.

TGA is currently on a PE of less then 8 which means very little if any growth is priced in.

Despite the multiples assigned by the market, in my view TGA always had and still has better long term growth prospects than JBH.


----------



## McLovin (27 May 2012)

craft said:


> According to the maths Buy and Hold comes out in front. The facts don’t match your assertion.




You make it sound surprising. 

What a tiring thread, if only people would stick to what they know.


----------



## tech/a (27 May 2012)

Craft 
Your like a polititian
Designing arguments to suit your view.

If your never going to sell your holding you won't ever be taxed.
Add a tax component as your valuing the holdings TODAY.
You won't avoid tax.

Craft.
How on earth does any holder of any stock make a profit WITHOUT A TREND?---up.

Carry on


----------



## craft (27 May 2012)

McLovin said:


> You make it sound surprising.




I'm not surprised - just went to the effort because some people seem to believe his assertions over figures.




tech/a said:


> Craft
> Your like a polititian
> Designing arguments to suit your view.
> 
> ...




Add in a provision for deferred tax and Buy & Hold is* still in front*. That provision is a tax free loan from the government that is producing income for us – sweet.

ps

I'm not a politician, just a full time investor who prefers facts and figures over assumptions and assertions.

You can be sure I will carry on!


----------



## craft (27 May 2012)

Ves said:


> Perhaps it would be possible to determine how many new rental assets they need to purchase just to maintain current NPAT or revenue  (and call this capex) and the balance will be included as new investment?  Any thoughts?  I feel that interpretation of this facet of their business is essential in arriving at a valuation.




This is the right line of thought. Funding growth internally is one option of how to use free cash flow. The FCFF should be calculated on maintaining existing business levels.


----------



## Ves (27 May 2012)

tech/a said:


> Craft.
> How on earth does any holder of any stock make a profit WITHOUT A TREND?---up.



 For someone who professes to own a business (or was it multiple businesses) you simply have no imagination or real understanding. Do you have to sell your own business to make a profit?   You seem to confused  (perhaps _deluded_ is a better way of putting it) by the fact that the underlying business has a secondary market in which pieces of paper  (shares) can be traded for fractional ownership of said business.  You seem to be insinuating (constantly, tediously, stupidly) that you can only make a profit by trading these instruments like bits of paper estranged from their underlying reality.

TGA listed for $0.50 a share in 2006.  Since then it has paid almost half of this to investors in highly tax effective fully franked dividends.  This last twelve months alone you would have received 20% of your initial outlay back.  Come back and have a look in another 3-5 years.  I can almost gaurantee that you will be in front without even considering the share price.

Over the long term cash flow from dividends makes up a massive proportion of the overall return of a share market investment.  

*It is utter lunacy to suggest that the only way to make money in the share market is from capital gains receipts.* 

Quite honestly you are not helping anyone in this thread.  All you are doing is constantly derailing the discussion, and honestly when it buries any constructive discussion that I have been trying to have with other fellow investors I start getting pissed off.  Your behaviour, for someone who cried foul and metaphorically threw his toys out of the cot (even when he was given his own "special purpose locked thread" which only he could post in) when people disagreed with his views is quite honestly hypocrisy to the nth degree.  I do no think I am the only one who is truly sick of it.


----------



## Ves (27 May 2012)

craft said:


> This is the right line of thought. Funding growth internally is one option of how to use free cash flow. The FCFF should be calculated on maintaining existing business levels.



 Thanks craft - I am determed to find the answer to this and thought about this for most of yesterday.  Still haven't come up with anything I deem reasonable, but I hope the "ah-hah" moment is just around the corner.


----------



## tech/a (27 May 2012)

> Add in a provision for deferred tax and Buy & Hold is still in front.




For a number cruncher you dont crunch that many numbers.

I'm in TGA around 50% less time than you are for similar return.
So for time in the market it kills buy and hold.
You have no regard for opportunity cost.
Your not considering VaR and in return or Risk adjusted return on capital.

As I said selective argument.



> For someone who professes to own a business (or was it multiple businesses) you simply have no imagination or real understanding. Do you have to sell your own business to make a profit? You seem to confused (perhaps deluded is a better way of putting it) by the fact that the underlying business has a secondary market in which pieces of paper (shares) can be traded for fractional ownership of said business. You seem to be insinuating (constantly, tediously, stupidly) that you can only make a profit by trading these instruments like bits of paper estranged from their underlying reality.




Sure you can trade them profitably PROVIDED the participants investing in the share---in this case TGA--agree with it being undervalued and chase the bargain.

Im not seeing that even with a 30% increase in profit.
Im seeing Funds and directors bail out--strange that.
Who's delusional in their valuation.
The fund?
The directors?



> It is utter lunacy to suggest that the only way to make money in the share market is from capital gains receipts.




I see
How would you say money is lost then in the markets?
Surely not capital losses???



> Quite honestly you are not helping anyone in this thread. All you are doing is constantly derailing the discussion, and honestly when it buries any constructive discussion that I have been trying to have with other fellow investors I start getting pissed off. Your behaviour, for someone who cried foul and metaphorically threw his toys out of the cot (even when he was given his own "special purpose locked thread" which only he could post in) when people disagreed with his views is quite honestly hypocrisy to the nth degree. I do no think I am the only one who is truly sick of it.




Have you talked with everyone in this thread?
Is it YOUR thread?
I'm not burying anything.
In fact I'm offering food for thought which I'm sure has hit an accord with those who may have never considered it.
What your sick of is my replies to your and others posts.
If Id only go away you'd be free to preach your doctrine.

Sorry TGA can be traded with less risk and more profit.
You wont have to sit in it infinitum and you wont have to put capital at unlimited risk.

Carry on.


----------



## McLovin (27 May 2012)

Ves said:


> Thanks craft - I am determed to find the answer to this and thought about this for most of yesterday.  Still haven't come up with anything I deem reasonable, but I hope the "ah-hah" moment is just around the corner.




Have you seen Greenwald's method for estimating CAPEX? It's what I usually use. It's pretty well detailed in his book _Value Investing_

http://www.oldschoolvalue.com/blog/valuation-methods/calculating-maintenance-capital-expenditure/


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## Ves (27 May 2012)

McLovin said:


> Have you seen Greenwald's method for estimating CAPEX? It's what I usually use. It's pretty well detailed in his book _Value Investing_
> 
> http://www.oldschoolvalue.com/blog/valuation-methods/calculating-maintenance-capital-expenditure/



 Ah, thanks.  I have that book, I really need to re-read those sections now that I have more experience under my belt.  Perhaps the light bulb moment is in there somewhere.


----------



## Ves (27 May 2012)

tech/a said:


> For a number cruncher you dont crunch that many numbers.
> 
> I'm in TGA around 50% less time than you are for similar return.
> So for time in the market it kills buy and hold.
> ...



Opportunity cost in craft's post is represented by interest calcs.  Unless you are going to discount it at another rate, but since we do not know the CAGR of this system it would be pretty hard to with the limited information that you have provided thus far, no?

There is also the possibility, like all trend following systems, that you could have been whip-sawed out of more positions, and the winners were cut-short too often (or even losers were incurred). The return on TGA could be much higher in a lot of cases.  Opportunity cost is a double-edged sword.  You seem to be failing to acknowledge that.



> Sure you can trade them profitably PROVIDED the participants investing in the share---in this case TGA--agree with it being undervalued and chase the bargain.
> 
> Im not seeing that even with a 30% increase in profit.
> Im seeing Funds and directors bail out--strange that.
> ...



Most market participants take a short to medium term view (ie. no more than two years).  TGA is approaching / has entered the less profitable part of the cycle in my view (I also do not think that this is structural like other retailers).  Therefore, the share price may well be depressed for some time to come.  The current price action certainly does not surprise me in the least. 



> I see
> How would you say money is lost then in the markets?
> Surely not capital losses???



Is this not the same as any other system?



> In fact I'm offering food for thought which I'm sure has hit an accord with those who may have never considered it.



Would you not get a larger audience in a thread solely directed at discussing the merits of your chosen discipline rather than doctrinising (your words, not mine) in a specific company thread?



> Sorry TGA can be traded with less risk and more profit.



I think this is hindsight speaking, quite honestly. Go try this strategy on some other charts.  It only works in limited cases.  I am fairly sure it is similar to the much loved Weinstein model which when backtested often comes out negative, and well behind the market in most years over the last two decades. Trend following systems have weaknesses.  In choppy, volatile markets the whipsaw nature of the price action causes a lot of entries,  exits, re-entries and so on.  Small losses and transactional costs can quickly add up.  I have often found through looking at some of these systems that people post that technical indicators that people implement get over-ridden by the market, causing the trade to be stopped out only for the price to take off and the largest, most profitable part of the move is missed. Not to mention that moving-average lines are _lagging indicators_.  They don't give you an edge. You're also paying the government far more regularly if on chance you are actually profitable.

Technical systems are often profitable in certain scenarios and hopelessly unprofitable in many others.  Indicators often provide more in the way of _confirmation bias_ than they do actual results.  Why do your posts in this thread completely ignore _systematic risk_?

The _psychological risks_ are also no less than a long-term value investing approach.  Whilst a 25% drawdown on a single stock can be quarantined, try facing it on your whole "portfolio" or "system." Most people give up if their trading system has an extended run of losers, no matter how many are only due to whipsaw price action.



> You wont have to sit in it infinitum and you wont have to put capital at unlimited risk.



This statement is false.  Risk is not unlimited.  Unlimited risk would come from leverage or short-positions.

In short, anyone can put entries and exits on a chart to find the most profitable way to trade it.  In theory it is easy, in practice it is rarely the same.


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## McLovin (27 May 2012)

tech/a said:


> Im not seeing that even with a 30% increase in profit.
> Im seeing Funds and directors bail out--strange that.
> Who's delusional in their valuation.
> The fund?
> The directors?




Directors have been buying not selling. One fund is selling out, one fund has been buying.

Of course let's not let the truth get in the way of a good story.


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## Ves (27 May 2012)

McLovin said:


> Have you seen Greenwald's method for estimating CAPEX? It's what I usually use. It's pretty well detailed in his book _Value Investing_
> 
> http://www.oldschoolvalue.com/blog/valuation-methods/calculating-maintenance-capital-expenditure/



I'm getting an average of about 29-30% for the last six years if you average the PPE & Rental Assets using opening and closing balances (at listed cost on the balance sheet). 

ie for 2012  (48,748  +  41,178)/2   divided by  157,817   =   28.49%

Which means for  $158 million  of rental sales for 2012 they need to spend $46 mil in  maintainenance capex to maintain this level of sales.

Any one willing to share their view on this?

Operating Cash flow was $59 mil.   
Maintenance capex as above  $46 mil
Less working capital rqd   $5 mil    (average of last 5 years)

Gives me free cash flow to firm of $8 mil.

It doesn't look correct to me. Feel like I am missing something, any thoughts or corrections would be greatly appreciated.

edit:  If I use total revenue $188 mil & add in the debt ledgers of  $6 mil to the figures above  I get  PPE / sales of 25% for 2012.    But, this brings the maintenance capex up to $54 mil.   I'm awfully confused


----------



## McLovin (27 May 2012)

I think the issue you may be running into is that "Acquisition of rental assets" is a line item for operating leases but the acquisition of goods sold under finance leases is included in OCF. That would make sense since the accounting for a finance lease is to recognise the fair value of the good sold as revenue and create a receiveable with a contra asset account for the PV of the unearned interest revenue. So in a sense, there is CAPEX being included in OCF.

That really opens a whole new can of worms.


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## craft (27 May 2012)

Ves said:


> I'm getting an average of about 29-30% for the last six years if you average the PPE & Rental Assets using opening and closing balances (at listed cost on the balance sheet).
> 
> ie for 2012  (48,748  +  41,178)/2   divided by  157,817   =   28.49%
> 
> ...




Only inventory for operational leases goes through PPE cash flows. Changes in Financial leases, Cash First and Equipment Finance won’t show up. The latter two are being ramped up so it is significant. Greenwald’s method will miss this ramp-up.

I’ll leave you to dig for a while yet.


----------



## Pioupiou (28 May 2012)

Ves said:


> . . . Which means for  $158 million  of rental sales for 2012 they need to spend $46 mil in  maintainenance capex to maintain this level of sales. . . .




In relation to the specific issue of the CAPEX required for rental revenue (not sales), the annual report has the following for YE 30/3/12 and YE 30/3/11. 

Operating leases - - - - - - - - - 93,562K - - - 83,098K
Acquisition of rental assets - - (54,834K) - - (52,646K)

The main rental (mainly rent-to-buy) business is sound, and from a gross margin perspective, it is improving due to better procurement.  It is also improving for a negative reason - new customer numbers (and hence business) slowed relative to the past few years.

The Finance Lease business follows different accounting rules (for one, interest is split into a separate income stream).  Its gross figures are given as:

Finance lease sales - - - - - - - - - 33,826K - - - 37,440K
Finance lease cost of sales - - - - (22,255K) - - (26,641K)

Rental income plus sales income for 2012 was thus $93,562K + $33,826K = $127,838K, and during the year $54,834K + $22,255K = $77,089K was spent buying items to support these two lines of business.

There are other revenue streams - Interest $39,635K, Collection revenue $16,013K, PDL revenue $5,115K and Other income $200K.

TGA is shifting towards more operating leases, so the current ratios between the two will not hold for the future, and the "interest" component of finance leases will decline. Philosophically, one could split rental income into two streams, ascribing interest to one of them and product profit to the other.

I did not attempt to nut out what it was that interested you - I merely attempted to clarify one sentence.

Except for the NCML adventure, TGA keeps just under half its after-tax income to fund expansion, and this has allowed TGA to expand and retain a solid balance sheet, hence I have not concerned myself much with free cash analysis.  Putting rental assets into CAPEX may be misleading, because it is conceptually fairly close to "inventory", which typically is not regarded as CAPEX.  Also, the rental assets are recorded at cost less depreciation - a much lower cost than the NPV of their associated rental contracts, which is an additional layer of financial conservatism.


----------



## Ves (28 May 2012)

Thanks guys, much to my dismay I woke up at 3am and realised I had forgotten about the two different types of leases and their accounting treatment. Looks like I still have a bit of problem solving after work tonight!


----------



## VSntchr (28 May 2012)

Closed at $1.50 today.
Another up day tomorrow and we could have a whole lot of tech analysts on board :


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## Ves (28 May 2012)

craft said:


> Only inventory for operational leases goes through PPE cash flows. Changes in Financial leases, Cash First and Equipment Finance won’t show up. The la tter two are being ramped up so it is significant. Greenwald’s method will miss this ramp-up.
> 
> I’ll leave you to dig for a while yet.




Am I missing something obvious? Been thinking about this all day much to the detriment of my work productivity! Still no closer to an answer. The unknown useful life of the assets and its constantly moving nature is as mclovin said a can of worms indeed. Using depreciation  as an est of mcx doesnt look accurate either.


----------



## Ves (28 May 2012)

McLovin said:


> I think the issue you may be running into is that "Acquisition of rental assets" is a line item for operating leases but the acquisition of goods sold under finance leases is included in OCF. That would make sense since the accounting for a finance lease is to recognise the fair value of the good sold as revenue and create a receiveable with a contra asset account for the PV of the unearned interest revenue. So in a sense, there is CAPEX being included in OCF.
> 
> That really opens a whole new can of worms.



Do you think this is what they mean by "disposal of rental assets" in note 27 on page 67?   Before working capital adjustments the operating cash flow is $78 mil according to that page.


----------



## McLovin (29 May 2012)

Ves said:


> Do you think this is what they mean by "disposal of rental assets" in note 27 on page 67?   Before working capital adjustments the operating cash flow is $78 mil according to that page.




Nah that's just them selling old TV's once they can be no longer rented out.

You may find it impossible to ever get an accurate fix on capex. A lot of financial type companies fall into that category (banks and insurance especially).

Maybe craft has some suggestions?


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## craft (29 May 2012)

Ves said:


> Am I missing something obvious? Been thinking about this all day much to the detriment of my work productivity! Still no closer to an answer. The unknown useful life of the assets and its constantly moving nature is as mclovin said a can of worms indeed. Using depreciation  as an est of mcx doesnt look accurate either.




Hi V
You are the professionally trained accountant and I am the self taught backyard hack investor – It may be wise to ignore all the following on that basis.

Cash First and TEF growth are being financed out of operational cash flow, PDLs present more complexities. 

The disposal of rental assets you mention in note 27 picks up the non cash nature of expensing PPE to finance lease cost of sales. The accounting treatment of financial leases means you have pre-recognition (as compared to operational leases) of 60 Million in revenue. You have also created 43Million  in collateral which is basically off balance sheet PPE which has been pre-expensed earlier in line with the revenue recognition.  (see the impacts in Note 11 on deferred tax)

All in all I think it is too difficult to use cash flow at the accounts level and separate it into maintenance and growth components. But in TGA’s case that doesn’t really matter because:

The PPE is short lived – the difference between economic replacement and depreciation is immaterial. Apart from timing differences which don’t concern us the only thing that will cause a difference between accounting profit and cash for PPE is if they get the impairment charges wrong. 

Credit control and impairment is critical for TGA and it is better tracked through ratio’s like EBIT/funds employed then trying to see it through discrepancies in the cash flows. 

The ratio’s in my assessment are tracking fine and the transaction with owners at an equity level indicate that dividends and growth to date have been funded by the cash from the business. Owners only had to stump up more capital for the NCML acquisition and debt has not increased significantly. 

The other differences between cash and accounting profit is the amortisation of customer contracts which is favourable for cash and straight forward; and the change in fair value of PDL’s which is negative to cash and potentially the most rubbery number in my view.

Personally I’m not fussed about cash flow with TGA, the Balance Sheet is strong as. But I am very focused on provision and impairment levels and their asset efficiency ratios for early detection of possible problems.


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## craft (29 May 2012)

McLovin said:


> Nah that's just them selling old TV's once they can be no longer rented out.




????

Only a small part of it (ie the difference between cash received and the WDV) most of it is to do with transferring PPE to cost of financial lease sales. which is basically an early depreciation of the PPE to the eventual sale price of $1 under the financial lease. 

Unless of course I’m wrong.  – am I wrong?


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## McLovin (29 May 2012)

craft said:


> ????
> 
> Only a small part of it (ie the difference between cash received and the WDV) most of it is to do with transferring PPE to cost of financial lease sales. which is basically an early depreciation of the PPE to the eventual sale price of $1 under the financial lease.
> 
> Unless of course I’m wrong.  – an I wrong?




No you're right, I thought it referred to something on the cash flow statement. I'm feeling a little like death warmed up today, flu + food poisoning. Back to bed I go.


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## kermit345 (29 May 2012)

I'm pretty poor at the whole TA thing but with today's price touching $1.525 am I correct that the downtrend is possibly broken if we can finish at $1.52 or higher on some decent volume (i.e. 1 million shares?)


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## craft (29 May 2012)

kermit345 said:


> I'm pretty poor at the whole TA thing but with today's price touching $1.525 am I correct that the downtrend is possibly broken if we can finish at $1.52 or higher on some decent volume (i.e. 1 million shares?)




You reckon your bad - I thought we were just having a retracement in a long term uptrend. How dumb is that?

I guess time frame is everything.  But if a trend is a higher low and a higher high, that occurred on a daily bar basis last Tuesday.

No doubt the goose will be along shortly to highlight to us the ‘right way’ (his way) to see things.


----------



## tech/a (29 May 2012)

craft said:


> You reckon your bad - I thought we were just having a retracement in a long term uptrend. How dumb is that?
> 
> I guess time frame is everything.  But if a trend is a higher low and a higher high, that occurred on a daily bar basis last Tuesday.
> 
> No doubt the goose will be along shortly to highlight to us the ‘right way’ (his way) to see things.




Duck thats *D-U-C-K*

Looking for a strong break above $1.50.
So will see what the day brings.
Will do some analysis later.


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## craft (29 May 2012)

tech/a said:


> Duck thats *D-U-C-K*





Sorry  Tech

I get my poultry confused.


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## McCoy Pauley (29 May 2012)

Interestingly, I've been going through some old reports for RRA (the predecessor to TGA).  The acquisition of rental assets in the 2006/07 financial report was reported under the cash flows from operational activities in the statement of cash flows.  Since that financial report, it's been shifted to cash flows from investing activities in the statement of cash flows.

I'm not clear as to why the move was made, but given the discussion on this issue over the past couple of pages, I thought it was interesting.


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## kermit345 (29 May 2012)

TGA got a mention in last nights Eureka Report as a Buy so not sure if thats possibly what is sparking some of this additional buying today. Either way the price now up to $1.55 on decent-ish volume so if it can be sustained in my view its looking the goods.

And Craft you've managed to lighten my mood at work today so well done, having a little chuckle to myself. Would be interested in your perspective Tech/a, seems pretty clear cut to me but I could be wrong.


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## tech/a (29 May 2012)

Got filled at $1.54.(11.18 am)
There is little supply so price is rising freely.
The gap away was the strong clearance I wanted to see.
Im looking at $1.70ish before resistance.
A couple of technical pointers on the way.


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## Julia (29 May 2012)

kermit345 said:


> TGA got a mention in last nights Eureka Report as a Buy so not sure if thats possibly what is sparking some of this additional buying today.



It was also nominated as a Buy in "The Australian" a few days ago.
If we're heading into a depression, it certainly seems like a winner.


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## Klogg (29 May 2012)

Julia said:


> It was also nominated as a Buy in "The Australian" a few days ago.
> If we're heading into a depression, it certainly seems like a winner.




To add to both The Australian and The Eureka report, it got another mention on Switzer recently (I don't remember the exact day, sorry) and Motley Fool share advisor.

For me, it's one of the most (if not THE most) obvious from an FA perspective.


----------



## kermit345 (29 May 2012)

Klogg, need to review my filters for value stocks but given recent report etc it certainly does seem like one of the better FA stocks around. The following chart is what i've been looking at today and as you can see by the green circle today it basically gapped up above the $1.50 resistance and the downtrend channel. Seems like a good sign to me and by the sounds of it every newsletter out there is pumping it now too. Happy to hold.


----------



## Ves (29 May 2012)

craft said:


> You reckon your bad - I thought we were just having a retracement in a long term uptrend. How dumb is that?
> 
> I guess time frame is everything.  But if a trend is a higher low and a higher high, that occurred on a daily bar basis last Tuesday.
> 
> No doubt the goose will be along shortly to highlight to us the ‘right way’ (his way) to see things.



 I made a post about this a while back.  No one bothered to confirm or deny the analysis, but it bounced off the 50% retracement with ease, and on high volume.  Typical V-shaped retracement if you believe all that jargon.


----------



## Ves (29 May 2012)

craft said:


> Hi V
> You are the professionally trained accountant and I am the self taught backyard hack investor – It may be wise to ignore all the following on that basis.
> 
> Cash First and TEF growth are being financed out of operational cash flow, PDLs present more complexities.
> ...



 Hi craft,

Thanks very much - great post.

I believe after all the time I have spent over the last few days in stewing over the financial statements of the past six years, reading articles and essays about maintenance capex  (good reading and learning exercise in itself) - I have come to the same conclusion that it is almost impossible to distinguish between maintenance capex and growth capex in this business in any meaningful way.

I can understand the cash flow in this business  (at least better than the taxation accounting which is outside of my specialisation) and this is the major reason why I became interested in this business.  It is obvious that they can fund growth capex from operating cash flow because the assets that they purchase and lease to people (if my rudimentary calculations are correct) are paid off and become "free carry" after year 1. You only need to go onto their website and compare the weekly rental payments to what JB Hifi are selling them at and make an allowance for a retailer's "profit margin" to see this.  However, the problem in my mind when valuing this business was - how much is free cash flow? Clearly this has turned out to be very problematic. As you said, as long as impairment and bad debts remain low, this business is fairly low-risk going forward.

May I ask what valuation model you are using if not a DCF?  (assuming that by not worrying about the cash flow you are not using a DCF)

edit:   I was going to re-read Greenwald's chapter on WD-40 and try something similar on TGA as it has consistent reliable earnings and ROIC / ROE.


----------



## craft (29 May 2012)

kermit345 said:


> Would be interested in your perspective.




A good company and anything below about $1.50 gives the purchase economics that I require.  There was plenty of scope to get set following the capitulation in the value zone, having the financial report lob at accumulation price levels was great for confirming the assumptions, seems it underpinned a change in price action, looks like it could be on a bit of a 'turkey' run now.


----------



## craft (29 May 2012)

Ves said:


> May I ask what valuation model you are using if not a DCF?  (assuming that by not worrying about the cash flow you are not using a DCF)





I'm using my top secret SWAG model.


----------



## Ves (29 May 2012)

craft said:


> I'm using my top secret SWAG model.



What does SWAG stand for?  I would say Secret Wives and Girlfriends model (pardon the pun) but we may be straying quickly off topic...


----------



## craft (29 May 2012)

Ves said:


> What does SWAG stand for?  I would say Secret Wives and Girlfriends model (pardon the pun) but we may be straying quickly off topic...




Scientific Wild **** Guessing.     [another name for all valuation models.]

Anybody checked out the course of sales today?


----------



## Ves (29 May 2012)

craft said:


> Scientific Wild **** Guessing.     [another name for all valuation models.]
> 
> Anybody checked out the course of sales today?



Tried a few different valuation methods now  (obviously not trying to be super-reliant on their accuracy)  - but getting similar valuations of around $1.80-1.90.   With a margin of safety of around 20-25%  buying at around today's price and under looks pretty good value to me.


----------



## Pioupiou (29 May 2012)

Ves said:


> Tried a few different valuation methods now  (obviously not trying to be super-reliant on their accuracy)  - but getting similar valuations of around $1.80-1.90.   With a margin of safety of around 20-25%  buying at around today's price and under looks pretty good value to me.




Below is a cut and paste of something I am writing for myself.

Valuation

It does not matter how one values a stock, the quality of that stock is part of the consideration.

Although I have not long thought about it, I think the two-dimension grading of stocks along the line that Roger Montgomery grades them makes sense – one dimension being risk (quality of the cashflow and the balance sheet, perhaps) and the other being performance.  The best companies would be A1 and the worst J10 if one had ten steps to each dimension.  The number of dimensions was simply plucked out of the air to convey the concept.  Roger's matrix ranges from A1 to C5, which is preferable.  One can then guess what grading one would give TGA, and from there obtain your rule-of-thumb multiples.

You can allow factors like Market Capitalisation, Years of ASX History, ASX liquidity to influence your multiples.  Thus although TGA scores better than WOW in a matrix that does not include these things, you may feel more comfortable giving WOW a higher PER, or a higher EBIT multiple.  After all, if an institution like PPT wants to sell $20M TGA stocks, it will trash TGA's SP during the sell-down, which could take many months, but realising $20M by selling WOW would be a minor SP blip accomplished within a day or two.

For reasons that are contestable, I'll give TGA a score of A2 in my 2-dimensional matrix, and I'll add a third dimension of size.  Because TGA is in the ASX 300, and its market capitalisation is about $220 million, I'll give it a size score of (iii).  Thus I end up with a classification of A2(iii).  An A2 is a high score, and were TGA a large liquid stock we could presume it would earn a PER of 16.  If for the hell of it we reduce this by 10% if it were a (ii) size stock, and another 10% if it were a (iii) sized stock, then you would get 16 x .9 x .9 = 13, and hence you could give TGA a target value of 19c x 13 = $2.47.

You could add a market sentiment factor if you wanted to, 15% up in a bull market and 15% down in a bear market, and hence current negativity would suggest a PER of 16 x .9 x .9 x .85 = 11, and one ends up with a target SP of 19c x 11 = $2.09.

There is nothing intrinsic about these classifications, factors and resultant numbers – I have just sucked them out of my thumb to indicate that qualitative factors should have a bearing when one derives a target share price (SP) on fundamentals.

EBIT Multiple

Morning Star has TGA's EBIT for YE 30/03/2012 at $38.6M, and the shares outstanding as 146.4M, so a multiple of 6 would give a target SP of $1.58.  A multiple of 8 gives $2.11.

Using Morning Star metrics SUL (Super Retail Group) has an EBIT of $87.55M, and 146.3M shares, so to get to its current share price of circa $7.20 implies an EBIT multiple of 12.  CAB (Cabcharge) has an EBIT multiplier of 8.5.  A multiple of 6 was mentioned in the prospectus for TGA's December 2006 float.  I am not familiar with what the typical EBIT multiple is, so I'll write no more on it – 8 seems reasonable. 

PER Multiple

The December 2006 float used a PER of 8 to arrive at the 6.25c x 8 = 50c float SP.  I have used this as the bottom-rung PER.  The historical performance metrics and the many qualitative factors suggest a higher PER is reasonable, reduced a bit to reflect TGA's capitalisation and share trading liquidity.  Relative to what worse performers of similar or lower capitalisation and liquidity command, the PER could easily be 13.  Look at the facts, examine alternative stocks, and take your pick of a PER that seems reasonable.  With a diluted EPS of 19c, you will get:

Target PER - Target SP - Target PER - Target SP - Target PER - Target SP
- - - 8 - - - - - $1.52 - - - - - 11 - - - - - $2.09 - - - - - 14 - - - - - $2.66
- - - 9 - - - - - $1.71 - - - - - 12 - - - - - $2.28 - - - - - 15 - - - - - $2.85
- - 10 - - - - -  $1.90 - - - - - 13 - - - - - $2.47 - - - - - 16 - - - - - $3.04

Another way of looking at the same thing is via risk adjusted required rates of return (RRR) adjusted for growth.  They are merely 1/PER, and hence a RRR of 12.5% would render a PER of 8.

ROE based multiple of Equity per Share

If you accepted that the ROE was about 23.5%, and if your RRR were 12.5%, then 23.5/12.5 gives you a multiple of 1.88, which you can uplift a bit on the basis that half the earnings are being well invested within TGA – so let's say a multiple of 2.  The equity per share is about $140.211M/  144.7223M = roughly $1.00.  Consequently we get about $2.00.

Conclusion

Work out TGA's fair-value SP, or target SP, or whatever you call it, in your own way, and it would probably work out between $1.50 and $2.00 for many investors.  Numbers between $2.00 and $2.50 are not silly in my view, it is just a question of when.  Also, the price at which investors buy is not the same as the one at which they will sell.

A fair-value of $2.00 does not suggest one should buy TGA at $2.00 and below.  If, in addition, you want a 25% margin of safety, you might set your limit at $2.00 x .75 = $1.50.

It is easy to justify a low SP.  If you insisted on a RRR of 15%, then you would get a PER of 1/15%, and if you wanted a 25% margin of safety, you would get 19c x 1/.15 * .75 = 95c.

Now you know why I dislike the words Intrinsic Value, and I am not too enthusiastic about the "Fundamental" in FA.  There is nothing intrinsic or fundamental about these postulated share prices – they are highly subjective.

If you can invest in something as good as TGA, or better, at say $1 a share, then you should not value TGA higher than $1. 

I found in life that the midpoint often gives a reasonable approximation.  Hence if one has two extremes of 95c and $3.04 - the average of $2.00 may be reasonable as a target value.  My own target value is about $2.30, but then I am biased.  When the SP gets to $2.00, I'll start focusing on an exit price, and make up my mind then.  That ($2.30) is where I wanted to sell some TGA in early 2011, but failed to get that price.


----------



## Tightwad (29 May 2012)

I was stuck trying to think of what SWAG was.. I was thinking along the lines of SWOT.. Strenghts Weaknesses Opportunities and Threats


----------



## craft (29 May 2012)

tech/a said:


> Got filled at $1.54.(11.18 am)




ASX must have had a glitch in their system today - they recorded all trades between 11:13 and 11:36 at $1.55.


----------



## tech/a (30 May 2012)

craft said:


> ASX must have had a glitch in their system today - they recorded all trades between 11:13 and 11:36 at $1.55.




Yeh it was on my part a typo.
I was one of the 5 parcels totalling $38500 that went through in that group
at 11.13.
Was $1.54





Your out for duck aren't you.


----------



## craft (30 May 2012)

tech/a said:


> Yeh it was on my part a typo.
> I was one of the 5 parcels.




Which one?


----------



## tech/a (30 May 2012)

craft said:


> Which one?




Anyone you like.
Your only interested in doing duck.
Trades done I'll manage it here with technical reasoning.

Showed the reasoning BEFORE the trade
Showed the time of trade.
Quantity has no bearing on the trade.
Without glasses 3s look like 8s and 2s look
like 5s.

Start putting in constructive posts on the subject 
and get out of your Kahki's.


----------



## craft (30 May 2012)

tech/a said:


> Anyone you like.
> Your only interested in doing duck.
> Trades done I'll manage it here with technical reasoning.
> 
> ...




Those 5 trades you referred to occurred between 11:05 and 11:13. The only trade at 11:13 was for 271 shares.

Can't you find a detailed depth to get your story straight?


Now I’m a trusting sort of  guy and would be happy to accept that you are a fat beaked blind duck. But others may think you’ve got a bit of a credibility problem here.


----------



## tech/a (30 May 2012)

craft said:


> Those 5 trades you referred to occurred between 11:05 and 11:13. The only trade at 11:13 was for 271 shares.
> 
> Can't you find a detailed depth to get your story straight?
> 
> ...




Ive said it before.
I'm not here to make friends.
Im here to show the blind ducks of the forum that they dont need to pour through wads of fundamentals and pontificate on their meaning,and or endlessly debate on valuations
They can with experience trade profitably in 10 minutes a day using nothing more than price action/volumes and patterns. Crowd phsycology is there for all to take advantage of.

Now I know it urks a few in the fundamental world that entrails can turn a profit.
Particularly when shown time and time again.

Trades there to see.
Thats enough.
Carry on.


----------



## craft (30 May 2012)

tech/a said:


> Trades there to see.
> Thats enough.
> Carry on.






> *Got filled *at $1.54.(11.18 am)



 or 11:13 or whatever you now reckon.  The point is the trade is not in the course of sales as you say - So do you mean *hypothetacilly* you got filled?



> Quantity has no bearing on the trade



 They are just being nice to you when they say size doesn't matter. It matters a great deal.


----------



## tech/a (30 May 2012)

> do you mean hypothetacilly you got filled?





Would you prefer that?
If so go with it.


----------



## oldblue (30 May 2012)

Now, now, children...............


----------



## craft (30 May 2012)

tech/a said:


> Would you prefer that?
> If so go with it.




You’re a slippery duck

The question remains 

Do you talk the talk but not waddle the walk?




oldblue said:


> Now, now, children...............




O.K I'll go to my room now and let the thread get back on track.


----------



## HarryH (30 May 2012)

troll/a?

Sorry couldn't help myself.


----------



## tech/a (30 May 2012)

HarryH said:


> troll/a?
> 
> Sorry couldn't help myself.




Thats the sort of stupidity that is found on these sites.
Nothing to add just childish rubbish.

Ive posted charts
Ive presented another method of trading TGA 
and because it doesnt "fit" with the Fundamental 
junkies all they can do is go duck hunting.

Knock yourself out team.


----------



## kermit345 (30 May 2012)

Personaly Tech/a I enjoy your TA point of view, Just don't enjoy the bickering against FA and sometimes the arrogance that you may not think flows through your posts but others do.

Enjoy your TA pov, but not the FA v TA debate 

If anything the last week has shown how both have worked together in this case IMO.


----------



## McLovin (30 May 2012)

tech/a said:


> Ive posted charts
> Ive presented another method of trading TGA
> and because it doesnt "fit" with the Fundamental
> junkies all they can do is go duck hunting.






You can't be serious? The overwhelming majority of people on this thread have stayed quiet while you referred to us as sheep, and pretty much called us all morons because we have a method of investing that doesn't "fit" with your style. Aside from the odd poster (and I can only think of one in this thread), no one has said anything negative about TA. 

You have made so many ridiculously inaccuracte (factually) statements on this thread, including the one quoted above, that I get the feeling you don't actually read or comprehend anything that doesn't fit inside your own preconceived ideas. You're a case study in confirmation bias.


----------



## Ves (30 May 2012)

tech/a said:


> Got filled at $1.54.(11.18 am)
> There is little supply so price is rising freely.
> The gap away was the strong clearance I wanted to see.
> Im looking at $1.70ish before resistance.
> ...




I wont admit to having much expertise in charts, but I think you bought in the middle of an old support zone as "weak" as it looked on the way down.  If it can break through to 1.57 it will them have a target of 1.62 to 1.64.  1.70 will not be easy, medium term trend is down and market sentiment is still bearish. Target price of your own may be 3R but I dont think if you did this trade 100 times it would have a positive expected value. Hard to comprehend how this is "low risk." But I do not know your system parameters, so hard to comment. Most likely scenario is it will settle in the mid to high 150s after the ex div date. But what would I know? Dyor.


----------



## tech/a (30 May 2012)

> The overwhelming majority of* people on this thread have stayed quiet while you referred to us as sheep,* and pretty much called us all morons because we have a method of investing that doesn't "fit" with your style. Aside from the odd poster (and I can only think of one in this thread), no one has said anything negative about TA.
> 
> *You have made so many ridiculously inaccuracte (factually) statements on this thread, including the one quoted above,*



What was that about glass houses.







Heavens an in accuracy!
Carry on.


----------



## tech/a (30 May 2012)

Ves said:


> I wont admit to having much expertise in charts, but I think you bought in the middle of an old support zone as "weak" as it looked on the way down.  If it can break through to 1.57 it will them have a target of 1.62 to 1.64.  1.70 will not be easy, medium term trend is down and market sentiment is still bearish. Target price of your own may be 3R but I dont think if you did this trade 100 times it would have a positive expected value. Hard to comprehend how this is "low risk." But I do not know your system parameters, so hard to comment. Most likely scenario is it will settle in the mid to high 150s after the ex div date. But what would I know? Dyor.




You maybe right.
Its a discretionary trade based upon the entry signals shown on the chart.
Its low risk for me as it only have a 4c risk. possible 5R return.
If it fails on with the next.
If it stagnates Ill get out as well..

Just another trade.


----------



## McLovin (30 May 2012)

tech/a said:


> The overwhelming majority of* people on this thread have stayed quiet while you referred to us as sheep,* and pretty much called us all morons because we have a method of investing that doesn't "fit" with your style. Aside from the odd poster (and I can only think of one in this thread), no one has said anything negative about TA.
> 
> *You have made so many ridiculously inaccuracte (factually) statements on this thread, including the one quoted above,*
> 
> ...




I like how you attempted to parse my statement but didn't bold the beginning which changes the context of the rest of the sentence. Thank you for making my point so well about an inability to read or comprehend.

Nevertheless, I'll do it for you...



> *The overwhelming majority* of people on this thread...




And then again...



> Aside from the odd poster (*and I can only think of one in this thread*)




And yes, Nutmeg is who came to mind.


----------



## McCoy Pauley (30 May 2012)

tech/a said:


> Ive said it before.
> I'm not here to make friends.
> *Im here to show the blind ducks of the forum that they dont need to pour through wads of fundamentals and pontificate on their meaning,and or endlessly debate on valuations*
> They can with experience trade profitably in 10 minutes a day using nothing more than price action/volumes and patterns. Crowd phsycology is there for all to take advantage of.
> ...




Nice to see you carry on that crusade, tech/a. 

How about you go about making money the way you choose and let the rest of us get on with making money the way we choose?


----------



## tech/a (30 May 2012)

McCoy Pauley said:


> Nice to see you carry on that crusade, tech/a.
> 
> How about you go about making money the way you choose and let the rest of us get on with making money the way we choose?




Thanks for all the support.

Cause your all so nice I'll make a point of hangin around.

Carry on


----------



## Pioupiou (31 May 2012)

There is a mention of TGA in yesterday's communication from FNArena, which I paste in the postscript below.

The general feeling that I get from this and other "opinions" is that 2013 and 2014 will flat for TGA's EPS growth, and then relatively new initiatives kick in to send the EPS on its wonted upward trajectory.  Analysts (and players in the market) are herd animals who reflect each others' thoughts, and hence "consensus" carries less significance than one may think.  TGA may surprise in 2013, but as there are sufficient words pasted below to stretch the attention span of many followers of this thread, I'll return to that in a later-day post, but any views on 2013 and 2014 EPS would be welcome.  One thing you can be sure of is that TGA has a detailed budget for 2013 that will prove to be surprisingly accurate, and they probably have extended this to cover 2014 with a lower level of confidence.

POSTSCRIPT 

In terms of finding the next ASG Group, I have come to the conclusion that Thorn Group ((TGA)) looks like a genuine candidate. The specialist niche lender and provider of consumer credit has equally been derated over the past twelve months and with the share price now between $1.40-$1.50 the Price-Earnings ratio (PE) is only at 7.3x and the dividend yield at 6.9%. The balance sheet seems in good shape and so are cash flows. Highly regarded management is working towards diversification, away from the Radio Rentals operations that have served the business and its shareholders so well since 2007.

Price deflation for flatscreen TVs and PCs is now hurting growth while new initiatives are still of insufficient size to fully compensate for this, but analysts (and management) are confident that FY14 and beyond look promising, at the very least. Nothing in the share market comes without risks and it is possible that FY13 might well disappoint in terms of (negative) growth. As shown in prior examples, such risks can be mitigated through buying the shares as close to dividend support as possible, while free cash flow projections virtually guarantee there will be no cuts to dividend payouts.

In case the share price shows no net progress in years to come, the yield is projected to rise from 6.9% this year (until March 2013), to 7.2% in FY14, to 7.5% in FY15.


----------



## Klogg (31 May 2012)

I expect FY13 not to be as bad as the analysts have forecast. Given the customer growth of 3-4% this year in a subdued economic environment, I can't see how it'll be flat... If anything, there will be atleast 3-4% increase.

In addition to that, a greater portion of the leases are now finance leases and as such, dont report their profits within the first year as I understand it. As that's the case, the benefits of customer growth experienced this year within this space will span across the next year and possibly further, depending on when customers signed off on the agreement.

I can't see any growth in the 20% range as has been the case in recent times, but anything from 5-10% is what I'd expect - assuming they can't deliver any cost efficiencies.

For FY14... well I'm not even going to try and guess that one.


----------



## McLovin (31 May 2012)

Klogg said:


> In addition to that, a greater portion of the leases are now finance leases and as such, dont report their profits within the first year as I understand it. As that's the case, the benefits of customer growth experienced this year within this space will span across the next year and possibly further, depending on when customers signed off on the agreement.




Finance leases report a profit in the first year based on the sale price of the good being leased. For instance, if TGA buys a TV from China for $400 then leases it to a customer with a fair value it assesses at say $1,000 it will generate a $600 gross profit in the first year. Also as the lease gets older it earns less revenue for the company (like a mortgage).


----------



## Klogg (31 May 2012)

McLovin said:


> Finance leases report a profit in the first year based on the sale price of the good being leased. For instance, if TGA buys a TV from China for $400 then leases it to a customer with a fair value it assesses at say $1,000 it will generate a $600 gross profit in the first year. Also as the lease gets older it earns less revenue for the company (like a mortgage).




I keep getting the two mixed up... Are the furniture and whitegoods under operating or finance leases?


----------



## McLovin (31 May 2012)

Klogg said:


> I keep getting the two mixed up... Are the furniture and whitegoods under operating or finance leases?




They can be either but are still mainly operating.

"Rent, Try, $1 Buy" is the finance leasing. "Rent, Drive, Buy" will be too.

I should add to my previous post that the cash flow is the same for each period, it's just the mix of receiveable v interest that changes as the lease matures.


----------



## Klogg (31 May 2012)

McLovin said:


> They can be either but are still mainly operating.
> 
> "Rent, Try, $1 Buy" is the finance leasing. "Rent, Drive, Buy" will be too.
> 
> I should add to my previous post that the cash flow is the same for each period, it's just the mix of receiveable v interest that changes as the lease matures.




Yeah, that's what I thought, just forgot which is which.

So my point was - given that the customers are opting for furniture/whitegoods (which are mainly on operating leases) the accounting methods won't be attributing the majority of profits to the first year, and will therefore spill over to the 2nd/3rd.

Poor explanation, but you get my point... eventually, lol.

Thanks for the help there McLovin.


----------



## McLovin (31 May 2012)

Klogg said:


> Yeah, that's what I thought, just forgot which is which.
> 
> So my point was - given that the customers are opting for furniture/whitegoods (which are mainly on operating leases) the accounting methods won't be attributing the majority of profits to the first year, and will therefore spill over to the 2nd/3rd.
> 
> ...




No worries, I getcha.

You can actually see how much gross profit they earned on their finance lease sales from the accounts. It's about $11m. It was about the same the year before too.


----------



## Pioupiou (31 May 2012)

McLovin said:


> They can be either but are still mainly operating.
> 
> "Rent, Try, $1 Buy" is the finance leasing. "Rent, Drive, Buy" will be too.
> 
> I should add to my previous post that the cash flow is the same for each period, it's just the mix of receiveable v interest that changes as the lease matures.




There is a note in the recent annual report that reads "The consolidated entity classifies Rent Try Buy ® contracts as finance leases where the term of the contract is 36 months and the asset rented has an estimated useful life equal to the contract length."  The ". . . estimated useful life . . ." words are important, and I missed them on first reading, which left me confused.

If the estimated life of a bed is thirty years, I presume it would not qualify as a finance lease, even though it had a $1-buy option.  Cars then would presumably be operating leases for the first 12 months, because their estimated useful life is longer than that.  PCs, laptops and the like probably do have an estimated useful life of about three years.  Consequently, a PC would fall under a finance lease, and a bed would fall under an operating lease.

On the EPS growth trajectory, I am more bullish than the analysts, and for now I am using 8% for YE 30/03/2013 and 10% for YE 30/03/2014.  I'll come back to this in another post.

On Morning Star metrics, as I have pointed out before, I regard the 11c for 2007 as being far too high.  Half that would be about right.  This affects the historical CAGR.  I am happy with the 19c for EPS, on the understanding that this is a diluted EPS.  The ROE of 19.9% is correct, but misleading, as it always is in a year of capital raising, because it uses the end-of-year equity, so do not let the 19.9% conduce you to think that TGA's profitability is slipping.  If you used average equity, you get a better metric.  A crude ROAE (return on average equity) gives 23.68%, a more sophisticated averaging technique may drop this a bit, but it would be well north of 20%, which is very good.


----------



## McLovin (31 May 2012)

Pioupiou said:


> There is a note in the recent annual report that reads "The consolidated entity classifies Rent Try Buy ® contracts as finance leases where the term of the contract is 36 months and the asset rented has an estimated useful life equal to the contract length."  The ". . . estimated useful life . . ." words are important, and I missed them on first reading, which left me confused.
> 
> If the estimated life of a bed is thirty years, I presume it would not qualify as a finance lease, even though it had a $1-buy option.  Cars then would presumably be operating leases for the first 12 months, because their estimated useful life is longer than that.  PCs, laptops and the like probably do have an estimated useful life of about three years.  Consequently, a PC would fall under a finance lease, and a bed would fall under an operating lease.




I could be wrong but if the useful life exceeds the lease term then it's a hire purchase agreement which is accounted for in the same way.

Either way, leasing a bed, with a bargain purchase option, shifts all of the risk and reward to the lessee so I don't know how it could reasonably remain on TGA's balance sheet as a rental asset.

ETA: On second look maybe they do...Note 7(L).

Seems a little counter-intuitive. Especially when the standard only says useful life matching the lease term is one factor that may cause the lease to be classified as a finance lease.


----------



## Pioupiou (31 May 2012)

McLovin said:


> I could be wrong but if the useful life exceeds the lease term then it's a hire purchase agreement which is accounted for in the same way.
> 
> Either way, leasing a bed, with a bargain purchase option, shifts all of the risk and reward to the lessee so I don't know how it could reasonably remain on TGA's balance sheet as a rental asset.
> 
> ...




I am not a leasing guru.  All that I know is that the annual report states that rental items are contracted via operating leases.  Further, the annual report states what I wrote earlier, which implies that if the useful life exceeds the term of a Rent-Try-Buy contract, TGA does not treat it as a financial lease.  I telephoned two stores (one in Geraldton and one in Adelaide), but the women I spoke to did not understand the terminology (operating lease or finance lease).  What they said was that a PC would be leased under a mandatory-36-month lease, and a bed would be a more flexible term, because ownership remains with TGA.  If one wanted to buy the bed after 18 months, it would cost a fair amount, but if one wanted to do so after 36 months, one would get it for $1.  I interpret this to mean that a PC would be contracted under a finance lease, and a bed under an operating lease. 

Wikipedia in reference to Australia reads "A lease is classified as a finance lease if it "transfers substantially all the risks and rewards incidental to ownership of an asset." (AASB 117, p8) There are no strict guidelines as to what constitutes a finance lease, however guidelines are provided within the standard."  If Rent-Try-Buy contracts include a make-good provision, then TGA could argue that risk has not substantially been transferred to the lessee.  The  Rent-Try-Buy deal also includes a free relocation provision, within the service area, a service that suggests the burden of ownership has not passed from TGA.

I suppose if one wanted to know, one could ring up TGA in Bankstown and confirm this.


----------



## Ves (31 May 2012)

Thanks for your posts this week Pioupiou, I haven't had the chance to directly thank you, but reading them with interest.


----------



## McLovin (31 May 2012)

Pioupiou

You are right in that they don't, for some reason, include those longer useful life assets as finance leases. I find it strange, from a substance v form perspective. I spent most of my time working overseas (not as an accountant though) and, iirc, the inclusion of an option to purchase at a bargain price would automatically make this a finance lease under IAS. I am familiar with AASB 117 and it's not as clear cut; it lists several criteria with the caveat that either one criteria or multiple criteria can be evidence of a finance lease, including the useful life/lease life criteria. Unfortunately, it doesn't say which criteria are standalone and which need to be in unison with other criteria.

I guess as long as they're not changing how they classify leases there's no real issue.


----------



## Pioupiou (31 May 2012)

McLovin said:


> Pioupiou
> 
> You are right in that they don't, for some reason, include those longer useful life assets as finance leases. I find it strange, from a substance v form perspective. I spent most of my time working overseas (not as an accountant though) and, iirc, the inclusion of an option to purchase at a bargain price would automatically make this a finance lease under IAS. I am familiar with AASB 117 and it's not as clear cut; it lists several criteria with the caveat that either one criteria or multiple criteria can be evidence of a finance lease, including the useful life/lease life criteria. Unfortunately, it doesn't say which criteria are standalone and which need to be in unison with other criteria.
> 
> I guess as long as they're not changing how they classify leases there's no real issue.




Accounting rules abroad are different, one or two that I read would have implied that TGA's leases would be interpreted as financial leases.  I seem to recall that one blurb hinted that the USA may do away with the concept of operating leases.  John Hughes loves operating leases - they appeal to his conservative nature, and align EBIT more with cash flow.  The nebulous nature of the rules here allow him to account for these things the way TGA does.

That is that matter done to death.  The next thing that interests me is a REASONED guesstimate of what the EPS is going to be in future.  I think cautious John is being coy, and saying little that is numerically substantial.  I'll see what I can glean from the annual reports on this.


----------



## tech/a (1 June 2012)

Will exit TGA today.
This is not going on with it and showing lack of demand.
Better prospects around from a short term technical view.


----------



## Klogg (1 June 2012)

tech/a said:


> Will exit TGA today.
> This is not going on with it and showing lack of demand.
> Better prospects around from a short term technical view.




Tech, just out of curiousity, what % of your trades turn out favourably? 
(I don't mean anything by this, just curious)


----------



## tech/a (1 June 2012)

Varies dramatically with the market.
With it currently bombing my win rate is less--its around 40% at the moment.
In a bull---ish market its in the 70 to 80%---discretionary trading.

But its not really about win rate to me its return in risk.

I really like to see a stock move immediately in the direction Im trading.
If it doesnt Ill move my mental stop up to meet the falling price---TGA Stalled so
I only waited a few days.

By keeping losses very small and often it will be at B/E (The loss) so its brokerage,
I can still have a good R/R.

That is about 2.6:1 at the moment.
Takes a bit to increase and decrease due to number of trades now completed.

Im happy to have a string of B/E or very small losses and a string (smaller) of winners punctuated through the months.

As it is for the fundamental guys its all about the numbers.
*DIFFERENCE IS*

Im constantly honing my numbers and not crunching someone elses.
I suppose "Technically" as in trading technically---I am! Stops risk and price action.
I can have through my trading determine *MY* numbers I cant on others.


----------



## Klogg (1 June 2012)

tech/a said:


> Varies dramatically with the market.
> With it currently bombing my win rate is less--its around 40% at the moment.
> In a bull---ish market its in the 70 to 80%---discretionary trading.




In current conditions, I would've thought 40% is quite good.

Thanks for the info.


----------



## tech/a (1 June 2012)

Klogg said:


> In current conditions, I would've thought 40% is quite good.
> 
> Thanks for the info.




Just to possibly help you see where Im coming from
Risk is normally very tight.
on TGA 4c.
Trades above 2R return are a lot less than those under ---not sure of figures.
Losses of 1R are rare (Less than 50%) as I normally come up to meet a falling
stock off an initial buy.

What is terribly low are those 5+R trades
That would be 20c in TGA's case.


----------



## Pioupiou (1 June 2012)

Pioupiou said:


> . . . BLAH BLAH . . .
> 
> On the EPS growth trajectory, I am more bullish than the analysts, and for now I am using 8% for YE 30/03/2013 and 10% for YE 30/03/2014.  I'll come back to this in another post.




I spent a few hours today writing the tail end of a 20-page report I have written on TGA for myself, and it has not changed my view on EPS growth - see above.  I have so much riding on TGA that I cannot afford not spending a great deal of time thinking about it, and putting things in writing is a great way to order the mind.  The stuff below postulating EPS growth is verbose, but I am not inclined to invest time in shortening it for the benefit of those whose formative years post date the introduction of instant coffee.

Thorn's management tends not to broadcast what they expect to happen in future, even though normal budgeting gives them an accurate picture of the current year's financial performance, because of the recurring nature of Thorn's revenue and the statistical predictability of its customer base.  Thorn is onto a good thing, and it prefers to keep as silent about that as possible, which gives rise to the following words in its annual report:

“Further information about likely developments in the operations of the consolidated entity and the expected results of those operations in future financial years has not been included in this report because disclosure of the information would be likely to result in unreasonable prejudice to the consolidated entity.”

In the recent presentation slides you can see below the dichotomy of wanting to extol Thorn's strengths and expected progress with words like “solid”, “strong”,  “increased contribution”,  gaining traction”, “resilient”, and then downplaying the outlook:

Group 
 - Strong core business with substantial recurring revenue streams generating significant operating cash 
 - Solid capital base to enable expansion & healthy ROCE 
 - Growth initiatives gaining traction and well positioned for increased contribution 
By Division 
 - Resilient rental business with further opportunities to grow 
 - Continue to evolve and expand Cashfirst offerings 
 - Emergence of Thorn Equipment Finance as a key segment 
 - Solid growth of NCML through new initiatives in business development 
Outlook: 
 - Market factors may slow growth rate 
 - Continued investment in strategic initiatives will impact short term – but generate longer term rewards 

However, being human, management cannot suppress their exuberance and pride, so one can read a great deal into the presentation at http://www.brrmedia.com/event/98189...arshall-general-manager-radio-rentals--rentlo 

As was the case for YE 30/03/2012, the growth in profitability will spring from operation leases.  This is where Radio Rentals/Rentlo is doing well, particularly with furniture.   This is where I have focused my attention in my attempt to guess what might happen to TGA's EPS in YE 30/03/2013.  I assume the other business on balance remains static – contributing the same cents to the EPS.  The expected slight (“slightly” is the word used in the EOY presentation) decline in the contribution of financial leases to profit should be covered by other units improving.  The direct importation of TVs has to a degree mitigated the decline in those profits by $800K.  I assume NCML will recover the loss of the ATO's business ($400 to EBITDA), and toss a bit in to assist covering the decline in finance lease business.   I do not know the appropriate number to use, to adjust for the higher interest in YE 30/03.2012 that will not be repeated - I used $800K. 

In respect to operating leases, revenue and profit recognition occurs as customers pay, so there is contractually committed revenue at the start of each year, and then NEW business.  I have attempted to calculate the NEW business values for YE 30/03/2012 and YE 30/03/2011, and then extrapolated that growth to YE 30/03/2013.  To this end I have added the estimated committed payments streams for YE 30/03/2013., and I arrive at the revenue figures below. 

I have assumed that the ratio of expenses to revenue will remain static, except for an estimated $800K in interest paid.  I know that Thorn has slimmed its head office count since it merged NCML into its business, but I have assumed this can fund expenses like appointing a GM to manage the loans business centred around Cashfirst. 

The figures below are a mixture of extractions from the YE 30/03/2011 and 30/03/2012 financial reports, and extrapolations thereof.

The future minimum lease payments under non-cancellable operating leases are as follows:

- - - - - - - - - - - - - - - - - - - - - -- 2012 - - -- 2011 - - - 2010
Less than one year to expiry - - - 36,091 - - 30,161 - - 27,124
Between one and five years - - - - 9,205 - - - 6,628 - - - 5,897

I'll assume that expiry dates are spread fairly evenly through the year, so in the following year 50% of the value listed flows in as lease payments.  For older leases, I'll assume that they are evenly spread over four years and so 25%  will flow in as lease payments.  This gives:

- - - - - - - - - - - - - - - - - - - - - - - - - - 2013 - - - - - 2012 - - - - - 2011 
Carry-over expiring lease revenue - - - 18,045 - - - - 15,080 - - - - 13,562
Carry-over longer lease revenue - - - - - 2,103 - - -- - 1,657 - - - - - 1,474

Total operational lease revenue - -- - 106,864 - - - - 93,562 - - - - 83,098

New operational lease revenue - - - - - 86,716 - - - - 76,825 - - - - 68,062

Other Revenue - - - - -  - - - - -  - - - - -  94,789 - - - - 94,789 (both years are the same)

Total Revenue- - - - - - - - - - - - - - - 201,653 - - - - 188,351

Costs/expenses- - - - - - - - - - - - - - 159,059 - - - - 148,567
Adjust for interest paid - - - - - - - - - - - (800)

Gross profit - - - - - - - - - - - - - - - - - 43,394 - - - - - 39,784	

Tax - - - - - - - - - - - - - - - - - - - - - - 13,018 - - - - - 11,935	

Net Profit - - - - - - - - - - - - - - - - - - 30,376 - - - - - 27,849 (9.07% incr of net profit)

The percentage increase in net profit is sensitive – simply altering provisions, or hiring or culling a few people can alter it by one or two percentage points.  My original hunch was that it could lie between 8% and 12%, and so for convenience I invented EPS growth of 8% for 2013, 10% for 2014 and 12% for 2015.  I'll stick with that, and alter them with each half-year announcement. 

For now, my actual diluted EPS metrics until 2012 and guesstimated ones thereafter are:

2007 - - 2008 - - 2009 - - 2010 - - 2011 - -- 2012 - - 2013est - 2014est - 2015 est
5.1c - - 8.3c - - - 9.4c - - 14.9c - - 16.7c - -- 19.0c - - 20.5c - - - 22.6c - -- 25.3c
- - - - 62.75% - 13.25% - 58.51% - 12.08% - 13.77% - 8.00% - 10.00% - 12.00%

Accounting for things like provisions is fairly arbitrary, and TGA's accounting is so conservative, so if 2014 and a year or so thereafter look exceptionally good, then YE 30/03/2013 could easily be made to be 10% or more without raising a questioning eyebrow, because Thorn admits there is over provisioning.  Deciding to amortise NCML's customer relationships over 5 years rather than 7 is an example of arbitrariness.


----------



## So_Cynical (1 June 2012)

So_Cynical said:


> On the subject of TGA it annoys the hell out of me that such a mediocre stock receives so much attention.




5 weeks and like 15 pages later...TGA is still a mediocre stock and im still amazed at the interest...what is it with the value brigade?...seriously WTF!

:dunno:


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## McLovin (1 June 2012)

So_Cynical said:


> 5 weeks and like 15 pages later...TGA is still a mediocre stock and im still amazed at the interest...what is it with the value brigade?...seriously WTF!
> 
> :dunno:




I took a leaf out of your book...

Surely you're not saying value should have been realised in 5 weeks.



			
				So_Cynical said:
			
		

> I tend to try and look at the big picture when summing up the pros and cons of my current and potential investments...on balance there's more to like about CKF (at my buy in price) than there is to not like about the company.


----------



## Klogg (2 June 2012)

So_Cynical said:


> 5 weeks and like 15 pages later...TGA is still a mediocre stock and im still amazed at the interest...what is it with the value brigade?...seriously WTF!
> 
> :dunno:




How is a stock that is:
 - trading @ ~ 8*P/E, 
 - consistently growing, 
 - carrying very little debt ,
 - with great management, 
 - and paying a great dividend
classified as 'mediocre'?

I could understand if it was at a higher P/E ratio, but it's because it's trading so cheaply that it is attractive.


----------



## oldblue (2 June 2012)

So_Cynical said:


> 5 weeks and like 15 pages later...TGA is still a mediocre stock and im still amazed at the interest...what is it with the value brigade?...seriously WTF!
> 
> :dunno:




I think you're being a bit hard on TGA, S_C. Too good a track record to be classed as "mediocre", IMO, particularly when there are so few other stocks setting the world ablaze at present. As for the high level of interest, some of us are somewhat fascinated by the depth of analysis/forecasts that this stock receives. Good reading, indeed, particularly for us of the pre instant coffee generations!


----------



## odds-on (3 June 2012)

I have been doing plenty of stock screening over the last couple of weeks and to be honest nothing is particularly grabbing me at the moment. TGA is the only stock I hold at the moment and I have large % of cash ready for an opportunity.

IMO, some of the retailers are being oversold but I am going to wait a bit longer until it "feels" like maximum pessimism about retail.

Pioupiou, keep up the good work.


----------



## Pioupiou (3 June 2012)

odds-on said:


> I have been doing plenty of stock screening over the last couple of weeks and to be honest nothing is particularly grabbing me at the moment. TGA is the only stock I hold at the moment and I have large % of cash ready for an opportunity. . .




Its odd that for a "mediocre" stock that by definition should have over a thousand better stocks on the ASX, it is so difficult to find comparable investment candidates that meet my criteria to warrant the same degree of focus that TGA has merited.  I have often asked for names of a comparable investment, and only three have been suggested, but none of them beat TGA in terms of my personal criteria.  Not finding candidates reminds me of Abraham bargaining with God, who finally agreed not to destroy Sodom and Gomorrah if even ten righteous people lived there.  Being less demanding, I would be delighted to learn of five stocks worthy of the attention that I have devoted to understanding TGA.

I do not want this thread to drift away from its TGA theme to discuss other stocks, so if you open a new thread with a name like "On par with TGA, or better", we might generate mutually beneficial communication.  For instance, readers have recently suggested IMF, RCG and CPB, and I have not responded because this is not the place to do so, and if I responded in the stocks individual threads, we would lose the cohesion of considering a handful of stocks that we who are over invested in TGA can consider as diversification options.


----------



## tech/a (3 June 2012)

While TGA may well be fundamentally strong it's performance 
Over the last 12 mths has been very poor.
Infact worse than mediocre.


----------



## StumpyPhantom (3 June 2012)

tech/a said:


> While TGA may well be fundamentally strong it's performance
> Over the last 12 mths has been very poor.
> Infact worse than mediocre.




Interesting balancing statement to Pioupiou's posts (which I've read in detail).

The question that's playing on my mind, assuming a GFC2 scenario that lasts 12-18 months, is whether TGA earnings will be robust in that time.  Grateful any views but my memory from GFC1 was that Cash Converters (CCV) did very well in a similar space during GFC1.


----------



## HarryH (3 June 2012)

tech/a said:


> While TGA may well be fundamentally strong it's performance
> Over the last 12 mths has been very poor.
> Infact worse than mediocre.




Performance as in its price or fundamentals?


----------



## tech/a (3 June 2012)

HarryH said:


> Performance as in its price or fundamentals?




Price


----------



## Boggo (3 June 2012)

Klogg said:


> How is a stock that is:
> - trading @ ~ 8*P/E,
> - consistently growing,
> - carrying very little debt ,
> ...




Sitting in Dublin airport waiting for my delayed flight to Zurich and being amused and amazed at some of the twaddle posted by many of the sciolists that love all this numbers stuff.

There is only one value on any stock and that is its price.

The majority of this fundamental wishing is akin to thumbing a ride in a car that is parked on going the wrong way and you are hoping that it will turn around and go your way because you really like the car and know all about its technical specs.
 Until it starts going your way(the price) all your homework is irrelevant (but very amusing however).


----------



## Pioupiou (3 June 2012)

Boggo said:


> Sitting in Dublin airport waiting for my delayed flight to Zurich and being amused and amazed at some of the twaddle posted by many of the sciolists that love all this numbers stuff.
> 
> There is only one value on any stock and that is its price.
> 
> ...




So the price is the price and that is its value, and hence one should not waste one's time looking for bargains.  I wonder if Warren Buffet knows that, because the silly old fart has wasted decades buying stocks and companies that he thought had greater value than their asking price!

I like the car analogy.  If fundamental research informs me that a car is normally garaged in Boggo Lane, then irrespective of what direction it is now facing, I have a high level of confidence that it will most likely end up in Boggo Lane, irrespective of wherever it might meander in the short term.

I wrote that I would be delighted to learn of five ASX listed stocks that are better than TGA.  Actually, even one would suffice. Do tell.


----------



## Pioupiou (3 June 2012)

StumpyPhantom said:


> Interesting balancing statement to Pioupiou's posts (which I've read in detail).
> 
> The question that's playing on my mind, assuming a GFC2 scenario that lasts 12-18 months, is whether TGA earnings will be robust in that time.  Grateful any views but my memory from GFC1 was that Cash Converters (CCV) did very well in a similar space during GFC1.




I held about $50K's worth of CCV about two years ago, which I sold at a 20% capital gain.  I prefer TGA because it is a 100% Australian play, it is not into pay-day lending, and it is a rung or two higher than CCV on the grubbiness scale, and hence less prone to be affected by government policy.  TGA, being a poverty stock like CCV, did very well in what you called GFC1, and that is why in these gloomy times I feel comfortable with TGA.

If I had a lazy $50K looking for a home, I would investigate CCV again, and a few other poverty stocks like CCP, but alas, I am a tad cash strapped right now, so I have not investigated CCV recently.  I think the politicians have become bored with the proposed legislation to curtail pay-day loans, and if that threat depressed CCV's SP, there may be scope to make a buck or two, but I repeat, I have not looked at CCV recently.


----------



## Klogg (3 June 2012)

Boggo said:


> Until it starts going your way(the price) all your homework is irrelevant (but very amusing however).




That sounds good - no need for homework at all. Should've bought some Enron shares as they were going up...


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## Boggo (4 June 2012)

Klogg said:


> That sounds good - no need for homework at all. Should've bought some Enron shares as they were going up...




and then hold them on the way down too because management told you last month that their fundamentals were good compared to last years even though reality (price action) was telling you the real story !


----------



## Klogg (4 June 2012)

Boggo said:


> and then hold them on the way down too because management told you last month that their fundamentals were good compared to last years even though reality (price action) was telling you the real story !




Their financial statements tell me the real story, along with business model, financial statements, etc. What management tell me doesn't mean much unless it's backed up by other information.

Anyway, pointless argument. You seem set in your ways, not really willing to hear another opinion.


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## HarryH (4 June 2012)

Boggo said:


> and then hold them on the way down too because management told you last month that their fundamentals were good compared to last years even though reality (price action) was telling you the real story !




Right, because all a FA does is go 100% by what management says? Before you criticize something maybe you should understand it first.


----------



## Boggo (4 June 2012)

Pioupiou said:


> Actually, even one would suffice. Do tell.




My SMSF says that its SKI craps all over your TGA and guess what, the price (realtime actual value) is going up - scary eh !!!!!


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## Ves (4 June 2012)

Boggo said:


> My SMSF says that its SKI craps all over your TGA and guess what, the price (realtime actual value) is going up - scary eh !!!!!



Is this the same company that was worth more five years ago than it is now?


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## Gundini (4 June 2012)

Pioupiou said:


> I wrote that I would be delighted to learn of five ASX listed stocks that are better than TGA.  Actually, even one would suffice. Do tell.




I actually like this company while not holding. But this statement above is ridiculous, you can't be serious?


----------



## Klogg (4 June 2012)

Gundini said:


> I actually like this company while not holding. But this statement above is ridiculous, you can't be serious?




I believe he means in regard to value for price paid.


----------



## Pioupiou (4 June 2012)

Boggo said:


> My SMSF says that its SKI craps all over your TGA and guess what, the price (realtime actual value) is going up - scary eh !!!!!




Are we back on this sterile topic of chartists versus fundamental analysts.  I am not a trader, nor a speculator, nor a necromancer - I am an investor looking for undervalued stocks.  If a stock is well appreciated, then its upside is priced in, and hence it is not what I want, which is an undervalued stock. At about the same price with half the earnings per share, SKI is probably fully priced, so it is unlikely to become a candidate stock for me.  I had a quick look at SKI, and normally I would look no further, because I like a stock to have:

* Debt/equity of no more than 35% – SKI is double that.
* Return on equity greater than 15% – SKI is about 10%, and that in spite of using much debt.
* Dividend covered by earnings – SKI has run for years paying more dividends than it earned.
* Growing cash flows – SKI has fairly flat cash flow per share

I was interested to see SKI's EPS growing nicely, if erratically.  TGA has grown EPS at about the same pace, but one has to correct the Morning Star figure for 2007 to see that, which I did (5.1c).

As I wrote, the SPs are about the same – circa $1.50.  However, TGA has a lower PER, which means one gets more earnings per buck from TGA.  Dividend yield is similar, except TGA's is fully franked, and SKI's is unfranked, so TGA's is a better yield and covered by an EPS twice the dividend, so it does not have the Ponzi whiff about it that SKI has.  SKI has a larger capitalisation and more liquidity, so it deserves a PER premium relative to TGA, other things being equal, which they are not.

Analysts have assumed that SKI is going to grow better than TGA, and therein lies the contention – nobody knows if bullish predictions for SKI and bearish ones for TGA are going to eventuate, and chartists don't care.  Maybe SKI is the better investment, but I have not seen anything to support that.

Obviously, a quick glimpse at SKI does not equip me to dismiss it as substandard, especially because having an ingrained prejudice against utilities, which are subject to political interference, I have never thought much about regulated utilities.  I'll look at SKI again in the near future.  

SKI's financial year ends on 31 December.  Here are a few Morning Star metrics, followed by those for TGA:

Return on capital (%) - - - 6 - - - - - - 7 - - -- - 7 - - - - - 10 - - - - - 9 - - - - - 9
Return on Equity (%) - -- 4.3 - - - - 5.6 - - - - 8.8 - - - - 14.1 - -- - 5.6 - - - 10.0
Long term debt (m) --1,655.1 - 1,455.7 - 1,655.1 - - 1,456.8 - -- 958.6 - - 919.7
S/holders Equity (m) -  607.9 - - 663.5 - - -390.7 - - -- 576.2 - 1,398.3 - 1,333.8
Cash Flow (cents) - - - - - 9.9 - - - 11.6 - - - 10.1 - - - - 14.0 - - - -12.3 - - 14.2
Earnings (cents) - - - - - - 2.4 - - - - 3.4 - -- - 3.2 - - - - - 7.6 - - - - 7.2 - - - 10.1
Dividends (cents) - - - - - 1.5 - - - - 4.2 - - - - 4.6 - - - - 12.8 - - - 13.5 - - - 10.0
Franking (%) - - - - - - -- - Nil - - - - Nil - - - - Nil - - - - - Nil - - -  - Nil - - -- Nil
Payout Ratio (%) - - - -- - 62 - - - - 122 - - -- 144 - - - - 169 - - - - 189 - - - - 99

There was obviously a huge capital injection in 2010 that depressed SKI's SP then.  TGA's financial year ends on 30 March.  Here are its Morning Star metrics:

Return on capital (%) - - - 13 - - - - 18 - - - - 17 - - - - - 24 - - - - 17 - - - - - 19
Return on Equity (%) - - 12.0 - - - 17.5 - - - 17.8 - -- - 23.8 - - - 23.2 - - - - 19.9
Long term debt (m) - - - - 8.0 - - - - 0.0 - - -- 6.0 - -- - 0.0 - -- - 36.0 - - -- 14.0
S/holders Equity (m) - -- 54.4 - - - 62.3 - - - 69.3 - - - 81.8 - - - -95.0 - - - 140.2
Payout Ratio (%) - - - - - -- 8 - - - - 51 - - - - 50 - - - - 42 - - - - - 50 - - - - - 50
Earnings (cents) - - - - - - 5.1 - - - - 8.3 - -- - 9.4 - - - 14.9 - - -- 16.7 - - - 19.0
Dividends (cents) - - - - - 1.0 - - - - 4.2 - - - - 4.7 - - - - 6.2 - - - - 8.4 - - - - 9.5
Franking (%) - - - - - - - - Nil - - - - 100 - - -- 100 - -- - 100 - -- - 100 - - - - 100
Payout Ratio (%) - - - - - - 8 - - - - - 51 - - - - 50 - - - -- 42 - - -- - 50 -- - - - 50

On balance, TGA has a nicer set of numbers.


----------



## Pioupiou (4 June 2012)

Gundini said:


> I actually like this company while not holding. But this statement above is ridiculous, you can't be serious?




I am very serious.  Obviously, more than one stock worth looking would be better than only one.  I want stocks with low debt; high ROE; good EPS growth, preferably organic growth; good dividends supported by roughly twice as much EPS, and fully franked if it is substantially an Australian operation.  I would prefer a market capitalisation above $200M.  An ASX turnover about on par wth TGA (some $750K a trading day).  There are other things that I like, for instance a business that is relatively free of trade union depredations, share-holder friendly management, etc.  Lastly, and this is important, the stock should be underpriced.

Please send me your list, and even one stock would be better than none.


----------



## Gundini (4 June 2012)

I can do that, but in no way am I discrediting your stock. In fact, I realise you do hold quite a bit of TGA for many years. I found a post back in 2009 where you had a quarter of a million of these shares @ around $1.90 or so and were hoping for them to get to $2.50. The dividends over the years would have kept you in good stead. Do you still hold the Gordon and Slater stock? They seem to have come off a bit since you were talking about them but I'm sure they are doing fine today.

With regard to your request I say... DYOR... and preferably organic growth hahaha that is funny, but I will do my best!


----------



## Boggo (5 June 2012)

Pioupiou said:


> Are we back on this sterile topic of chartists versus fundamental analysts.  I am not a trader, nor a speculator, nor a necromancer
> 
> On balance, TGA has a nicer set of numbers.




A sciolist perhaps ?

On the subject of numbers, since last January ( SKI vs TGA) there is only one set of numbers that appeal to me and they are the ones that affect my balance, I am not the least bit interested in what appeals to management or you amateur wannabe sages of Omaha.
Are you here to make money or spend weeks raving on about a stock that hasn't made you a cent in the same period of time.

When it does eventually up and then run out of steam I will thank you guys for being there


----------



## Gundini (5 June 2012)

Pioupiou said:


> I am very serious.  Obviously, more than one stock worth looking would be better than only one.  I want stocks with low debt; high ROE; good EPS growth, preferably organic growth; good dividends supported by roughly twice as much EPS, and fully franked if it is substantially an Australian operation.  I would prefer a market capitalisation above $200M.  An ASX turnover about on par wth TGA (some $750K a trading day).  There are other things that I like, for instance a business that is relatively free of trade union depredations, share-holder friendly management, etc.  Lastly, and this is important, the stock should be underpriced.
> 
> Please send me your list, and even one stock would be better than none.




I'm sure I could tailor the answer to fit the question as you have done here, but for the point of the exercise here is one, dyor to find the others of which are quite plentiful:

LYL Lycopodium

Double digit growth over 5 years in Sales, Cashflow, Earnings, Dividends, and Book Value, 3% Debt, Market cap $246Million, and 6% Dividend yeild.                 http://www.lycopodium.com.au/

With regard to these stocks being "underpriced", if a stock has these growth parameters they are all underpriced- doesn't mean the share price increases in any particular time frame. 

There are others that I would not put here as they may derail the topic of this thread. Cheers


----------



## oldblue (5 June 2012)

Pioupiou said:


> I am very serious.  Obviously, more than one stock worth looking would be better than only one.  I want stocks with low debt; high ROE; good EPS growth, preferably organic growth; good dividends supported by roughly twice as much EPS, and fully franked if it is substantially an Australian operation.  I would prefer a market capitalisation above $200M.  An ASX turnover about on par wth TGA (some $750K a trading day).  There are other things that I like, for instance a business that is relatively free of trade union depredations, share-holder friendly management, etc.  Lastly, and this is important, the stock should be underpriced.
> 
> Please send me your list, and even one stock would be better than none.




And also not wishing to clutter the TGA thread, Pioupiou, but did you have a look at CPB as I suggested a couple of weeks ago? Much better value now the market has wiped a bit of froth off some shareprices!

Reply comment on the CPB thread perhaps, if appropriate.

Cheers


----------



## Pioupiou (5 June 2012)

Gundini said:


> I can do that, but in no way am I discrediting your stock. In fact, I realise you do hold quite a bit of TGA for many years. I found a post back in 2009 where you had a quarter of a million of these shares @ around $1.90 or so and were hoping for them to get to $2.50. The dividends over the years would have kept you in good stead. Do you still hold the Gordon and Slater stock? They seem to have come off a bit since you were talking about them but I'm sure they are doing fine today.
> 
> With regard to your request I say... DYOR... and preferably organic growth hahaha that is funny, but I will do my best!




I still hold SGH.  I bought at $1.68 in late 2010, and was thinking of skipping out at circa $2.40 in 2011, but while I dithered over the exact exit price, the SP reversed, and I still hold those shares.  A similar thing happened with TGA, I wanted to exit some at $2.30, and after touching that price for a part of a day, it retreated, so my sell orders were never executed.

I like SGH for the reason that I like TGA – it is is not cyclical, and it is a grubby business.  SGH's  history for expanding via acquisitions is less appealing, plus it is much more illiquid than TGA (I checked a few minutes ago, and at about 2:50PM, only two transactions had occurred).  SGH's management have said that they are going to tone down acquisitions and focus on consolidation and organic growth, so in the hope that they will do that, I hold.  As an aside, when PPT was selling TGA, it was buying SGH, which may have helped push SGH's SP up a few months ago.  If I held neither stock, and had to choose one, I would select TGA, which is why I have kept on buying TGA for my personal portfolio until a few weeks ago, rather than adding to my SGH holding.

I have 18,000 SGH in my personal portfolio, worth roughly the price I paid, and I have 493,000 TGA spread over two portfolios, SMSF and personal.  The SMSF's TGA holding enjoys a paper capital gain of $125K and the larger personal portfolio's gain stands at about $20K.  SGH pays a slimmer dividend about a third of EPS).  TGA's payout ratio is about 50%, and its dividend alone suffices to earn me a living.  If I could find another TGA, in the interest of diversity I would sell some TGA and invest the proceeds in the on-par alternative.  Analysts are predicting a large EPS increase  for SGH in 2013 and 2014.  I should give it more thought than I do.


----------



## Pioupiou (5 June 2012)

Gundini said:


> I'm sure I could tailor the answer to fit the question as you have done here, but for the point of the exercise here is one, dyor to find the others of which are quite plentiful:
> 
> LYL Lycopodium
> 
> ...




Thanks for that - I'll add LYL to my do-more-homework list.  I have considered LYL over the years since 2007.  I tend to buy stocks one at a time, and each time LYL was on the short list, some alternative like Monadelphous, Cardno or Fleetwood has pipped it.  I have been in and exited Fleetwood, Monadelphous and Cardno - each at a profit.  Right now I am wary of mining and mining service companies, but not to the point of simply slamming down the shutters.  Non-cyclical business is what I like these days.


----------



## ENP (6 June 2012)

Pioupiou said:


> I am very serious.  Obviously, more than one stock worth looking would be better than only one.  I want stocks with low debt; high ROE; good EPS growth, preferably organic growth; good dividends supported by roughly twice as much EPS, and fully franked if it is substantially an Australian operation.  I would prefer a market capitalisation above $200M.  An ASX turnover about on par wth TGA (some $750K a trading day).  There are other things that I like, for instance a business that is relatively free of trade union depredations, share-holder friendly management, etc.  Lastly, and this is important, the stock should be underpriced.
> 
> Please send me your list, and even one stock would be better than none.




ARP
BKL
CCL 
CCP
CTD
EMB
FGE 
FWD
LYL
MMS
MND
NVT
ONT
ORL
RHC
SUL
TGA

That's my watchlist. Most of them make your criteria (not taking into account the share price but the businesses themselves).


----------



## Pioupiou (6 June 2012)

ENP said:


> ARP, BKL, CCL, CCP, CTD, EMB, FGE, FWD, LYL, MMS, MND, NVT, ONT, ORL, RHC, SUL, TGA
> 
> That's my watchlist. Most of them make your criteria (not taking into account the share price but the businesses themselves).




Thanks for that.  Off the top of my head it looks like a list that is well worth working through.

On the matter of micro caps - personally I rather like them, but I have too many stocks at the small end, so I was looking for stocks that at least made the ASX300, particularly as I want to start my portfolio overhaul with my SMSF portfolio, where I am more conservative.  My personal portfolio is what I call the playpen, where I am happy to take risks.  It is now massively biased in favour of TGA, which does not bother me, but if a good candidate leads to better diversity, then shifting the balance away from TGA is a no-brainer.

PS for Oldblue.  I did look at CPB, and although a good stock, it is perhaps priced as such.  I'll send you a more detailed answer when I have had a chance to re-examine it.  I have over the years often run my eye over CPB, because it is a solid business of the type that I like.  Alas, it may not be that desert flower wasting its sweetness on the desert air, as the poet Gray may have worded it.


----------



## VSntchr (6 June 2012)

Pioupiou said:


> Thanks for that.  Off the top of my head it looks like a list that is well worth working through.
> 
> On the matter of micro caps - personally I rather like them, but I have too many stocks at the small end, so I was looking for stocks that at least made the ASX300, particularly as I want to start my portfolio overhaul with my SMSF portfolio, where I am more conservative.  My personal portfolio is what I call the playpen, where I am happy to take risks.  It is now massively biased in favour of TGA, which does not bother me, but if a good candidate leads to better diversity, then shifting the balance away from TGA is a no-brainer.
> 
> PS for Oldblue.  I did look at CPB, and although a good stock, it is perhaps priced as such.  I'll send you a more detailed answer when I have had a chance to re-examine it.  I have over the years often run my eye over CPB, because it is a solid business of the type that I like.  Alas, it may not be that desert flower wasting its sweetness on the desert air, as the poet Gray may have worded it.




XRF is comparable to certain lines within CPB...and is cheap. Not a bargain...but not expensive by any means. Maybe worth a look at this one too...


----------



## tech/a (14 June 2012)

TGA

Still dead in the water technically.
Taking the small loss was wise in hindsite.


----------



## ENP (25 June 2012)

Why is TGA still valued at 7.3 P/E ?

I cannot understand, that after the last annual report, that the price has not risen above the low 1.40s. Where as before the annual report release was trading around 1.80 in March.  

Did the 20-30% increase in TGA's business profit, earnings, etc not meet peoples expectations?


----------



## VSntchr (25 June 2012)

ENP said:


> Why is TGA still valued at 7.3 P/E ?
> 
> I cannot understand, that after the last annual report, that the price has not risen above the low 1.40s. Where as before the annual report release was trading around 1.80 in March.
> 
> Did the 20-30% increase in TGA's business profit, earnings, etc not meet peoples expectations?




Its the slowing growth in TGA's core revenue stream that is causing the concern. Whilst some feel that the price reaction is overdone, others believe that the next few years will offer nil to negative growth. TGA did alot of business thru the GFC years and with a retention rate of only ~45% they will need to write a whole lot more business to cover these contracts as they expire.

The yield of over 7% should compensate investors for a year or two of slow growth, assuming that TGA can have their new initiatives performing well in a couple of years...


----------



## Klogg (25 June 2012)

VSntchr said:


> Its the slowing growth in TGA's core revenue stream that is causing the concern. Whilst some feel that the price reaction is overdone, others believe that the next few years will offer nil to negative growth. TGA did alot of business thru the GFC years and with a retention rate of only ~45% they will need to write a whole lot more business to cover these contracts as they expire.
> 
> The yield of over 7% should compensate investors for a year or two of slow growth, assuming that TGA can have their new initiatives performing well in a couple of years...




I agree that this is the general consensus, but you'll notice that:
- Customer base is still growing, albeit slowly (4%ish, last I remember)
- Other initiatives (TEF, CashFirst, etc.) are still growing

You'll also see that in the last presentation, management stated that they expected growth to slow down, not to stall. Whatever you read that as, it's atleast inflation. I personally expect anywhere between 5-10%, but I'm sure others will end up with different figures. 

It really does seem as if that Macquarie analysis has taken a hold...


----------



## odds-on (25 June 2012)

The pump and dump man has a post about TGA on his blog. Interesting reading, the post seems positive in a muted way. 

I am starting to get the feeling that TGA could languish around PE ratio of 7-8 for many months. The question is do i sell now and see if i can make better use of the capital until the next reporting period (possible catalyst) or keep waiting?


----------



## Klogg (25 June 2012)

odds-on said:


> The pump and dump man has a post about TGA on his blog. Interesting reading, the post seems positive in a muted way.
> 
> I am starting to get the feeling that TGA could languish around PE ratio of 7-8 for many months. The question is do i sell now and see if i can make better use of the capital until the next reporting period (possible catalyst) or keep waiting?




Hmm interesting, just read that. He basically said the company won't grow as fast, may go backwards, may not... In essence, nothing valuable.

A link for anyone who's interested:
http://blog.rogermontgomery.com/is-this-a-thorny-investment/

If you're taking a longer term value-investing approach to this, (5years+), I can't really see the downside to this stock...


----------



## odds-on (25 June 2012)

I speculate pump and dump man is accumulating. Muted post to buy stock cheap. 6 months down line begin pumping when HY report comes out.


----------



## Ves (25 June 2012)

The flat to slow growth in earnings for this stock that we will most likely see in the next few years are more due to cyclical factors than they are structural factors IMO. This is why most valuations of this stock seem to be over-priced and why on the contrary the the market has priced it at a P/E of under 8. Market doesn't care about the long-term potential if the next two years don't provide easy gains. The answer lies somewhere in the middle of the "super value" and "no growth" camps.


----------



## Pioupiou (25 June 2012)

The reason for diverse valuations of TGA lies in what will happen in future, and of course nobody knows, so some folk are negative, some neutral and others positive.  I think the business will continue to grow, but at a lower pace than the last five years.  For now I make the presumption that EPS will grow 8%, 10% then 12% for this year and the two that follow. 

I decided to write a stock analysis for myself to learn if in the process I would change my mind about TGA, and the upshot is that I still like it relative to other ASX-listed stocks.  My perspective being that of a retired person interested in dividends now and potential capital gain in the medium term.  I sent a copy of my 20-page Magnus Opus to Roger Montgomery, and in his recent blog entry he mentioned that he would provide a link to that report.  He quotes me as writing: “I think that Thorn’s growth will slow for 2013, do better in 2014, then experience an up-tick as initiatives like Cashfirst, Thorn Equipment Finance and individual expansion initiatives in Radio Rentals/Rentlo and NCML move from making losses, or small profits, to being acceptably profitable.  EPS will grow, but nothing like the EPS CAGR of the last five years.” 

The Macquarie Report and Roger M's blurb make much of the 100,000 customers, the 27-month average contract duration, the 44% contract retention rate and customer growth in the recent past relative to the current lower growth – metrics that they suggest may cause TGA's customer numbers and EPS to decline.

The 100,000 customers are the fraction of Radio Rentals/Rentlo's primary customer demographic who now have contracts with Radio Rentals/Rentlo.  Expiry and non-renewal of their contracts does not mean that the people leave that demographic and/or that they have perpetually exhausted their need for the items that Radio Rentals/Rentlo supply.  Many will return as lessees when new needs arise, joined by first-timers and some whose earlier contracts expired years ago.  From memory, their are about 1 million Australian households that are financially stressed, and this demographic is growing faster than total Australian households.  Radio Rentals/Rentlo's share of that demographic should not decline over the next few years, and so we would not be too bullish if we assumed customer growth of about 3.5% - it could be higher if the right new products are made available.  TGA has a track record of growing profits faster than revenue, plus units like Cashfirst and Thorn Equipment Finance will do well.  This is why I think EPS will grow 8%, 10% then 12% as I wrote above.  Of course, it could be lower, and perhaps even higher.  We just do not know.  Management probably have a fairly good idea of what will transpire, so watch out for director buying/selling activity.

PS  I do not think that the muted growth for 2013 and 2014 has much to do with the macro economic picture, I think management's focus on the NCML acquisition had an opportunity cost - it detracted from a variety of organic growth options that are now at least a year behind where they should be.


----------



## RottenValue (26 June 2012)

My view on why we have such divergent views on this business is that the majority of commentators have no understanding of Thorn Groups customer base.  Anyone who is comfortably off can't comprehend why you would enter into a lease deal for things such as TV, furniture or whitegoods.  I heard this stock being discussed on YMYC and the analyst making the point that the business model was dead as the cost of goods was now so cheap anyone would just buy them.

If we are are talking about a BMW then I'm sure the Macquarie analyst would understand the difference between the various purchasing models available!

The beauty of the poverty stocks is that they just continue to work away below the radar and accumulate earnings over a long period of time, providing a service to the part of the economy that the majority of the Melbourne and Sydney well to-do have no connection to.  

Hopefully Rodger the Dodger does his thing at some stage and the price starts to look after Pioupiou's retirement.

Disclosure:  I hold a small amount of TGA (20,000 shares) but accumulating


----------



## craft (26 June 2012)

Pioupiou said:


> I sent a copy of my 20-page Magnus Opus to Roger Montgomery, and in his recent blog entry he mentioned that he would provide a link to that report.




I'm curious as to why you would provide content for his marketing machine, allow him to summarise it, and dictate timing of release. He likes to promote his blog as some sort of benevolent site for value investors to share, but what it is really about is generating free content to support the marketing of his products or positions.


----------



## tech/a (26 June 2012)

RottenValue said:


> My view on why we have such divergent views on this business is that the majority of commentators have no understanding of Thorn Groups customer base.  Anyone who is comfortably off can't comprehend why you would enter into a lease deal for things such as TV, furniture or whitegoods. * I heard this stock being discussed on YMYC and the analyst making the point that the business model was dead as the cost of goods was now so cheap anyone would just buy them.*
> 
> *If we are are talking about a BMW then I'm sure the Macquarie analyst would understand the difference between the various purchasing models available!*
> 
> ...




(1) And this has no merit?
(2) How can you use this analogy?

Its dead.
Better invest elsewhere.

Where?
Short indexes.


----------



## tech/a (26 June 2012)

craft said:


> I'm curious as to why you would provide content for his marketing machine, allow him to summarise it, and dictate timing of release. He likes to promote his blog as some sort of benevolent site for value investors to share, but what it is really about is generating free content to support the marketing of his products.




Its a feel good thing.
You know involved in a "known"
blog. The need to be taken
seriously. Confirmation of view.
Validation in your own mind.


----------



## Pioupiou (26 June 2012)

craft said:


> I'm curious as to why you would provide content for his marketing machine, allow him to summarise it, and dictate timing of release. He likes to promote his blog as some sort of benevolent site for value investors to share, but what it is really about is generating free content to support the marketing of his products or positions.




I routinely visit this forum, Hotcopper, Topstocks and Roger's blog, and I contribute to all four when the spirit moves me.  I would be delighted to communicate with Lucifer himself, the bearer of light, if he were prepared to elucidate the unknowns that pertain to TGA for me, so sending an email to Roger hardly troubled me.  If Roger provides a link to that report, as he wrote that he would, a wider readership might at least generate constructive debate.

As RottenValue wrote, TGA's business is remarkably poorly understood - not that ignorance stints some folk expressing negative opinions about the business on television shows like YMYC.


----------



## Boggo (26 June 2012)

There may be a few trading squid in this 'amazing investment stock' for the nimble footed 

(click to expand)


----------



## Boggo (3 July 2012)

This seems to be travelling ok at the moment.
There may be a bit of resistance around 1.51 but expecting that it won't be an issue.

(click to expand)


----------



## Klogg (4 July 2012)

Boggo said:


> This seems to be travelling ok at the moment.
> There may be a bit of resistance around 1.51 but expecting that it won't be an issue.
> 
> (click to expand)




Nice work Boggo - you were spot on with that trade.


----------



## RottenValue (4 July 2012)

> Its dead.
> Better invest elsewhere.
> 
> Where?
> Short indexes.




Wheres Tech/A when we need him?

I cant believe his chart wizardry could miss a 10% increase in a week


----------



## Klogg (4 July 2012)

RottenValue said:


> Wheres Tech/A when we need him?
> 
> I cant believe his chart wizardry could miss a 10% increase in a week




Let's be fair - he did say he's setting a tight stop-loss and was very strict in his approach and did only say "Its dead" in respect to his trade. You can't a crack at him because one trade didn't work.

As for the SP movements of TGA, I find it quite odd that the SP has started moving so long after the release of their annual results...


----------



## Kulio (4 July 2012)

RottenValue said:


> Wheres Tech/A when we need him?
> 
> I cant believe his chart wizardry could miss a 10% increase in a week




People like to talk about their winners and say nothing when it comes to when they are wrong. Perhaps he thought TGA would continue on a "down trend" and felt the need to say it's a dead investment? Who knows what these techys think? Afterall they seem to be "experts" in something that is fuelled by emotions most of the time. ie price


----------



## Boggo (4 July 2012)

Klogg said:


> As for the SP movements of TGA, I find it quite odd that the SP has started moving so long after the release of their annual results...




We are back to the old chestnut aren't we, buy on behaviour or annual results.

Overall sentiment, predictable behaviour, predictable patterns, price action and volume behaviour etc are much more consistent, reliable and stronger force than any results.
Most annual reports etc are already accounted for by the money that has influence.

The average punter trying to get ahead of or even stay with the game by depending on reports etc is just picking up the crumbs if they are lucky. They can piggyback the big money and collect dividends along the way but in most cases the big money has been and gone and is on their next exploit while the punter is left holding the remnants.

Fund managers etc do ride out the declines but always with their clients money while they 'earn' a steady annual income in fees and convince their clients that all is well because the dividend yield is approaching double digits while avoiding explaining why.

If you want to find out what the weather is going to do tomorrow then look at the weather map, don't ask the guy who sells umbrellas.

My


----------



## Boggo (4 July 2012)

Kulio said:


> Who knows what these techys think? Afterall they seem to be "experts" in something that is *fuelled by emotions most of the time. ie price*




That's reality isn't it


----------



## Kulio (5 July 2012)

Boggo said:


> That's reality isn't it




It is reality but predicting something as random as emotions is something I never understood. 

Take my wife for example. Her emotional state is quite stable the last few weeks and it seems she is getting happier each day. So just when I think the trend is going to continue, she turns into a downright bitch all of a sudden. Never saw it coming.


----------



## robusta (5 July 2012)

Kulio said:


> It is reality but predicting something as random as emotions is something I never understood.
> 
> Take my wife for example. Her emotional state is quite stable the last few weeks and it seems she is getting happier each day. So just when I think the trend is going to continue, she turns into a downright bitch all of a sudden. Never saw it coming.




Same thing happens in our house, probably about a dozen times a year I still can't figure out any pattern. Surprises me every time.


----------



## tech/a (5 July 2012)

Kulio said:


> People like to talk about their winners and say nothing when it comes to when they are wrong. Perhaps he thought TGA would continue on a "down trend" and felt the need to say it's a dead investment? Who knows what these techys think? Afterall they seem to be "experts" in something that is fuelled by emotions most of the time. ie price




*What the????*

Since april 2011 its dropped around 40%
Its risen 10% which is a drop in the ocean 
Currently its clearly ranging between $1.55 and 1.40ish.
hardly mind boggling.

When it does something of note like clears $1.60 on 
a clear gap or solid volume impulse bar Ill agree.
but until then its dead.--In my not so humble opinion.

Oh and when is price fuelled by fundamental valuation?
Wait I know.
When its not fuelled by emotion!

Price is fuelled by Supply---as simple as that---thats right SUPPLY!
*Not demand!*


----------



## tech/a (5 July 2012)

> a dozen times a year




So youd say periodically


----------



## CanOz (5 July 2012)

tech/a said:


> So youd say periodically




ROFL!!

I see a pattern here


----------



## Boggo (10 July 2012)

If TGA can break up through the 1.56 area convincingly then the next target should be mid to high 1.60's.

(click to expand)


----------



## Klogg (10 July 2012)

A question for you Boggo - Given that the $1.58 was a point of support for a while, would this not be the point of resistance that needs to be breached?

And thanks for the chart.


----------



## takeprofits (10 July 2012)

Hey Techy, do me a favour and buy some more TGA in the $1.50's with a tight stop, and I'll buy them off you in the $1.40's when your tea leaves tell you to sell.

You T/A guys should clear off to your own thread, so we don't have to read your drivle!


----------



## robusta (10 July 2012)

takeprofits said:


> Hey Techy, do me a favour and buy some more TGA in the $1.50's with a tight stop, and I'll buy them off you in the $1.40's when your tea leaves tell you to sell.
> 
> You T/A guys should clear off to your own thread, so we don't have to read your drivle!




I like hearing differing opinions, maybe I will learn something.


----------



## tech/a (10 July 2012)

takeprofits said:


> Hey Techy, do me a favour and buy some more TGA in the $1.50's with a tight stop, and I'll buy them off you in the $1.40's when your tea leaves tell you to sell.
> 
> You T/A guys should clear off to your own thread, so we don't have to read your drivle!




And this was an exclusive thread
WHEN?

Introduce yourself to the IGNORE button.


----------



## prawn_86 (10 July 2012)

Just to note that this thread is the *TGA* thread. Any forms of analysis can be discussed, as long as it is backed up with reasoning


----------



## CanOz (10 July 2012)

takeprofits said:


> Hey Techy, do me a favour and buy some more TGA in the $1.50's with a tight stop, and I'll buy them off you in the $1.40's when your tea leaves tell you to sell.
> 
> You T/A guys should clear off to your own thread, so we don't have to read your drivle!




This thread is for discussion of TGA be it Technical or Fundamental. I would like to think that both schools can compliment each other...the institutions seem to think so

CanOz

Edit: thanks Prawn!! Too quick for me!


----------



## tech/a (10 July 2012)

takeprofits said:


> Hey Techy, do me a favour and buy some more TGA in the $1.50's with a tight stop, and I'll buy them off you in the $1.40's when your tea leaves tell you to sell.
> 
> You T/A guys should clear off to your own thread, so we don't have to read your drivle!




And this was an exclusive thread
WHEN?

Introduce yourself to the IGNORE button.


----------



## prawn_86 (10 July 2012)

CanOz said:


> Edit: thanks Prawn!! Too quick for me!




That's what my wife says!


----------



## Klogg (10 July 2012)

Wow... can we stop trying to shoot everyone else's method down?

Even though I'm not well-versed in T/A and don't use it, I do appreciate hearing/learning about it - especially when the trade is as accurate as Boggo's last.


----------



## takeprofits (10 July 2012)

I actually do appreciate the tecnical analysis gamblers out there. If it wasn't for them the fundamental analysis investors might not get the chance to increase their holdings in well run profitable businesses.


----------



## CanOz (10 July 2012)

takeprofits said:


> I actually do appreciate the tecnical analysis gamblers out there. If it wasn't for them the fundamental analysis investors might not get the chance to increase their holdings in well run profitable businesses.




Technical traders aren't the only ones adding to the liquidity pool!

CanOz


----------



## tech/a (10 July 2012)

takeprofits said:


> I actually do appreciate the tecnical analysis gamblers out there. If it wasn't for them the fundamental analysis investors might not get the chance to increase their holdings in well run profitable businesses.




Yeh I love the gamblers as well technical and funny mental.


----------



## tech/a (10 July 2012)

Like the look of this technically again.
Looking for a strong move from here.
Gap/wide range bar/ average volume
High volume would indicate supply.
And that would see my interest wane.


----------



## Pioupiou (11 July 2012)

tech/a said:


> Like the look of this technically again.
> Looking for a strong move from here.
> Gap/wide range bar/ average volume
> High volume would indicate supply.
> And that would see my interest wane.




I think you are right - supply is tight at the current circa $1.55 level, but buyers think they are going to pick TGA up cheap, so they are pitching their bids low, and hoping.  I am interested to see if the SP dribbles up to $1.60 over the next week or so.  Not that it will sway me to either buy or sell, because I have neither the funds to buy, nor the inclination to sell below $2.00.


----------



## Pioupiou (17 July 2012)

Pioupiou said:


> I think you are right - supply is tight at the current circa $1.55 level, but buyers think they are going to pick TGA up cheap, so they are pitching their bids low, and hoping.  I am interested to see if the SP dribbles up to $1.60 over the next week or so.  Not that it will sway me to either buy or sell, because I have neither the funds to buy, nor the inclination to sell below $2.00.




Supply between $1.55 and $1.60 is waxing, so TGA is not going to get to $1.60 in a hurry.  Anyhow, tomorrow is dividend-receiving day, so that cheers me up a bit.


----------



## Pioupiou (26 July 2012)

Somebody bought 750,000 TGA at COB on Tuesday, 24/07/2012, for something like $1.51, and AMP Limited announced it increased its holding  from 7,398,916 (5.05%) TGA shares to 8,879,406 (6.07%) as of that date.  The latter is an increase of 1,480,490, so it is possible that AMP bought that parcel on Tuesday, but one cannot be sure.  The new floor seems to be about $1.50 – at that SP the shares get vacuumed up as quickly as they are offered.

I have not read the annual report in detail, but the forward-looking comments were interesting.  They seem to imply that Radio Rentals/Rentlo will dribble forward – Cashfirst and Thorn Equipment Finance (TEF) will be stunning – NCML will improve – costs will be incurred launching the used car rental initiative – some five new one-person branches (OPBs) are on the cards.  Because Radio Rentals/Rentlo delivers 90% of the profits, one could read this to mean that relative to FY2012 the EPS could be down a smidgeon (as the Macqurie report suggests) or up a smidgeon (as I like to think).

According to John Hughes (May presentation), as a rule of thumb new initiatives follow the same path as opening new OPBs – that is, they lose money in Y1, break even in Y2 and make a profit in Y3.  Consequently, earlier-opened OPBs, TEF and Cashfirst will add to profitability, whereas new stores and the car-rental initiative will detract from profitability.

The Annual Report suggests that the expansion of the outlet network is nearing completion – the exact words being “After some four years of upgrades and relocations the store network is in a position of optimising its service reach and accessibility to customers.”  In a way this is good news, because pushing into increasingly less suitable outlets is a common way for outlet-dependant businesses fixated on increasing turnover expand into profit dilution.  TGA would be better served using the outlet network to make profits from new rental products and new businesses like Cashfirst, and the planned variations to Cashfirst (a new division centered on Cashfirst is planned, and it will expand into additional demographics).

A point that I had not considered before is for OPBs to expand into Full Service Branches.  The words in the report are: “One Person Branches are used to develop unserviced and underserviced regional areas that have the ability to become stand-alone Full Service Branches within two to three years. New outlets continued to perform strongly with the majority exceeding expectations. This provides strong impetus for up to another five to be opened in the 2012/13 year.”

About two months ago I completed a report on TGA that I wrote for myself, and which I shared with some four people, including one or two readers of this forum.  I tired of the exercise, and did not edit it to publication quality, and neither did I include comparisons with other stocks, as I had originally intended.  In that report I assumed EPS would grow 8% in FY2013, and then 10% and then 12%.  There is a reasonable copy of that report at http://www.jochimaker.com/   Pasting into the blog as damaged the layout and interfered with the font slightly.

On the matter of new initiatives reducing short-term profitability, accounting can legitimately mask this by capitalising costs, and if you read MMS's reports, you can see that this is what it does, plus it borrows to fund its rental property (car fleets).  TGA tends to be conservative, so it expenses development costs where it can, and it self funds its rental stock.  What TGA will do  in future in respect to funding stock handled by TEF and the rented cars remains to be seen.  Personally, I think TGA can tolerate a little more debt with advantage.  As an aside on masking or exaggerating profits, the value of Purchased Debt Ledgers is extremely subjective, so it is a soft target for accounting manipulation, with somebody suggesting that CCP may via this process be doing better than they publish, and one of its competitors (cannot recall the name) going in the opposite direction.  Reported profits can be elastic.


----------



## Kulio (27 July 2012)

```

```



tech/a said:


> TGA
> 
> Still dead in the water technically.
> Taking the small loss was wise in hindsite.




Lol could have had a small gain instead. Doubt you had a better opportunity cost elsewhere while recovering that loss. Small or big, a loss is never good.


----------



## brty (27 July 2012)

Kulio, that is not the way people should be using this forum.

Not that anyone needs to come to Tech/A's defence, but you need to be reminded that he has his system that has shown long term results, and he sticks to it. In this case it called for a long position with a stop of 4 cents. If his system shows a positive expectancy per x number of trades, this is just another trade in the sequence. You take all trades knowing that there will be losses.

How do you trade? Do you stay in until the price has gone horribly against you, because the story is good (fundamentals)?


----------



## tech/a (27 July 2012)

tech/a said:


> TGA
> 
> Still dead in the water technically.
> Taking the small loss was wise in hindsite.




14th June
Our friend has selective "quote" syndrome.
Note the 17th July.

A $500 loss is 1 session on the FTSE. about 30 ticks. (Usually 1-2 hrs)
So hardly an issue.


----------



## prawn_86 (27 July 2012)

Further posts talking about individual investors styles on this thread will be removed and infracted. Final warning.

Please stick to the discussion at hand, which is RED


----------



## barney (27 July 2012)

prawn_86 said:


> Further posts talking about individual investors styles on this thread will be removed and infracted. Final warning.
> 
> *Please stick to the discussion at hand, which is RED*





Gotta stop using those "Form" letters Prawn:


----------



## prawn_86 (27 July 2012)

barney said:


> Gotta stop using those "Form" letters Prawn:




haha apologies. Certain threads seem to be the troublesome ones.

Stick to talking about TGA please people


----------



## Kulio (28 July 2012)

tech/a said:


> 14th June
> Our friend has selective "quote" syndrome.
> Note the 17th July.
> 
> ...




So you bought at 1.54, sold at 1.51 and made a loss of $500? It is now sitting at 1.585, which means you could have made a gain of $750. Seems like you made a loss of $1,250 to me.

Just wondering how often these monthly losses occur to you?

You lose money you've got to put double the effort to make it back kids.


----------



## Kulio (28 July 2012)

brty said:


> Not that anyone needs to come to Tech/A's defence, but you need to be reminded that he has his system that has shown long term results, and he sticks to it. In this case it called for a long position with a stop of 4 cents. If his system shows a positive expectancy per x number of trades, this is just another trade in the sequence. You take all trades knowing that there will be losses.
> 
> How do you trade? Do you stay in until the price has gone horribly against you, because the story is good (fundamentals)?




It's easy to post your winners and not mention your losers. Just food for thought.

Yes I trade on fundamentals not ticky tick ticks. Not sure how to answer the other part of your question, because that hasn't happened to me yet.


----------



## tech/a (28 July 2012)

Kulio said:


> So you bought at 1.54, sold at 1.51 and made a loss of $500? It is now sitting at 1.585, which means you could have made a gain of $750. Seems like you made a loss of $1,250 to me.
> 
> Just wondering how often these monthly losses occur to you?




What the?
Who gives a Shiit


----------



## Kulio (28 July 2012)

tech/a said:


> What the?
> Who gives a Shiit




Hey if you're willing to throw away $1,250 every month can you please give it to me?


----------



## Ves (28 July 2012)

Kulio said:


> Hey if you're willing to throw away $1,250 every month can you please give it to me?



Don't forget the 5.5 cents per share dividend.

Effective loss is 13 cents per share...


----------



## tech/a (28 July 2012)

Ahh I see 
Duck season.

I'll play.
Yeh I've been sitting watching 
TGA lamenting lost opportunity.
Totally devastated

Thanks for the tips.


----------



## Julia (28 July 2012)

Kulio said:


> So you bought at 1.54, sold at 1.51 and made a loss of $500? It is now sitting at 1.585, which means you could have made a gain of $750. Seems like you made a loss of $1,250 to me.
> 
> Just wondering how often these monthly losses occur to you?
> 
> You lose money you've got to put double the effort to make it back kids.



I don't want to get involved in discussion of TGA because I don't know anything much about it, but as a general principle and comment on the above observation of a loss, yes that's true.

However, if - instead of rising to 1.585 - it had dropped further and continued dropping, then taking a small loss is better than a large one.

There's never going to be a meeting of minds on the two approaches.  People who are devoted to the so called value investing idea don't seem to mind continuing to hold any stock, regardless of its SP, as long as they still believe in the value of the company.  I can't do that, but I get what they believe.

Someone following price alone is simply not going to see their capital investment continue to fall, so will prefer to take a small loss at a predetermined level.

Might as well just accept all round that one group is unlikely to convince the other about the validity of their approach.  Neither is there any reason why either should imo.


----------



## Kulio (28 July 2012)

Ves said:


> Don't forget the 5.5 cents per share dividend.
> 
> Effective loss is 13 cents per share...




Effective loss approximately 8.4%. Perhaps he withdrew the funds at 1.51 and thought he could get a better than 16.8% return with the funds invested somewhere else in the next month.


----------



## tech/a (28 July 2012)

Kulio said:


> Effective loss approximately 8.4%. Perhaps he withdrew the funds at 1.51 and thought he could get a better than 16.8% return with the funds invested somewhere else in the next month.




Returns on trading the FTSE last month $12675 AU 
So I guess that does it.

Really your post is schoolboy stuff.
Some of us here trade serious $$s and have been for many years.

Sure I get stopped out and see a stock turn back in the direction I was
On. I've also been stopped out and the stock just plummets.
It's called trading.

Very rarely trade stock in this market.
Indexes are easier so that's where you'll find me.
$500 stop loss is never a concern as is lost profit if
A stock runs back after a stop.

Always something to work with.
I see you've had 8 posts.
They don't seem to have any content though?


----------



## oldblue (28 July 2012)

Thanks, Pioupiou, for your post of 26 July.

I've been buying a few lately for my longterm portfolio. Without getting into that FA v TA nonsense, the fundamentals stack up for me and the SP seems to have found support around current levels.


----------



## Boggo (28 July 2012)

Julia said:


> Someone following price alone is simply not going to see their capital investment continue to fall, so will prefer to take a small loss at a predetermined level.



A very basic tried, tested and proven method of staying in business.
I bet the people who are hanging on to IAU, BBG and ILU etc are wishing they had the intelligence to have exited when their $$ started to erode.



Kulio said:


> Effective loss approximately 8.4%.



One day if you last long enough you will see the errors of that amateur gambler mentality statement.



oldblue said:


> Without getting into that FA v TA nonsense, the *fundamentals stack up* for me and *the SP seems to have found support around current levels*.



You covered both there oldblue 


Anyway, back on the subject of TGA. Its starting to look good, of my systems for going long the Turtle Breakout System seems to have the runs on the board so far for this stock.
Just waiting for the next bar to take shape and I may be an 'investor' until it starts to give away some of my money, that's we part ways again.

(click to expand)


----------



## Kulio (28 July 2012)

Boggo said:


> One day if you last long enough you will see the errors of that amateur gambler mentality statement.
> 
> 
> )




Please elaborate.


----------



## Kulio (28 July 2012)

tech/a said:


> Returns on trading the FTSE last month $12675 AU
> So I guess that does it.
> 
> Really your post is schoolboy stuff.
> ...




And what content have you provided other than teaching us how to lose money on a stock like TGA?

Good stuff on the FTSE mate. You're a real winner.


----------



## Boggo (28 July 2012)

Kulio said:


> Please elaborate.




Ride a few losers down instead of taking a small loss and believe me, you will work it out !


----------



## Ves (28 July 2012)

Julia said:


> Someone following price alone is simply not going to see their capital investment continue to fall, so will prefer to take a small loss at a predetermined level.



I think when you have a predetermined level before the trade, and you change that predetermined level during the trade, it is a psychological error  (see: fear).   Especially when the trade doesn't break through to the original support of the so called discretionary trade?  We all make these, of course.  Just an observation of the trading method employed by the poster intended. You set a risk level  (in this particular trade I would argue the original level of 4c wasn't enough room for error in the first place - you'd get stopped out more often than not with only 2.59% margin).

I'm sure tech/a knows this - but does his audience?


----------



## tech/a (28 July 2012)

Ves said:


> I think when you have a predetermined level before the trade, and you change that predetermined level during the trade, it is a psychological error  (see: fear).   Especially when the trade doesn't break through to the original support of the so called discretionary trade?  We all make these, of course.  Just an observation of the trading method employed by the poster intended. You set a risk level  (in this particular trade I would argue the original level of 4c wasn't enough room for error in the first place - you'd get stopped out more often than not with only 2.59% margin).
> 
> I'm sure tech/a knows this - but does his audience?




Hind site trading is practiced by the novice---common on these types of threads.

Changing stop levels ( wider ) is a psychological issue --- not taking the stop.
I like my trades to move immediately and have learnt that closer stops deliver a better R/R on a portfolio than wider ones.
In markets like these I prefer to be in and out than sitting waiting.
Since that trade I've completed over 60 I'm sure other short term traders( in this market ) more.

I took a loss---what's the big deal?
Next.


----------



## Ves (28 July 2012)

tech/a said:


> Hind site trading is practiced by the novice---common on these types of threads.



Hindsight trading now is it?  I mentioned a possible V-bottom at $1.34  (last I checked still in play) well before the techies arrived in the thread (and was subsequently told a four-year old could see that the trend was going down).

You freely give advice to others, whether they want it or not, I'm giving you some of your own to think about.  I remember saying on the day that your entry looked arbitrary at best. Go check out the post.

In this case you changed your analysis after the fact and were a bit rash - it's an error of judgment that I am pointing out not a personal attack. I'm certainly not questioning your trading prowess.


----------



## Julia (28 July 2012)

Boggo said:


> Ride a few losers down instead of taking a small loss and believe me, you will work it out !



+1.


----------



## HarryH (29 July 2012)

Boggo said:


> Ride a few losers down instead of taking a small loss and believe me, you will work it out !




Yeah but you're talking about speculative stocks that are, quite bluntly, crap fundamentally with no history of solid earnings or confidence of solid earning going forward. Those types of stocks are a gamble and you would want a stop loss on them. Better to avoid that problem by not investing in crap companies fundamentally wise. 

Those three stocks you mention are absolutely horrible fundamentally wise and anyone who bought and held those stocks deserve to have lost their money for investing in such crap companies. Just like those people who went on another speculation adventure in trees just a few years back. TGA should not even be in the same category.


----------



## tech/a (29 July 2012)

Ves said:


> Hindsight trading now is it?  I mentioned a possible V-bottom at $1.34  (last I checked still in play) well before the techies arrived in the thread (and was subsequently told a four-year old could see that the trend was going down).
> 
> You freely give advice to others, whether they want it or not, I'm giving you some of your own to think about.  I remember saying on the day that your entry looked arbitrary at best. Go check out the post.
> 
> In this case you changed your analysis after the fact and were a bit rash - it's an error of judgment that I am pointing out not a personal attack. I'm certainly not questioning your trading prowess.




OF course it's an error in judgement.
The analysis was proven wrong that's why stops are placed.
Thats what I like about.  T/A  you can be wrong more often than your right and still be profitable.
Short term analysis is a bar by bar process.

Longterm analysis for TGA is a prolonged down trend.

For the pleasure of Duck hunters
I get it wrong --- often
Aim however profitable --- often.
I minimize loss and where I can maximize gain.

It's called trading.


----------



## ROE (29 July 2012)

The eternal fight of TA vs FA
I think you guys wasting times trying to prove each other wrong.
Just stick to the stuff you do best and stick to the topic of the individual stock

every thread on this stockforum some how end up with TA vs FA. 

TA can put up their charts and FA can put up figures and please stay on track


----------



## Boggo (29 July 2012)

HarryH said:


> *Yeah but you're talking about speculative stocks that are, quite bluntly, crap fundamentally with no history of solid earnings* or confidence of solid earning going forward. Those types of stocks are a gamble and you would want a stop loss on them. Better to avoid that problem by not investing in crap companies fundamentally wise.



Its quite interesting then how most who hold for the long term and ride their potential profit downwards seem to quote prices that they originally bought them at when the stocks were speccys.



HarryH said:


> *Those three stocks you mention are absolutely horrible fundamentally wise* and anyone who bought and held those stocks deserve to have lost their money for investing in such crap companies.



They are horrible now but they were fine on the way up and half way down as well and this is the issue worth noting (see example below) 



HarryH said:


> Just like those people who went on another speculation adventure in trees just a few years back.



I had a great run years ago with TIM but was on the sidelines when the fundamental reality was realised, unfortunately for those waiting for belated guidance it had dropped from over $4 to below $2 by the time the fundamentals were available to the masses. (chart below).



HarryH said:


> TGA should not even be in the same category.



So you are saying that it is ok to ride TGA down to a bottom that you know exists, but you just don't know where.

This is an extract from an article by Radge...
_Consider, though, the average fund manager lost between 40 to 50 per cent during 2008. A 50 per cent decline in capital requires a 100 per cent gain just to recover.
Over the (very) long term the stock market has an annual return of about 8.5 per cent which means it will take 3100 days, or over eight years, to get back to where you started. _

Back to the topic of TGA, I like the look of it at the moment but it needs to break through the 1.58 to 1.60 area and find support at or above 1.60 before we have a possible trend reversal.

(chart of TIM - click to expand)


----------



## Boggo (30 July 2012)

Practical application of the "put up or shut up" theory.
Would have preferred to have waited until later in the day to enter but not possible.

Expecting an initial run up to around 1.76 with a typical target of 1.835.

Entry and calcs based on that, $675 at risk (exc brokerage), R/R is 2.2 @ 1.76 and 3.2 @ 1.835.

(click to expand)


----------



## tech/a (31 July 2012)

Ive joined in as well.
$1.59 stop $1.49
Lot to like about the current chart.


----------



## Mammom (2 August 2012)

tech/a said:


> Ive joined in as well.
> $1.59 stop $1.49
> *Lot to like about the current chart*.




I don't choose to buy stocks on the basis of a technical analysis but I will sometimes choose to buy _into_ a stock on that basis.  What is TGA's recent price movement telling you tech guys?  I'd be interested to hear.  

Cheers,

Mammom


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## Pioupiou (3 August 2012)

TGA seems to have an upward-edging floor whereat shares get sucked up by buyers.  In loose terms, from when the SP closed at $1.39 on 10/05/2012, this floor has been $1.40, $1.45. $1.50, $1.55 and now $1.60.  If one adjusted for the recent dividend of 5.5c with the ex-dividend date of 17/06/2012, one could render this as starting at $1.35 (roughly).  The way things look, the new floor will soon be $1.65.

There always seem to be a bunch of convent girls selling pathetic quantities at the bottom of the ladder.  At about 3:00PM today (Friday 03/08/2012) the gaggle was 11 sellers offering 2,045 shares at $1.605, which averages 186 shares each.  If they drop a cent it would only cost them the price of a few lollies.  As for Bots, this is what the last few trades then were: 

2:47:48 PM - $1.600 - 60 - $96.000	
2:47:45 PM - $1.600 - 19 - $30.400	
2:45:31 PM - $1.600 - 60 - $96.000	
2:43:31 PM - $1.600 - 19 - $30.400	
2:43:31 PM - $1.600 - 60 - $96.000

I suspect the SP will end up today at its opening price of $1.610 – perhaps a cent more.  Anyhow, I think there are a good few more 5-cent ascending steps ahead.


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## Pioupiou (8 August 2012)

The latest Clime valuation of TGA is $2.21 - see http://au.pfinance.yahoo.com/our-ex...50/undervalued-stock-of-the-week-thorn-group/ 

A year or two back Clime had higher TGA valuations that never eventuated, so as always, take these guesstimates with a  pinch of salt.  However, one can with reasonable confidence believe that there is more upside than downside probability at TGA's current SP (closed $1.62 today, 8/8/2012).


----------



## tinhat (9 August 2012)

Pioupiou said:


> The latest Clime valuation of TGA is $2.21 - see http://au.pfinance.yahoo.com/our-ex...50/undervalued-stock-of-the-week-thorn-group/
> 
> A year or two back Clime had higher TGA valuations that never eventuated, so as always, take these guesstimates with a  pinch of salt.  However, one can with reasonable confidence believe that there is more upside than downside probability at TGA's current SP (closed $1.62 today, 8/8/2012).




I hold TGA, but if my portfolio achieved market consensus values from about twelve months go it would be at least 30% higher than it is now. Make that a large pinch of salt.


----------



## Pioupiou (16 August 2012)

Pioupiou said:


> TGA seems to have an upward-edging floor whereat shares get sucked up by buyers.  In loose terms, from when the SP closed at $1.39 on 10/05/2012, this floor has been $1.40, $1.45. $1.50, $1.55 and now $1.60.  If one adjusted for the recent dividend of 5.5c with the ex-dividend date of 17/06/2012, one could render this as starting at $1.35 (roughly).  The way things look, the new floor will soon be $1.65.
> 
> . . . I think there are a good few more 5-cent ascending steps ahead.




One can reasonably hold that TGA's SP has made it to the $1.65 step - i.e., there are now buyers to suck up whatever is offered at about $1.65.  The next short-term target is $1.70, and then another three 5-cent steps to $1.85, the price of the capital raising in June 2011.  I'll opine on the long term trajectory when we get to $1.85, although I expect the SP to continue upward in the same direction as the EPS and dividend per share.  My average purchase price is $1.2155 including brokerage, so I am ahead, and I do not expect to see my paper profit whittled back - but black swan events do happen.


----------



## Klogg (16 August 2012)

Changing the topic slightly from the Share Price...

I don't know if it's just me, but I've noticed a lot more Cash First ads on T.V. recently. I don't usually watch much, but some of the Foxtel channels I've been on recently seem to have them all the time, from around 9-12pm.

Were they always advertising so much?


----------



## Pioupiou (16 August 2012)

Klogg said:


> Changing the topic slightly from the Share Price...
> 
> I don't know if it's just me, but I've noticed a lot more Cash First ads on T.V. recently. I don't usually watch much, but some of the Foxtel channels I've been on recently seem to have them all the time, from around 9-12pm.
> 
> Were they always advertising so much?




I rarely watch TV, so I have never seen a Cashfirst advertisement, but I presume Thorn has increased its advertising to achieve its goal of ramping up Cashfirst as the kernal of its planned Financial Services Division.  Also, Thorn rolled out the Cashfirst in measured steps, starting in Tasmania, then South Australia, so if you live in a geographic area only now added to the equation, then any advertising would be new to that area.

I make four points below that relate to this matter of expanding this new division - mainly:

* Thorn had a results-based advertising deal, so it can increase advertising, provided the advertising service supplier is willing.  If the tempo has increased you can be sure that the net effect is a positive for TGA and the advertising service supplier.  Thorn was not keen to blab about this deal.

* One of the statements made recently was that Cashfirst would leverage off the Thorn outlet network, whereas when I spoke to two outlets months ago, the people there were hardly aware of Cashfirst, because Thorn was then not pushing Cashfirst across its network.  It is probably doing so now.

* I recall that I read, or heard, that the target book value for Cashfirst for YE 30/03/2013 is $25M.  The value was $17.3 for YE 30/03/2012, so we are looking at a 33.3% expansion.  I could not find the source of this information, so my memory may be incorrect.

* Thorn intended to convert Cashfirst into a financial services division under a general manager, and graft additional financial products thereon.  This plan may have progressed since it was stated in the May presentation.  The logical first step of the new division is to run very hard with the proven Cashfirst initiative, which includes exploiting the performance-based advertising deal, where Thorn has nothing to lose by increasing advertising. 

The SP did not take long to move from $1.65 to $1.70 - it did that in one day (today).  The next stop is $1.75.


----------



## Klogg (16 August 2012)

Pioupiou said:


> * Thorn had a results-based advertising deal, so it can increase advertising, provided the advertising service supplier is willing.  If the tempo has increased you can be sure that the net effect is a positive for TGA and the advertising service supplier.  Thorn was not keen to blab about this deal.




PP, may I ask where you found this info?


----------



## Pioupiou (16 August 2012)

Klogg said:


> PP, may I ask where you found this info?




Access http://www.brrmedia.com/event/89694...arshall-general-manager-radio-rentals--rentlo and click on slide 18, then listen.  John Hughes overtly states that the advertising arrangement is something that TGA does not publicise.


----------



## Klogg (16 August 2012)

Pioupiou said:


> Access http://www.brrmedia.com/event/89694...arshall-general-manager-radio-rentals--rentlo and click on slide 18, then listen.  John Hughes overtly states that the advertising arrangement is something that TGA does not publicise.




Ah yeah, I remember listening to that...

Thanks!


----------



## RottenValue (17 August 2012)

tech/a said:


> (1) And this has no merit?
> (2) How can you use this analogy?
> 
> Its dead.
> ...




Maybe not quite dead yet as it hit $1.80 today

But I assume the short indexes are going well so we are all winners


----------



## McCoy Pauley (17 August 2012)

Share price taken off like a rocket this morning. Up 4%.


----------



## craft (17 August 2012)

McCoy Pauley said:


> Share price taken off like a rocket this morning. Up 4%.



That’s just the momentum players getting onboard.  One well followed service here at ASF had a entry issued for this morning’s open.


----------



## Pioupiou (17 August 2012)

Pioupiou said:


> TGA seems to have an upward-edging floor whereat shares get sucked up by buyers.  In loose terms, from when the SP closed at $1.39 on 10/05/2012, this floor has been $1.40, $1.45. $1.50, $1.55 and now $1.60.  If one adjusted for the recent dividend of 5.5c with the ex-dividend date of 17/06/2012, one could render this as starting at $1.35 (roughly).  The way things look, the new floor will soon be $1.65.
> 
> . . . Anyhow, I think there are a good few more 5-cent ascending steps ahead.




Well the Hoover Point moved to $1.65, then $1.70 and I suggest that it has now at $1.75, which means I think it will soon get to $1.80.  The Hoover Point is a neologism I have just invented - a share price at which all shares offered are immediately sucked up by a large vacuum cleaner.  These prices do not surprise me - the surprise is that the SP ever dropped below $2.00, thus seducing me to buy many more TGA shares, even though I had earlier decided I had too many of them.

The downside of all this joy is that I will one day be shifted from the current no-brainer setting to one where I need to think - plan for a partial exit strategy.  At what price do I sell?  When the SP was edging above $2.25 just over a year ago, I was too slow to offer some of the shares for sale, and missed out selling any.

One the matter of TA, some chartists suggested earlier that the SP had to break $1.50 to indicate a trend reversal, then $1.60 was mooted as the number.  Tech/A jumped in at $1.59, or there about.  What is the TA perspective now?  As an FA-inclined investor, anything below $2.00 looks worth buying to me if I were looking to invet in TGA, which I am not (no cash slopping about looking for a home).


----------



## tech/a (17 August 2012)

tech/a said:


> Ive joined in as well.
> $1.59 stop $1.49
> Lot to like about the current chart.






RottenValue said:


> Maybe not quite dead yet as it hit $1.80 today
> 
> But I assume the short indexes are going well so we are all winners






Selective quoting---had a wife like that once!

Holding above $1.80 is critical.


----------



## jet328 (17 August 2012)

tech/a said:


> Ive joined in as well.
> $1.59 stop $1.49
> Lot to like about the current chart.




Good call tech. What made you like the chart, was it breaking through the resistance at $1.56?


----------



## tech/a (18 August 2012)

jet328 said:


> Good call tech. What made you like the chart, was it breaking through the resistance at $1.56?




First trade which was aggressive was stopped------it happens.
Basics like higher highs and higher lows----plus the break of resistance.
Simple really and easy to like.

If things alter it will be just as easy not to like!


----------



## HarryH (18 August 2012)

tech/a said:


> First trade which was aggressive was stopped------it happens.
> Basics like higher highs and higher lows----plus the break of resistance.
> Simple really and easy to like.
> 
> If things alter it will be just as easy not to like!




So no longer a dead investment? Change your mind again and I might call you fickle.


----------



## oldblue (18 August 2012)

HarryH said:


> So no longer a dead investment? Change your mind again and I might call you fickle.




tech/a has shown that he can well look after himself but it's worth pointing out that he comes from the perspective of a trader, not a longterm investor.

I value good posts from both viewpoints!


----------



## Boggo (18 August 2012)

HarryH said:


> So no longer a dead investment? Change your mind again and I might call you fickle.




I don't think that tech/a would care if you call him fickle. Read and learn would be my 
The ability to constanly adapt to sorrounding conditions is the simple clue to survival/profitability in this traders market.
If you haven't got the ability to do and recognise that skill then you may as well just hand your money over to a financial planner.



oldblue said:


> tech/a has shown that he can well look after himself but it's worth pointing out that he comes from the perspective of a trader, not a longterm investor.
> 
> I value good posts from both viewpoints!






Anyway, back to TGA, a follow up from here - https://www.aussiestockforums.com/f...=18617&page=43&p=721130&viewfull=1#post721130

Nearly at its first target


----------



## HarryH (18 August 2012)

Boggo said:


> I don't think that tech/a would care if you call him fickle. Read and learn would be my
> The ability to constanly adapt to sorrounding conditions is the simple clue to survival/profitability in this traders market.
> If you haven't got the ability to do and recognise that skill then you may as well just hand your money over to a financial planner.




Yeah well to invest then pull out with a loss then call it a dead investment then to invest again. Sounds fickle to me. Not that he would care like you said, just looks like one of those funny things to me.

Your advice has been noted thanks. Though does it apply to long-term investors who don't care about short-term fluctuations or are you saying that all investors should care about these short-term fluctuations and have the skill to analyse them?


----------



## Boggo (18 August 2012)

HarryH said:


> Yeah well to invest then pull out with a loss then call it a dead investment then to invest again. Sounds fickle to me. Not that he would care like you said, just looks like one of those funny things to me.






Boggo said:


> The ability to *constanly adapt* to sorrounding conditions






HarryH said:


> Your advice has been noted thanks. Though does it apply to long-term investors who don't care about short-term fluctuations or are you saying that all investors should care about these short-term fluctuations and have the skill to analyse them?




ABY and IAU (just to name two of many) started down with a short-term fluctuation too, based on your method then you would still be holding those and tech/a would have forgotten that he ever held them.

If TGA hadn't turned back up then tech/a would have had his funds in the next candidate after a controlled loss.
Had it continued down you would have been averaging down and most likely telling us how it is "a bargain at these prices", isn't that effectively what you are saying ?


----------



## HarryH (18 August 2012)

Boggo said:


> ABY and IAU (just to name two of many) started down with a short-term fluctuation too, based on your method then you would still be holding those and tech/a would have forgotten that he ever held them.
> 
> If TGA hadn't turned back up then tech/a would have had his funds in the next candidate after a controlled loss.
> Had it continued down you would have been averaging down and most likely telling us how it is "a bargain at these prices", isn't that effectively what you are saying ?




Who says all long-term traders would invest in any old company like ABY and IAU in the first place? Are you saying you have a dart board with various companies on them and analyse/invest in which ever company the dart hits?

If TGA was to do that then I would be more than happy to accumulate more.


----------



## Boggo (18 August 2012)

HarryH said:


> Who says all long-term traders would invest in any old company like ABY and IAU in the first place? Are you saying you have a dart board with various companies on them and analyse/invest in which ever company the dart hits?
> 
> If TGA was to do that then I would be more than happy to accumulate more.




Regardless of the names they either go up, down or sideways and will only make you money when they are going in the direction that you expected them too do when you bought them.

Have a read of some of the enlightening posts from this one onwards (this was when TGA was over $2.00 !), all completely irrelevant twaddle and all it does is psychologically reinforce the fact that it is ok to tie your funds up for well over a year, and TGA it still only back to sub $1.80.
https://www.aussiestockforums.com/f...t=18617&page=4&p=635361&viewfull=1#post635361


----------



## Julia (18 August 2012)

HarryH said:


> Who says all long-term traders would invest in any old company like ABY and IAU in the first place? Are you saying you have a dart board with various companies on them and analyse/invest in which ever company the dart hits?
> 
> If TGA was to do that then I would be more than happy to accumulate more.



This post doesn't address Boggo's preceding question.

Might be good to learn a bit about a technical approach before dissing one of ASF's most successful people.


----------



## HarryH (18 August 2012)

Julia said:


> This post doesn't address Boggo's preceding question.
> 
> Might be good to learn a bit about a technical approach before dissing one of ASF's most successful people.




Preceding question? I thought I said I would accumulate more. Didn't think I needed to expand further than that. But if you really need a more direct answer then yes I was basically saying it would be a bargain. Although I should of maybe added that only if the price drop wasn't warranted from a fundamental perspective.

Yes I did use the word fickle but it was more as light hearted poke. I haven't been "dissing" TA as you put it or meaning to insinuate that it's bad or an unreasonable basis of allocating capital.

Anyway, Julia would love to hear your input on TGA either on a fundamental or TA point. You past posts have been very resourceful with great logic and inspires me to learn more and more from you. Cute dog by the way. Any opinions I will value from you. Thanks mate.


----------



## Pioupiou (19 August 2012)

Boggo said:


> Regardless of the names they either go up, down or sideways and will only make you money when they are going in the direction that you expected them too do when you bought them.
> 
> Have a read of some of the enlightening posts from this one onwards (this was when TGA was over $2.00 !), all completely irrelevant twaddle and all it does is psychologically reinforce the fact that it is ok to tie your funds up for well over a year, and TGA it still only back to sub $1.80.
> https://www.aussiestockforums.com/f...t=18617&page=4&p=635361&viewfull=1#post635361




On you first paragraph, there is little difference between the FA and TA approaches.  If chartists think an SP is going up, they may buy in if they have the money, and if it is his best investment option at that point, just like FA investors would.  Much the same is true for a falling SP.  The difference is that chartists focus on herd movement for their cue, and fundamental investors look at business metrics and qualitative factors for theirs. Both techniques work on occasions, and both can fail on occasions - the trick is to be correct enough to make more money than one would earn in a bank (provided its not a Greek, Spanish, Portuguese, Icelandic, Zimbabwean, et cetera bank).

Chartists, I understand protect their interest by following the herd, and it works, as sardines, starlings, zebras and many other life forms can attest - woe betide the sardine that breaks rank.  In contrast, I look for my protection by checking the health of the business and the dividends.  Normally I select shares that yield about 5% dividend, and  that have EPS to sustain that dividend and grow, and debt should be low.  If the SP tanks with EPS and dividends moving in the opposite direction, with other factors not deteriorating, I either hold or buy more, and if that is contrarian, that is incidental - I don't set out to be contrary, I just prefer to back my own judgement.   Hic non comprehendere scis, parum eruditionis habes – if you do not know to understand this, you have too little erudition.  I could not resist the temptation to fiddle with your motto.

Now let us look at reality.  I have invested $607,656 in TGA over the last five years, and on average received about 8% per annum return on that as dividend and franking credits, because I bought them when the expected dividend yield was 5% or higher.  The holding was worth $885,000 at COB on Friday, so I have a capital gain of $277,344.  I bought many more shares since 2010 (194,125 from March 2011 until July 2012) than I bought in 2007 (second half of calendar 2007) when I bought the first $10K worth, and in 2008 and the first half of 2009.  Ascribing the gain to three years errs on the conservative side, and that gives me a crude average of 46% capital gain over three years, or about 13.5% compounded annually.  My return per annum has hence been about 21.5% – not stunning, but I am well pleased with that result in these trying times.

When I think TGA as a business has had its day, and there are better deals in the offing, then I'll exit TGA.  My belief is that TGA will do better on the EPS and dividend front than what brokers' have forecast, and this implies a bunch of other business metrics must be good too.  If I hold, and the brokers turn out to be right, I'll be unhappy.  If I sell now, and my hunch turns out to be right, I'll be even more unhappy, and so I'll watch and cogitate. 

The SP could easily sit at about $1.85 for a long time on performance assumptions that would be difficult to argue against.  Different assumptions that suggest a higher SP are also difficult to dismiss.  I have no idea where Mr Market will push the SP in coming months.  The mid-year report is slated to be published in late November, and it could be catalytic.


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## yoelowen (19 August 2012)

Does anyone have a take on why TGAs capex is so high 54 mil in comparison to only 30 mil depreciation? I can understand that it may be for growth but shouldnt then the depreciation show a similar number? its been 20 mil off the last 2 years.


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## odds-on (19 August 2012)

Pioupiou said:


> My return per annum has hence been about 21.5% – not stunning, but I am well pleased with that result in these trying times.
> .




Pioupiou,

I beg to disagree, that is an above average return on capital. Compare those returns to most of the businesses listed on the ASX and you will be pleased.

Cheers

Oddson


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## Pioupiou (20 August 2012)

yoelowen said:


> Does anyone have a take on why TGAs capex is so high 54 mil in comparison to only 30 mil depreciation? I can understand that it may be for growth but shouldnt then the depreciation show a similar number? its been 20 mil off the last 2 years.




The reason why TGA's CAPEX is high is that it treats the procurement of its rental assets as CAPEX, and then writes the value off over three years (typically).  In the case of so-called rentals, TGA slaps down money for an item that it capitalises, and it collects it fortnightly via what it calls "rental" at a rate that yields a handsome profit.  There is a deal of sophistry in the terminology and accounting treatment of such deals - most of which are disguised sales.

TGA,s CAPEX is not the same as that of most companies - it borders on being a cost of goods sold.  If TGA sold an item via a 3-year finance lease, as opposed to a 3-year operating lease, the cost of the goods would not be capitalised, and yet the cashflow to service that lease and the profitability of the deal could be exactly the same as for an operating lease.  If TGA operated in other jurisdictions, it would not be allowed to treat its rent-try-$1-buy deals as operating leases, because of the peppercorn price at the end of the 3-year term.  Australian accounting rules allow TGA to handle these deals as operating leases.

As TGA drifts more towards operating leases, expect the CAPEX to rise a bit.  It is when the CAPEX declines that we investors should be worried, because it could mean that TGA is running out of payment-stream investment options.

The rental assets in the balance sheet actually hide value that emerges as a profit over the terms (periods) of the operating leases.  Generous provisioning and potentially the valuation of PDLs are other ways of hiding value that pops out later.  There is a fair bit of elastic energy in that balance sheet.


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## Pioupiou (20 August 2012)

yoelowen said:


> Does anyone have a take on why TGAs capex is so high 54 mil in comparison to only 30 mil depreciation? I can understand that it may be for growth but shouldnt then the depreciation show a similar number? its been 20 mil off the last 2 years.




I may not have covered your question well in my earlier answer.  In essence, not having examined the figures, I do not know, but I'll put forward some considerations.

If TGA's investment spiked at the end of the year, it would explain the ratio of CAPEX and depreciation getting out of pattern.  Ramping up Thorn Equipment Finance's business accounts for some of it, because this stock is treated as CAPEX, because it is "rented" via operating leases.  The upward shift of the ratio of operating leases to finance leases would also have a similar impact (PCs and TVs tend to be sold via finance leases, and their sales are in decline, whereas furniture is booming, and it tends to be handled ("rented") by operating leases.  There could also have been a minor surge in shop fit-outs.

Another thing that I do not know is the mechanics of the accounting treatment pertaining to buying items.  TGA may presume that purchased items are going to be subject to operating leases, and hence it capitalises them initially, and if the items are later "sold" via finance leases, they reverse them out of CAPEX, which could happen in the following accounting year.  TGA may not commence depreciation immediately - I think it commences depreciation when the rental stream commences, and this introduces a depreciation lag.  In the case of directly imported Thorn-brand items, there is a tendency to procure them in volume, and if depreciation of these commences on delivery to customers, it will increase the length of the depreciation lag.  Direct importation is a relatively new and growing initiative, so it hardly applied in earlier years. 

I wish I knew all the facts, because a surge in CAPEX could indicate that the so-called rental business (the business handled via operating leases), which is the majority of TGA's business, could be surging.  If one knew the details, which insiders know, one could guesstimate what the rental income is going to be, and as TGA only accounts for its profits as the "rentals" dribble in, one would be able to guesstimate EPS and other performance metrics.


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## Pioupiou (20 August 2012)

Pioupiou said:


> TGA seems to have an upward-edging floor whereat shares get sucked up by buyers.  In loose terms, from when the SP closed at $1.39 on 10/05/2012, this floor has been $1.40, $1.45. $1.50, $1.55 and now $1.60.  If one adjusted for the recent dividend of 5.5c with the ex-dividend date of 17/06/2012, one could render this as starting at $1.35 (roughly).  The way things look, the new floor will soon be $1.65.




Like an inch worm, the SP has continued moving up in 5-cent steps (roughly).  I write this because to me there has been a tendency for sellers and buyers to bunch together with a 5-cent gap between them, and when the buyers catch up, the sellers move up another five cents.  I think we can say we have reached $1.80 at about noon today, so the next plateau is $1.85.  This is the price used in the capital raising in late June 2011.

It now gets more difficult to aver that the SP is a no-brainer, because it is only worth more from an FA perspective if the EPS is going to grow in future, and other metrics not deteriorate.  And then there is the question - "Grow by how much?".  For the immediate future, TA will tell us more than FA, unless you have a mistress or toyboy in Thorn's accounting department who is prepared to divulge the lease book metrics.


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## yoelowen (27 August 2012)

Pioupiou said:


> Another thing that I do not know is the mechanics of the accounting treatment pertaining to buying items.  TGA may presume that purchased items are going to be subject to operating leases, and hence it capitalises them initially, and if the items are later "sold" via finance leases, they reverse them out of CAPEX, which could happen in the following accounting year.  TGA may not commence depreciation immediately - I think it commences depreciation when the rental stream commences, and this introduces a depreciation lag.  In the case of directly imported Thorn-brand items, there is a tendency to procure them in volume, and if depreciation of these commences on delivery to customers, it will increase the length of the depreciation lag.  Direct importation is a relatively new and growing initiative, so it hardly applied in earlier years.
> 
> I wish I knew all the facts, because a surge in CAPEX could indicate that the so-called rental business (the business handled via operating leases), which is the majority of TGA's business, could be surging.  If one knew the details, which insiders know, one could guesstimate what the rental income is going to be, and as TGA only accounts for its profits as the "rentals" dribble in, one would be able to guesstimate EPS and other performance metrics.




Interesting because I didnt know that they reversed them out, not sure how they would do this? (do they take it out of the cost of sales). I still question how honest they are with this, because if they rent something out they would then depreciate it to what value? it seems it would be very easy to play wit the numbers on there part. 

Note on your comment that the spike could mean surging business. Another way to look at it would be to expect that there realistic % growth is directly relative to their increase in depreciation, with lag as you mentioned. 

I appreciate your previous response, I will probably stay out of this stock for now and wish the current holders the best.


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## Pioupiou (27 August 2012)

yoelowen said:


> Interesting because I didnt know that they reversed them out, not sure how they would do this? (do they take it out of the cost of sales). I still question how honest they are with this, because if they rent something out they would then depreciate it to what value? it seems it would be very easy to play wit the numbers on there part.
> 
> Note on your comment that the spike could mean surging business. Another way to look at it would be to expect that there realistic % growth is directly relative to their increase in depreciation, with lag as you mentioned.
> 
> I appreciate your previous response, I will probably stay out of this stock for now and wish the current holders the best.




With TGA one does not have to worry about accounts “manipulation” to create an illusion of profitability or balance sheet strength, because the reverse is more likely to be true – management tends to down play performance and balance-sheet strength in the interest of so-called “accounting conservatism”.  The reason why I think most procurements are deemed to be for so-called “rental stock”, and hence initially capitalised, is that each year some 40% of the rental asset acquisitions are transferred to finance leases, with very little going in the opposite direction – see below:

Rental Assets
In thousands of AUD - - - - - - - 2012 - - - - - 2011
Opening balance - - - - - - - - - 41,178 - - - - 35,211
Acquisitions - - - - - - - - - - - - 54,834 - - - - 52,646
Disposals - - - - - - - - - - - - - - -(2,442) - - - (2,070)
Depreciation - - - - - - - - - - - -(25,037) - - (22,048)
Transfers to finance leases - -  (22,182) - - (24,990)
Transfers from finance leases - - 2,127 - - - - 2,429
Balance at 31 March - - - - - - - 48,478 - - - 41,178

Finance leases are declining relative to operating leases, so the ratio of "transfers to finance leases " was less in 2012 than it was in 2011.  I have used the hyphenated adjective “so-called”, because philosophically these rental-asset items under operating leases are more “sold” than “rented”, but TGA prefers to recognise the revenue as it comes in fortnightly, rather than at the time of delivery to the customer.  When I spoke to two outlets, it was obvious that they did not know the legal and accounting differences between finance leases and operating leases, so I presume the distinction is not understood by customers either, and in practice, they experience very little difference.  If TGA were operating in a number of English speaking countries, many of its operating leases would be deemed to be finance leases, because more than 75% of the value is covered within the term of the contract, and because ownership passes to the customer at the end of the term for a token $1 payment.

What I do not know for sure is when depreciation of "rental assets" commences.  I would say it is on delivery of the asset to a customer.  In other words, TGA procures the stock, and seemingly debits the cost to CAPEX.  If the items are sold via finance leases, or even for cash on rare occasions, the value is transferred out of CAPEX on delivery to customers as COGS (cost of goods sold).  Items "rented" via so-called operating leases have their value depreciated in step with actual fortnightly customer payments.  The time it takes to transfer the value to finance leases is one of the "lags" that I mentioned in an earlier post.

The message I would like to make is that TGA's CAPEX borders on being a cost, whereas investing in railway lines that last for a decades is a CAPEX of a very different type.  If Australia had an accounting period of three years, rather than one, TGA would record very little CAPEX.

We have probably exhausted this matter - perhaps over killed it.

PS - The business now written by Thorn Equipment Finance is now running at $3 million a month, compared to about $300K twelve months ago, so this will push up CAPEX.  This should be seen as a positive.


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## Pioupiou (30 August 2012)

IOOF, via Perennial Investment Partners, became a substantial TGA shareholder on: 21/08/2012 by reaching 5.26% of the total shares.  A few days later, on 27/08/2012, IOOF increased 7,699,828 to 9,229,135, or 6.305%.  IOOF does not behave single-mindedly – it buys and sells concurrently, presumably at the behest of individual clients, but on the whole the trend has been up.  The most recent 6-day spurt was all buying – to wit:

22/08/2012 Purchased 908,993 for $1,638,669.72 average SP $1.8027
23/08/2012 Purchased 104,067 for - $182,557.15 average SP $1.7542
24/08/2012 Purchased 142,656 for - $246,358.23 average SP $1.7269
27/08/2012 Purchased 373,591 for -- $653603.10 average SP $1.7495

- - - - - - - - - -Total - 1,529,307 - - $2,721,188.20 average SP $1.7794

What is TGA worth from a TA perspective?  I am stuffed if I know – maybe $1.80, to take a stab in the dark.

What is TGA worth from an FA perspective?  I am stuffed if I know.  There are so many ways to derive a valuation, and all of them require assumptions, guesstimates, risk profiles, alternative options (to which required rates of return should be linked), margins of safety, et cetera, and all of these are subjective to each individual and likely to mismatch reality in the flow of time.  I can easily arrive at sophisticated (with the meaning leaning towards sophistry) to pretend to justify valuations between $1.00 and $4.00, but the average of the two could be considered as a 12-month target if one were an optimist.

I am currently playing with a dividend NPV spreadsheet (riddled with assumtions) to arrive at target SPs, and the range I get is between $1.40 and $3.40, with both extremities on the silly side, but even these numbers' midpoint of $2.40 is not unrealistic from the historical perspective.  The high COB SP of February and April 2011(adjusted to EPS changes) and the low COB SP of May 2012 gives an average of about $2.00.  The adjusted last year's high SP compared to this year's low SP  is about $2.60 compared to $1.40.  There was a COB high of $2.27 x 19/16.7 = $2.58 on 17/02/2011 ($2.26 on 04/04/2011) and a COB low of $1.39 on 10/5/2012.  The $2.00 average intuitively seems 10% to 15% too low to me, but I am very optimistic and comfortable about TGA, but I do not expect other investors to feel the same way.

There is a difference in one's selling SP and one's buying SP, which tends to have a margin of safety in it, so there is no contradiction in having two target SPs – one for buying and one for selling, and even these have quantity qualifications – e.g., at $1.40 one may consider desperate fund-raising measures to buy 100,000 TGAs, but at $1.80, one may buy 10,000 shares if one had the funds at hand, and similarly on the sales side, but at a higher SP scale.  Consequently, at $2.00 I may do nothing – too high to buy, and too low to sell, and above $2.00 I would sell more or less, depending on the SP, amongst other things.


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## tech/a (30 August 2012)

Technically
If it can stay above $1.80 then bullish.
Below it is likely to range.---as it is.
I have a trailing stop at $1.67.


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## RottenValue (30 August 2012)

if it gets to $2.20 anytime before March 2014, I'm out but otherwise happy to hold


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## Pioupiou (30 August 2012)

RottenValue said:


> if it gets to $2.20 anytime before March 2014, I'm out but otherwise happy to hold




As I wrote in my earlier post, selling is not an all-or-nothing deal for me - there is a scale that will winkle about 10% of my holding at a relatively low price.  I still owe about $120K to family, so I am inclined to sell some TGA's to help me liquidate those debts, and an SP $2.20 could tempt me to sell 10% of my total holding to supply the funds to simplify my life.  As for the rest - I'll think about it later, and capital gains tax will form part of the consideration.  I would sell more at various SPs above $2.20, and at about $2.50 I could substantially exit TGA.  Obviously, if it takes a while to get to $2.50, and in that time the fundamentals have improved in leaps and bounds, then I'll change my plans, and perhaps hold.

I do not want to be caught napping as happened when the SP was circa $2.27 in February and again in April 2011.  As I suggested earlier today, $2.27 when the EPS was expected to be nearly 17 cents (diluted EPS transpired to be 16.7 cents for YE 30/03/2011) translates to something like $2.60 with the diluted EPS for YE 30/03/2012 being 19 cents ($2.27*19/16.7 = $2.583).  Would that such a good selling opportunity comes around again.  My average buy price is $1.215, but I am more inclined to sell from my non-SMSF holding, which has an average buy price of $1.442, which would give me a good profit to offset the misadventures that other stocks have occasioned me.


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## oldblue (4 September 2012)

tech/a said:


> Technically
> If it can stay above $1.80 then bullish.
> Below it is likely to range.---as it is.
> I have a trailing stop at $1.67.




Not doing too badly in an otherwise rather soggy market. Seems that the defensive qualities of TGA are being recognised in the rush to sell-down the miners?


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## Pioupiou (5 September 2012)

Pioupiou said:


> Like an inch worm, the SP has continued moving up in 5-cent steps (roughly).  I write this because to me there has been a tendency for sellers and buyers to bunch together with a 5-cent gap between them, and when the buyers catch up, the sellers move up another five cents.  I think we can say we have reached $1.80 at about noon today, so the next plateau is $1.85.  This is the price used in the capital raising in June 2011.
> 
> It now gets more difficult to aver that the SP is a no-brainer, because it is only worth more from an FA perspective if the EPS is going to grow in future, and other metrics not deteriorate.  And then there is the question - "Grow by how much?". . .




On the first paragraph, our inch worm reached $1.80 in mid-August.  It went back a step, but then reverted to $1.80, where it now dithers.  TGA will struggle to get to $1.85, but I think it will get there, eventually.

Since writing the second paragraph quoted above, I have changed my thinking on growth, thanks to material that  I recently read on the Internet – which is that the maximum that a firm can grow EPS is at the rate of its ROE.  This springs from the definitions of these words, but I found it useful, because by extension, it means that if ROE can be held, then a firm withholding 50% of earnings should grow EPS at a rate half its ROE.  I also read that in the USA the majority of long-established firms that have had ROE declines have had it plateau at between 10% and 12%.  These things suggests that a spreadsheet could be created for TGA with a starting dividend of about 10 cents (and a franking credit which increases this by 4.3 cents), and have it grow by half of 23.5% for a few years, then decay by some invented factor, say .95, until it reaches 10%, and thence have it plateau at 10%.  On the discount rate to be used, Googling the Internet suggests about 11% – roughly 5.5% as a starting point (what the bank pays depositors), plus about 5.5% premium for being in equities.  These facts and factors give one a basis to invent a guesstimated fair price for TGA shares based on the NPV of dividends plus franking credits.

One can plug into the spreadsheet whatever parameters with which one is comfortable, and I suggest erring on the conservative side.  Do not be too conservative, because the aim is to guesstimate a FAIR price, after which one can apply a factor to arrive at a pessimistic price, and some other factor closer to unity to arrive at a price that would induce one to sell TGA.  I get a guesstimated fair price of about $3.00, and by using a factor of two thirds, I get a pessimistic price of about $2.00.  One can have more than one adjusting factor – e.g., one to register general pessimism relative to TGA, one to set ones buy-TGA price and one to set ones sell-TGA price.

In my case, the .667 factor that gives $2.00 reflects market pessimism, rather than being a price at which I would buy more TGA shares.  A ridiculously low price, other things being equal, would draw me into buying, but then I would have to undertake extreme measures to raise the funds, and I would increase my huge exposure to TGA.  An SP of $3.00 x 2/3 x 2/3 = $1.33 would do the trick for me, probably up to say $1.50, but my situation is unique – I have many TGA shares, and over $100K in debt incurred in buying TGA recently in the $1.41 to $1.45 range.

I have often found that a mid-point between two extremes turns out to be a fairly good guesstimate, so using $3.00 and $2.00, one gets $2.50.  A better approach is to use a sixth of the range and put it on either side of the mid-point, which gives a range of $2.33 to $2.67.  In a normal distribution, a sixth of the range each side of the mid point accounts for some 68% of the statistical "population", which suggests that if a hundred experienced investors who know TGA's business well were asked to calculate a target price for this calendar year, a majority would, in my opinion, invent a target SP between $2.33 and $2.67.

If you upscaled the highest COB prices reached in early 2011 of $2.27 by the ratio of the then-expected EPS to the now-expected EPS, you would get something like $2.27*20.2/17 = $2.70.  So $2.67, although generous, it is not a crazy number - it is what one would get if one applied a P/E ratio of about 13 to the consensus forecast 2013 EPS of 20.2 cents (13 x $0.202 = $2.63).  Actually, I think the 2013 diluted EPS will be $0.19 x 23.5% x .5 = $0.223.  If one increased the June 2011 capital-raising price of $1.85 by 20.2/17, one gets $2.20.  I might sell 10% of my holdings at $2.20 to expunge all my debts.

I would be astounded to see the SP linger below $2.00 for the rest of this calendar year, but it can easily happen if the November announcement for the six months ending 30/09/2012 disappoints.  I think the results are likely to surprise on the upside, and the directors' outlook even more so.  ROE and ROCE should increase, because overhead expenses should be relatively static, and because direct importation of TVs, refrigerators, washing machines and audio equipment will be much larger than for FY 2012, and direct importation of TVs alone in FY 2012 created an estimated $800K saving.  Cash flow and debt could worsen marginally, but for good reasons – namely, to expand so-called rental assets to accommodate growth, particularly in Thorn Equipment Finance, and to expand the direct importation of rental assets.  Due to its cautious roll-out, the Rent-Drive-Buy initiative will have a near-zero impact in FY 2013.

Let us see what happens.

The foregoing "twaddle" is not meant for chartists, but to keep them happy, I refer to http://au.stoxline.com/q_au.php?symbol=tga&c=ax   I do not understand the supporting logic, but the blurb there moots $2.14 for six months and $2.50 for twelve months.


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## RottenValue (5 September 2012)

Pioupiou

My thinking is along the same lines, hence my earlier post that if the price hits $2.20 before March 2014 I will sadly exit my holdings in this well loved stock.

I have always looked at potential earnings growth through the ROE / Dividend Payout Rate combination - for TGA I expect about 12.5% so work on 11% per annum to be conservative.

Given that, I expact an EPS of 21c, 24c and 26c over the next 3 years.  However, we have no reason to expect a PE of 13 - history tells you that TGA gets an average of 8 over the past 5 years with 9.3 recently.  Using 8.5 to be conservative tells me to take $2.20 if its given to me before March 2014.

However, if the market rerates TGA for some reason before then and moves to a PE of 13 then we are in the money and I will wish I had as much of this as you!   

I must admit to thinking of buying even more at the current price - my analysis indicates that a 15% per annum return is highly likely, just struggling with "averaging up" from my current $1.42 buy price.


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## Pioupiou (5 September 2012)

RottenValue said:


> . . .  However, we have no reason to expect a PE of 13 - history tells you that TGA gets an average of 8 over the past 5 years with 9.3 recently.  Using 8.5 to be conservative tells me to take $2.20 if its given to me before March 2014.
> 
> However, if the market rerates TGA for some reason before then and moves to a PE of 13 then . . .




My post reflects recent development in my thinking on valuation.  In the past I was inclined to pick a price by comparison with other stocks.  I rather like the NPV-of-dividends-plus-franking approach for TGA, because being a steady and formulaic company, one can guesstimate the future with some confidence.  As for the pessimistic view that the market ascribes to TGA, this is why I applied a "pessimism" factor of .667 to what the NPV arithmetic tossed out as my Guesstimated Fair Value.  I suppose if the market were less pessimistic, I would not have bought so many over the years, so I should be grateful.

If the market sloughs off its pessimism, then I will have the pleasure of doing well on a large holding, and if it does not, then all I have to do is allow the flow of time to let the EPS grow to get the same price, but two or three years later, and pay me a fat dividend in that time.  I could in that case hold TGA for many years.  The debts that I want to expunge by selling some TGA shares are inter-family debts, and if I do not repay them promptly, it's no big deal.

As we move into trying economic times, TGA will come into its own again, just as it did during the GFC.  It's a queer thing that the market is so pessimistic about TGA.  If anything, TGA should require an optimism factor relative to the market as a whole.


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## craft (6 September 2012)

Pioupiou said:


> The foregoing "twaddle"




That’s a good way to describe it - especially this part 



> I recently read on the Internet – which is that the maximum that a firm can grow EPS is at the rate of its ROE.  This springs from the definitions of these words, but I found it useful, because by extension, it means that if ROE can be held, then a firm withholding 50% of earnings should grow EPS at a rate half its ROE








RottenValue said:


> I have always looked at potential earnings growth through the ROE / Dividend Payout Rate combination - for TGA I expect about 12.5% so work on 11% per annum to be conservative.





This line of thinking seems to be widely accepted but I don’t understand it at all – Actually I think it’s wrong, wrong wrong especially at the most important times.   What has historical (accounting) ROE and retention rates got to do with future opportunities to deploy capital and incremental return on those opportunities? And what does historical ROE say about future utilisation and margins on existing capital unless you look back across an entire economic cycle?

A good way to miss every turn is to drive looking in the rear view mirror.

This comment is not specific to TGA - just a more general observation on valuation approaches.


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## craft (6 September 2012)

Pioupiou said:


> then decay by some invented factor, say .95, until it reaches 10%, and thence have it plateau at 10%.




This decay in profitability means the company would be consuming capital but generating very little if any increase in value. If 10% is below your required return then at that point it would be destroying value on any retained capital.

The decay you refer to is normal competitive forces driving returns towards the risk adjusted cost of capital. Unless the company has a competitive advantage this is certainly its future. A company that only generate a market rate of return is worth the replacement cost of its tangible assets - end of story.

What’s important in valuation inputs is what excess margin can be sustained by a competitive advantage, how sustainable the competitive advantage is and how much capital can be deployed into that excess margin.


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## Pioupiou (6 September 2012)

craft said:


> This decay in profitability means the company would be consuming capital but generating very little if any increase in value. If 10% is below your required return then at that point it would be destroying value on any retained capital.
> 
> The decay you refer to is normal competitive forces driving returns towards the risk adjusted cost of capital. Unless the company has a competitive advantage this is certainly its future. A company that only generate a market rate of return is worth the replacement cost of its tangible assets - end of story.
> 
> What’s important in valuation inputs is what excess margin can be sustained by a competitive advantage, how sustainable the competitive advantage is and how much capital can be deployed into that excess margin.




I have never used the NPV approach in real life, so in recent days I decided to play with it, and your post has alerted me to a potential flaw in my spreadsheet, which I'll now think about.  As you wrote, one should not retain profits for growth if the ROE of that money is below the required rate of return.  The adjustments that I think are required will lower the value, other assumptions remaining equal.


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## Pioupiou (6 September 2012)

One flaw in my logic was that the Y1 EPS was simply increased by the growth (half the ROE), but this base is only valid for the starting year.  As profitability slips (ROE declines), one should recalculate it anew each year using equity per share and the lower ROE.

Anyhow the model (my spreadsheet) is very sensitive to the ROE Decay Factor chosen.  Using .97 gives a significantly different result to using .95, which leaves one with the problem of selecting appropriate ROEs in future years.  This is less intuitive than simply picking apt P/E ratios using other stocks' P/E ratios as a reference.

The ROE plateau is less relevant than I thought it would be, because it happens years in the future, so by its nature NPV diminishes its significance.

All valuation methodologies are flawed.  It is best to use a few to get a feel, and then back your hunches.  My basic approach is to avoid companies that pay less than 5% dividend, fully franked, and then I investigate if the dividend is well supported by EPS, and it is growing. This filters out the bulk of the stocks on the ASX, so I can focus on those that pass the filter, selecting only one or two that appeal to me the most for reasons like low debt,  business stability, low risks, reasonable liquidity, et cetera.  Also, I like to invest in companies that I understand.  This is why I am so heavily into TGA.

So much for my misadventure into trying to use NPV.


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## Pioupiou (7 September 2012)

craft said:


> This line of thinking seems to be widely accepted but I don’t understand it at all – Actually I think it’s wrong, wrong wrong especially at the most important times.   What has historical (accounting) ROE and retention rates got to do with future opportunities to deploy capital and incremental return on those opportunities? And what does historical ROE say about future utilisation and margins on existing capital unless you look back across an entire economic cycle?
> 
> A good way to miss every turn is to drive looking in the rear view mirror.
> 
> This comment is not specific to TGA - just a more general observation on valuation approaches.




TGA is much more predictable then most ASX-listed companies, and hence its history is more relevant than average, and so looking backward to guesstimate what may happen in future makes sense.  If I plan to leave for Canberra tomorrow at 6:00AM, I expect with a high level of certainty by looking back at past trips that I'll probably arrive in Canberra at approximately 6:00PM.  If my car has significantly deteriorated, the expectation would have to be tempered.  TGA shows no sign of deterioration – actually, it is growing more robust (ROE is increasing).

The nature of TGA's business (giving something in the immediate term for a longer-term return) is an idea that has been valid since before Esau swapped the family farm for a bowel of lentils, and it will remain thus for millennia.  TGA's business is now 75 years old, so it is not a here-today-gone-tomorrow flash.  ROE has not even entered the ROE-flattening phase, never mind the declining phase.

As long as there are people wanting something immediately, and for which they are prepared to commit a stream of payments, TGA will have opportunities to invest its money at a good return.  Normally, TGA makes two profits – a retail profit and an interest-on-loans profit.  As one line of business flattens, newer lines take their place.  I only suggested an ROE-decay factor in my evaluation model as a matter of conservatism, whereas in reality I believe TGA can come up with new ideas to which it can deploy its funds for many years, and at worst hold the ROE static.

Cashfirst will morph into a money-lending division to expand lending into new markets (new demographics), and TEF will get into a wider range of products and markets.  TEF grew from the long-standing TAB-centric computer-supply business by expanding products to include poker machines, commercial-kitchen equipment and telephony equipment, and by now I assume that it is moving into other groups of franchisees, or businesses.  TEF could get into financing equipment for gymnasiums, dental clinics – whatever. Radio Rentals/Rentlo division only got into furniture recently, and it has gone ballistic.  In summary, TGA is not soon going to run out of opportunities to profitably deploy the earnings it withholds to fund growth.

By keeping the range of items it supplies narrow, TGA can use item volumes to improve its procurement function, and thus assist in keeping ROE high.  Direct importation of Thorn-brand TVs is a new initiative, and it was so successful in FY 2012 in reducing costs (by $800K) that TGA has expanded the initiative to refrigerators, audio equipment and washing machines.

Consider the Rent-Drive-Buy initiative.  John Hughes said that 170,000 legal immigrants arrive in Australia, and irrespective of their employment status, they struggle to access finance initially, but need things like furniture and cars.  TGA deals with a percentage of these people now, and they will be the target market for the Rent-Drive-Buy initiative, which is a different market demographic to the welfare-recipient market on which TGA is currently so reliant.  If  Rent-Drive-Buy disappoints, TGA can simply drop it, and chase a new initiative.

These initiatives are going to keep TGA's ROE high, and they will allow TGA to avoid low-profit business while expanding turnover.

TGA is a formulaic and boring business, superficially even odious, so it is not going to collapse when key people move on, unless some blithering idiot takes control of the driving wheel.  Like the Dutch East India Company, TGA will not last forever, but there will be many signs and ample time for the half-astute investor to exit early.

On the matter of black swans, restrictions to Centrelink's Centrepay facility would be a serious blow to TGA, but that is unlikely.  On the positive side, an entity with bags of money, or a similar USA rent-to-buy business, e.g., Aaron's (AAN), could make a bid for TGA, and offer a generous premium on the current SP.  As an aside, AAN has a 12-month trailing P/E of 14.37, and from memory TGA has superior metrics.  If TGA had a similar P/E ratio, it would be selling at about $2.80 with its diluted EPS being about 19 cents.


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## Boggo (8 September 2012)

An update from my previous post on TGA here...
https://www.aussiestockforums.com/f...=18617&page=43&p=721130&viewfull=1#post721130

All proceeding to plan, entry, stop, quantity and initial potential R/R in place before taking the the trade.

Current sentiment/expectation is that it will continue through the decision area but may hesitate around the $2.00 area (typical Wave 3 target area).
Trailing stop in place to cater for any abnormalities and plan is to just let it continue upwards to wherever while being on the lookout for incoming ROE's and P/E's 

(click to expand)


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## Ves (8 September 2012)

Thanks Boggo - is there much chance of a retrace to the "value area" (I know you don't like this!) of $1.40-$1.60?


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## Boggo (8 September 2012)

Ves said:


> Thanks Boggo - is there much chance of a retrace to the "value area" (I know you don't like this!) of $1.40-$1.60?




I may be completely wrong but this is how I am seeing it at the moment.
I am expecting it to proceed into the 1.85 to 1.97 area (W.3) where I am expecting it to hesitate. If it does then it is likely to retrace to a W.4 which should be 38% to 50% of the length of W.3 before it resumes an uptrend again.

It is possible that it could just keep going up but there is always a possibility people may take the profit if it starts to hesitate.

There are many "new" TGA type setups appearing daily that provide the nimble footed the opportunity to reap the benefits of the main part of the run up without becoming emotionally attached to any one stock.
Having the ability and willingness to free up capital from holdings that are showing indecision in the expected areas and providing funds for new opportunities seems to be effective in the current climate.

Just my  that is working for me at the moment.

(click to expand)


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## Ves (8 September 2012)

Boggo said:


> There are many "new" TGA type setups appearing daily that provide the nimble footed the opportunity to reap the benefits of the main part of the run up without becoming emotionally attached to any one stock.
> Having the ability and willingness to free up capital from holdings that are showing indecision in the expected areas and providing funds for new opportunities seems to be effective in the current climate.



I think the two big instos are (or at least were at the end of August) playing "portfolio pingpong" and as craft (I think it was) mentioned the momentum bridage were starting to get onto the trend at the same time.  Hence bigger fluctuations on a daily level.  At least that's what it looks like.  Trend looks pretty resilient to me too at the moment.  It is possible it could be fairly buoyant until news of the half-year report filters in in the next two months. Which could be a new decision point.


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## tech/a (10 September 2012)

Technically trading nicely above $1.80 now.


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## Pioupiou (10 September 2012)

Pioupiou said:


> On the first paragraph, our inch worm reached $1.80 in mid-August.  It went back a step, but then reverted to $1.80, where it now dithers.  TGA will struggle to get to $1.85, but I think it will get there, eventually.
> 
> . . . waffle, twaddle waffle . . . I refer to http://au.stoxline.com/q_au.php?symbol=tga&c=ax   I do not understand the supporting logic, but the blurb there moots $2.14 for six months and $2.50 for twelve months.




Our inch worm has moved faster than I expected, reaching the $1.85 mark today.  That is the price used in the June 2011 capital raising.   If one adjust $1.85 by the diluted EPS metrics relative then (16.7 cents for YE 30/03/2011) and the diluted EPS for YE 30/03/2012 of 19 cents, one gets $1.85*19/16.7 = $2.10.  Getting to $2.14 in six months and $2.50 in twelve months should be a doddle.  Actually, I am looking for the SP to get to $2.15 this calendar year - just a hunch.


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## tech/a (10 September 2012)

tech/a said:


> Technically trading nicely above $1.80 now.




Will tighten up my trailing stop ($1.74) as soon as I can.
I cant see this above $2.00 technically in this run up.
I also have in place a sell stop at $1.94.


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## Pioupiou (12 September 2012)

tech/a said:


> Will tighten up my trailing stop ($1.74) as soon as I can.
> I cant see this above $2.00 technically in this run up.
> I also have in place a sell stop at $1.94.




With a "sell at $1.94, you might have to sell this morning, because our inchworm can smell the cabbage, and is lurching upward.  A glance at the buy and sell offers suggests a very good day today.  Also, there is a tendency for the after-4PM action to occur within a 1 cent range of the last reasonable price just before 4PM, and yesterday's COB of $1.89 was 1 cent down.

I assume that both TA and FA share valuations are now in alignment.  From an FA perspective, below $2.00 still falls into the no-brainer class for the value investor.


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## Not Rene (12 September 2012)

4 times as many buyers for 4 times as much volume compared to sellers. I don't see a reason to sell just yet!


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## odds-on (12 September 2012)

Pioupiou said:


> TGA is much more predictable then most ASX-listed companies, and hence its history is more relevant than average, and so looking backward to guesstimate what may happen in future makes sense.




Keep up the good work Pioupiou. History is important as it allows an investor to make an assessment of how well the management allocate capital. It is probably fair to say that if a management have allocated capital well over the last five years then subject to no significant change in the business model/industry/management they willl probably allocate capital well the next year. 

Cheers.


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## robusta (12 September 2012)

This may sound a little strange to some but I am not overly happy about the recent sp appreciation. The announcement of a drp in the future gave me some hopes of adding to my investment somewhere under $1.75 I will probably not participate anywhere near $2.00 at least not this financial year.


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## RottenValue (12 September 2012)

craft said:


> This line of thinking seems to be widely accepted but I don’t understand it at all – Actually I think it’s wrong, wrong wrong especially at the most important times.   What has historical (accounting) ROE and retention rates got to do with future opportunities to deploy capital and incremental return on those opportunities? And what does historical ROE say about future utilisation and margins on existing capital unless you look back across an entire economic cycle?
> 
> A good way to miss every turn is to drive looking in the rear view mirror.
> 
> This comment is not specific to TGA - just a more general observation on valuation approaches.




I couldnt be bothered responding to this previously because we fall back into the TA v FA argument but I like Oddson's previous comment.

I have been happily looking in the rear view mirror for some time, selecting companies with a track record of stable, predictable earnings growth of at least 10% per annum over a 5 year period.  I then look forward to see if any reason to believe any change in fundamental business or environment in the next year or two and if comfortable buy.

My valuation method is pretty simple, extrapolate the Earnings growth conservatively, determine a bottom quartile PE for the company and then wait to buy it when it hits my target price.

Result, my rolling 12 month return (12/09/2011) to (12/09/2012) is now 25.8% and averaging over 20%pa over the past 4 -  I look forward to when we have a bull market rather than this boring sideways one


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## McLovin (12 September 2012)

RottenValue said:


> I couldnt be bothered responding to this previously because we fall back into the TA v FA argument but I like Oddson's previous comment.






craft is an FA guy not TA. His question, which was valid IMO, was about justifying using an accounting construct like ROE to determine future performance, instead of something like ROIC.


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## Ves (12 September 2012)

McLovin said:


> craft is an FA guy not TA. His question, which was valid IMO, was about justifying using an accounting construct like ROE to determine future performance, instead of something like ROIC.



I use ROIC now almost exclusively over ROE.

The minute I realised that ROE is too wound up in accounting principles, the more things started to make sense in terms of ROIC and its benefits.   ROIC tells me what the assets employed are earning right now,  ROE is more based on returns decided by what they have cumulatively earnt in the past & what shareholders put into the company  (which includes lots of long and short-term noise). It has no concept of what assets were held in the past and what are still held going forward. It also ignores ownership structure. It's not flexible in my opinion  (especially when things like goodwill, depreciation, and a whole host of other accounting constructs muddy the waters).

I am also starting to favour  EV / EBITDA  instead P/E  for a litmus test.


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## tech/a (12 September 2012)

Damn
That close
Time to get serious.
Trailing stop to 1.86
Move sell stop to $2.00


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## oldblue (13 September 2012)

tech/a said:


> Damn
> That close
> Time to get serious.
> Trailing stop to 1.86
> Move sell stop to $2.00




Hi tech/a.

I appreciate your posts and try to apply some basic TA oversight to my own decisions but I've never been able to get my mind around the use of Sell Stops. To me, it gets too close to contravening my golden rule of letting profits run and cutting losses quickly - and close to the FA idea of working out a theoretical valuation and deciding to sell once that number is reached. Your "near thing" experience yesterday is a case in point. Another cent or so and your TGA would apparently have been sold and you would have moved on to something else.

Just a different approach, I guess!

Cheers


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## kermit345 (13 September 2012)

Pioupiou, not sure that anything under $2.00 is a 'no brainer' anymore. I think a lot of us agreed on the FA side that anything under $1.55 was a no brainer but its starting to get close to reasonable valuations now, not sure there is enough margin of safety in the share price anymore to warrant the risk for reward.

Just my  and more than happy to have made the 25+% in the last 5 months on this puppy. Would ultimately like to see it settle above $2.00 but may take some market positivity to help it push through the $2.00 mark. Time will tell, still a nice trend going.


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## odds-on (13 September 2012)

Ves said:


> I am also starting to favour  EV / EBITDA  instead P/E  for a litmus test.




V,

Have you been staying up late reading the Geoff Gannon blog? 

Cheers 

Oddson


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## tech/a (13 September 2012)

oldblue said:


> Hi tech/a.
> 
> I appreciate your posts and try to apply some basic TA oversight to my own decisions but I've never been able to get my mind around the use of Sell Stops. To me, it gets too close to contravening my golden rule of letting profits run and cutting losses quickly - and close to the FA idea of working out a theoretical valuation and deciding to sell once that number is reached. Your "near thing" experience yesterday is a case in point. Another cent or so and your TGA would apparently have been sold and you would have moved on to something else.
> 
> ...




Yes on two accounts.
(1) I would have been out and happy.
(2) Different approaches.

The sell stop is there for spike moves up.
It sist there and if it gets taken when Im not looking then fine.
In MY case its a rough calculation of where volume (Supply) is
likely to appear.---got it pretty close.

Im also happy to let things run hence the trailing strategy but if stopped out fine.
The plan is to trail the stop up behind the lows in place if it moves forward before
taking me out. Thats what discretionary trading is all about.


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## Ves (13 September 2012)

odds-on said:


> V,
> 
> Have you been staying up late reading the Geoff Gannon blog?
> 
> ...



Yes indeed!   I've noticed EV / EBITDA a lot in stuff I have been reading.  You have to be super careful though, because EBITDA will not be very useful in highly capital intensive enterprises (but I avoid those in the first place). A few of the fundy-mentalists on Hotcopper seem to love it too.


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## Pioupiou (14 September 2012)

kermit345 said:


> Pioupiou, not sure that anything under $2.00 is a 'no brainer' anymore. I think a lot of us agreed on the FA side that anything under $1.55 was a no brainer but its starting to get close to reasonable valuations now, not sure there is enough margin of safety in the share price anymore to warrant the risk for reward.
> 
> Just my  and more than happy to have made the 25+% in the last 5 months on this puppy. Would ultimately like to see it settle above $2.00 but may take some market positivity to help it push through the $2.00 mark. Time will tell, still a nice trend going.




Kermit345, $2.00 is just a number that I tossed in as the SP below which I do not bother to consider a partial exit from my relatively large TGA holding.  I would get higher values than you do if I have a rosier prognosis of EPS growth, and hence dividend growth.  Aside from the person-to-person variability of EPS growth beliefs, valuing shares is an inexact art, and it makes a difference if one is thinking of selling, as opposed to buying.  There are many other factors that cause valuations to vary from person to person, and for an individual, from circumstance to circumstance.

You can read a round number like $2.00 to mean somewhere between $1.80 and $2.20.  I would probably need $2.20 to tempt me to sell TGA, and then only some of the holding, and at $2.30 I would sell more.  My last TGA purchase was on on 21/06/2012, when I bought 7,000 at $1.450 using borrowed funds.  Lack of spare funds and the concentration of a large percentage of my net wealth in TGA means I now have a low buy-in price that is peculiar to my circumstances, and it does not represent my view of fair value.  If I had no TGA shares, I would buy at $2.00, and sell WOW and/or other stocks that I hold to fund it.

I read this morning that FNArena's calculationms puts the “average” P/E ratio of ASX-listed companies at 13.5, with the star stocks being about 20, and the dullards below 10.  To quote: “Removing such "noise" from the data provides us with the following stats:

- Price Earnings ratio for FY13 (including December-2012 companies): 13.5
- Average growth in EPS: 5.3%
- Average dividend: 4.95%”

I am surprised that Mr Market groups TGA among the dullards, or why brokers' consensus is that dividends will level off at about the FY 2012 dividend of 9.5 cents.  The diluted EPS is 19 cents, so an SP below $1.90 puts TGA's P/E ratio below 10.  Perhaps I should be grateful that the low SP has allowed me to buy TGA at an average price of $1.215, which should pay me about 11.5 cents in dividends and 5 cents of franking credits, and it gets better every year.  The historical dividend record is as follows:

- - - - Cents per - Franking Credit -- Year's Div - - Pay Date
- - - - - Share - - - - - Cents - - - - + Franking 

Final - -- - 5.50 - - - - - 2.36 - - - - - - 13.57 - - 18/07/12
Interim - - 4.00 - - - - - 1.71 - - - - - - - - - - - - 20/01/12

Final - -- - 4.95 - - - - - 2.12 - - - - - - 12.13 - - 22/07/11
Interim - - 3.54 - - - - - 1.52 - - - - - - - - - - - - 20/01/11

Final - -- - 3.76 - - - - - 1.61 - - - - - - - 9.03 - - 22/07/10
Interim - - 2.56 - - - - - 1.10 - - - - - - - -- - - - - 14/01/10

Final - -- - 2.91 - - - - - 1.25 - - - - - - - 6.84 - - 23/07/09
Interim - - 1.88 - - - - - 0.81 - - - - - - - - - - -- - 16/01/09

If on average ASX-listed stock yield 5% dividend (fully franked), then the presumption is that Mr Market is satisfied with that, and hence my guesstimated 11.5 cents that TGA should pay within the next 12 months suggest (to me) a share value of  $0.115/5% = $2.30.  That is what I think TGA is worth when I think of it as a the right to a growing income stream, and I'll only fully exit TGA if I find stocks that I think have better ratios of SP to a growing income streams (dividend plus franking credits) with long-term credibility.  Notice the high level of subjectivity involved.

I have used my estimate of the sum of the next two TGA dividends, because I disagree with brokers' numbers one finds in Westpac broking (and probably COMSEC), which, starting with the recent pair of 9.5c for FY2012, are: 9.6c, 10.0c and 9.5c for the subsequent three years.  You need to alter your arithmetic to suit your own view of what the next two half-year dividends will be, and if it is 9.6c, then dividing by 5% would give $1.92, not the $2.30 that I suggested.  If you wanted to apply a larger percentage to accommodate a belief that dividends will flattening, then you will get a lower share value.  That is why inter-personal comparisons of guesstimated fair values of shares is a waste of time without knowing the assumptions used by each party.

WOW's dividend history is as follows:

- - - - Cents per - Franking Credit -- Year's Div - - Pay Date
- - - - - Share - - - - - Cents - - - - + Franking 

Final - -- - 67 - - - - - 28.71 - - - - - - 180.00 - - 18/07/12
Interim - - 59 - - - - - 25.29 - - - - - - - - - - - - - 27/04/12

Final - -- - 65 - - - - - 27.86 - - - - - - 174.29 - - 14/10/11
Interim - - 57 - - - - - 24.43 - - - - - - - - - - - - - 29/04/11

Final - -- - 62 - - - - - 26.57 - - - - - - 164.29 - - 15/10/10
Interim - - 53 - - - - - 22.71 - - - - - - - - - - - - 23/04/10

Final - -- - 56 - - - - - 24.00 - - - - - - 148.57 - - 09/10/09
Interim - - 48 - - - - - 20.57 - - - - - - - - - - - - 24/04/09

As you can see, TGA has superior dividend growth, and if you compared other metrics, you will find that TGA is generally the superior performer.  Brokers' consensus holds that WOW's dividend will increase by 6 cents, which gives $1.34, and this seems reasonable.  $1.34/5% = $26.80, whereas WOW closed today at $28.90.  Other things being equal, if I hold WOW, I should be prepared to hold TGA at ($28.90/$26.8) x $2.30 = $2.48.  Consequently, if I had no TGA, or only a small holding, I would not hesitate to liquidate the WOW holding and buy TGA at $2.00.  If I looked at my other holdings, I would come to the same conclusion – that is, TGA is worth buying at $2.00.  If I were to subject most investment portfolios in Australia to the same logic, I expect that I would not find reason to alter that contention.

If you look at investing from a different perspective, or if you are a trader, or if you do not share my bullish view of TGA's future EPS and dividends, then you will come to a different conclusion.

What keeps Argo (ARG), Milton (MLT) and other large shareholders in shares like WOW, WBC, TLS et cetera, and away from TGA is that TGA is too small for them.  This is why an individual investor can outperform ARG, MLT and others.  As an aside, in addition to WOW, I hold both ARG and MLT, but none of the trio with much enthusiasm.


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## tech/a (14 September 2012)

Its goodbye from me on TGA for now.


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## Ves (14 September 2012)

tech/a said:


> Its goodbye from me on TGA for now.




Well done, you managed this trade nicely IMO.


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## Boggo (18 September 2012)

tech/a said:


> Its goodbye from me on TGA for now.




And goodbye from me at 1.85.

Follow on from here -
https://www.aussiestockforums.com/f...=18617&page=45&p=727561&viewfull=1#post727561

(click to expand)


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## Pioupiou (20 September 2012)

On Wednesday afternoon when I looked at the TGA transactions, the majority of them were either 503 units, or pairs of concurrent transactions that summed to 503 – to wit:

3:10:46 PM	1.840	503	
3:10:46 PM	1.840	503	
3:00:44 PM	1.840	503	
3:00:44 PM	1.840	503	
2:50:43 PM	1.840	9	
2:50:43 PM	1.840	494	
2:50:43 PM	1.840	503	
2:40:41 PM	1.840	503	
2:31:32 PM	1.840	85	
2:31:32 PM	1.840	418	
2:31:32 PM	1.840	266	
2:31:32 PM	1.840	237
2:21:31 PM	1.840	323	
2:21:31 PM	1.840	180

This afternoon the same pattern was there, except the number was 550 – namely:

3:56:50 PM	1.785	550	
3:52:06 PM	1.785	550	
3:51:05 PM	1.785	84	
3:51:05 PM	1.790	466	

At COB, there were three “buy” offers of 862 shares at $1.805, $1.815 and $1.820 – probably at $1.800 and $1.810 too, but with more than one buyer one cannot detect if one of them is a buy for 862 shares.

What this means, I cannot say.  It seems that there are sellers wanting to sell, and a buyer going to some length not to pay more than necessary.  The sellers are probably traders who scooped up shares at between $1.40 and $1.60, and who are now happy to skip out with a profit, and get into something more obviously underpriced.

On the fundamentals of the business, or brokers' views, I am unaware of anything new.  SIV has mode noises to the effect that it is finding heaps of business in small business, which is where Thorn Equipment Finance is shooting the lights out, or so we can read from John Hughes last reported comment dated 23/08/2012 – specifically, “This business a year ago was writing contracts at the rate of $300,000 to $400,000 a month and is now writing $3 million a month.”  As an investor, TGA with similar, but better, performance history to SIV is more attractive with debt/equity about 10%, compared to SIV's circa 150%.  SIV could grow faster, but it will have to raise even more debt, or seek equity funding to do so.

In about two month's time, about 20/11/2012, the half-year report should be published, which in my opinion should surprise on the upside – Radio Rentals/Rentlo doing well, and the other three smaller units doing very well is my prognosis.  This report should allow us to predict the outcome of YE 30/03/2013 with a high degree of accuracy, because TGA is a formulaic business with few surprises.


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## oldblue (22 September 2012)

I hope you're right, Pioupiou, about the forthcoming half year announcement surprising on the upside. I have my doubts though with the recent weakness in the SP at this stage of proceedings, only a week or so away from balance date and when there would be a fairly good idea - for some - of how the six months is panning out. The only saving grace in this is that volumes havn't been out of the ordinary - but I'll be watching next week's trading for signs of heavier selling pressure.


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## Pioupiou (22 September 2012)

oldblue said:


> I hope you're right, Pioupiou, about the forthcoming half year announcement surprising on the upside. I have my doubts though with the recent weakness in the SP at this stage of proceedings, only a week or so away from balance date and when there would be a fairly good idea - for some - of how the six months is panning out. The only saving grace in this is that volumes havn't been out of the ordinary - but I'll be watching next week's trading for signs of heavier selling pressure.




We know from this forum that "traders" like Tech/A and Boggo operate with trailing stop orders, and if there are many traders involved in TGA, they could account for volume sufficient to spook the market into thinking there must be something amiss with the underlying business, and so the negative sentiment feeds on itself.  Maybe there is something awry, but I do not think that is the case, because the 23/8/2012 announcement states that all units are doing well (refer last sentence of the announcement's OUTLOOK reprinted below), and at the unit-by-unit level the announcement states that TEF is doing extremely well, and Cashfirst too.  TGA's management would by now have a very good idea of how well TGA is travelling this year.

The YE 30/03/2012 NPAT grew by 26.4%, but because of the NCML acquisition, this is does not merit an accolade.  Comparable Diluted EPS figures are 19.01 cents for FY 2012 and 16.69 cents for FY 2011, which is 13.9% growth - not bad.  However, I do not know to what metric John Hughes referred in the ambiguous second sentence below - it could be turnover, EBIT, NPAT, EPS or even cash flow.  I capitalised words of interest:

“As we look to future financial performance, we know that our intentions to build long term growth have and will continue to involve investment in the short term in advance of returns in coming years. This will affect our RATE OF GROWTH for financial year 2013, which will still be positive but PERHAPS not at the same rate as last year. 

We know that Thorn’s approach to building for the future involves ideas, people, management, resources and most important of all, time. 

Currently I can report that EACH of our BUSINESSES is PERFORMING WELL.” 

If the RATE OF GROWTH refers to NPAT or Diluted EPS, then the second sentence is positive, because the market only expects about 6% Diluted EPS growth.  Note the word “perhaps”, which hints that last year's growth (of whatever metric John had in mind) could be mirrored in FY 2013.

The first sentence and the third sentence of the outlook statement  are "fillers" that state the obvious, which is probably why both have "we know" in them.


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## Ves (22 September 2012)

Does it really matter if earnings grow by 2% or 6% or 10% this year?  As a long term holder I am more interested in seeing if they can maintain their strengths (ie. credit control & asset utilisation & free cash flow conversion) as a new phase of their earnings cycle approaches and price deflation starts to bite.  In the scheme of things these mean more to me than the profit result this year.  If dents start appearing in their armor I would be a lot more likely to sell than in the case of a profit disappointment.

I think speculating on short term profit growth is a waste of time.  Cheers.


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## Pioupiou (23 September 2012)

Ves said:


> Does it really matter if earnings grow by 2% or 6% or 10% this year?  As a long term holder I am more interested in seeing if they can maintain their strengths (ie. credit control & asset utilisation & free cash flow conversion) as a new phase of their earnings cycle approaches and price deflation starts to bite.  In the scheme of things these mean more to me than the profit result this year.  If dents start appearing in their armor I would be a lot more likely to sell than in the case of a profit disappointment.
> 
> I think speculating on short term profit growth is a waste of time.  Cheers.




In essence, I agree with you – a lower-than-expected profit for 2013 would not bother me, provided it does not portend the first dent of many in the armour – dents that collectively contribute to lower long-term shareholder wealth, which I do not expect to be the case.

What gets posted into the P&L or Balance Sheet are to a degree flexible, and if generous provisioning, accelerated amortisation and depreciation, expensing rather than capitalising and delayed revenue/profit recognition explain a lower profit for TGA in a year, then investors should see through that.  For instance, as TGA switches to more operating leases and fewer finance leases, its accounting treatment will delay revenue/profit recognition, whereas the underlying profitability of revenue-versus-operating leases is the same (according to John Hughes in his May 2012 presentation).  Management's decision to amortise the value of NCML's customers over five years, rather than seven, impacted FY 2012's NPAT and EPS, and this holds for the following four years, so the sudden upswing of profit by that amortisation value of about $1.7 million in 2017 will be an accounting corollary, rather than an improvement in the underlying business in 2017.

Looking at recent initiatives, and what similar firms here and abroad do, makes one realise that there are many new minor and major initiatives that TGA can pursue to leverage its existing core strength (collecting repayment streams), and thus continually re-invent itself.  I hope management pursues new major initiatives organically, as it did with Cashfirst and Thorn Equipment Finance (TEF), rather than via acquisitions, as was the case with NCML.  As a rough rule of thumb, TGA's new initiatives require about three years to get going - loss in Y1, break even in Y2 and profitable in Y3.  Accounting treatment can smooth this over a longer time-span by capitalising foundation costs and amortising them later, but TGA tends to expense things as soon as it can. 

Minor initiatives could be something like taking on new product lines, adding a new outlet to the distribution network, or importing directly rather than buying from an importer.  A major initiative would be getting into a fundamentally new line like cars or caravans (products that are not aimed at the existing Radio Rentals/Rentlo outlet network and customer demographic, and which do not match TEF's product and market profile), or expanding beyond Australia, perhaps via a franchising model.  We know that TGA already has plans to expand money-lending beyond the scope of Cashfirst's style and its sub-prime customer demographic.  TGA does not even have to be that inventive – it can simply copy what others have advantageously done in both Australia and other countries.

There's a great deal of potential growth left in the 75-year-old gal


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## Ves (23 September 2012)

Well said -  I agree.  If they continue to maintain a strong balance sheet all of these things will remain possible due to the added flexibility provided by the returns generated by their asset base.


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## Kulio (29 September 2012)

Hopefully we will see the stupid techys finally lose interest in this stock so the price will soon be indicative of its true value.

Go back to your mining and IT stocks please.


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## Ves (29 September 2012)

Kulio said:


> Hopefully we will see the stupid techys finally lose interest in this stock so the price will soon be indicative of its true value.



What, about $1.50?


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## robusta (29 September 2012)

Kulio said:


> Hopefully we will see the stupid techys finally lose interest in this stock so the price will soon be indicative of its true value.
> 
> Go back to your mining and IT stocks please.




What the??????

When the price diverges from the value doesn't that create a opportunity?

How do you know the current price is due to the interest of technical analysis, maybe value investors, hedge funds and ETF's have something to do with it


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## Boggo (29 September 2012)

Kulio said:


> Hopefully we will see the stupid techys finally lose interest in this stock so the price will soon be indicative of its true value.
> 
> Go back to your mining and IT stocks please.





Good fundamental representation and commentary there, I am sure that some of the respected and astute fundamental investors on here will proud to have you on their side.
:iamwithst


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## Kulio (29 September 2012)

Boggo said:


> Good fundamental representation and commentary there, I am sure that some of the respected and astute fundamental investors on here will proud to have you on their side.
> :iamwithst




How ironic that someone who thinks they can predict the future through patterns on a chart calls someone else stupid.

I think I might start a new "investing" technique called the Cookie Analysis where I eat a fortune cookie and hopefully it will tell me when to buy in and where to put my stop loss on any given stock.


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## Boggo (29 September 2012)

Kulio said:


> *I think I might start* a new "investing" technique called the Cookie Analysis where I eat a fortune cookie and hopefully it will tell me when to buy in and where to put my stop loss on any given stock.




Why not start with just one constructive comment rather than highlighting your underlying negative attitude/issues on a public forum as you have done with your last 20 useless posting attempts.
You must be a delight to be around 

https://www.aussiestockforums.com/forums/search.php?searchid=770228


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## jancha (1 October 2012)

Boggo said:


> Why not start with just one constructive comment rather than highlighting your underlying negative attitude/issues on a public forum as you have done with your last 20 useless posting attempts.
> You must be a delight to be around
> 
> https://www.aussiestockforums.com/forums/search.php?searchid=770228




I see your making new friends on the forum Boogo


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## Boggo (1 October 2012)

jancha said:


> I see your making new friends on the forum Boogo




All fundamentally sound characters too :screwy:


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## kermit345 (2 October 2012)

Kulio, I take a fundamental approach to investing but your way off the radar with your posts. Both forms of analysis have their place IMO otherwise why else would they continue to be the two main trains of though in relation to investing today. If only one worked everyone would jump on board.

Anyway thats all i'm going to say.


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## CanOz (2 October 2012)

Kulio said:


> How ironic that someone who thinks they can predict the future through patterns on a chart calls someone else stupid.
> 
> I think I might start a new "investing" technique called the Cookie Analysis where I eat a fortune cookie and hopefully it will tell me when to buy in and where to put my stop loss on any given stock.




Mate, the techies and the fundies have actually been managing to get along lately...until you entered.

Keep your posts on topic and stay clear of trolling.

CanOz


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## Pioupiou (11 October 2012)

CanOz said:


> Mate, the techies and the fundies have actually been managing to get along lately...until you entered.
> 
> Keep your posts on topic and stay clear of trolling.
> 
> CanOz




What do the TA now think?  To my amateur eye, the trading although thin, seems to be more serious (parties offering deals worth a few grand a pop, rather than hundreds of dollars).  This could be an illusion, because I have not examined the activity to prove or disprove this "feeling".  Buyers seem to want to buy cheap, and sellers seem to be prepared to hold out for what they want.  Being a dyed-in-the-wool TA type, when I start cogitating on buying-selling behaviour, I move into an area of unique ignorance.

The half year is now past, so you can be sure that insiders know the exact metrics for H1 ending 30/09/2012.


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## Boggo (11 October 2012)

Pioupiou said:


> What do the TA now think?  To my amateur eye, the trading although thin...




I haven't re-entered, too many opportunities elsewhere but my entry would have been 1.80 with an initial target near 2.00 but a few resistance hurdles to overcome to get there.
I don't really like Wave 5's, they always have obstacles.
Theoretical 'ideal' target still around 2.10, shaded box areas can also be date target areas projected from past behaviour to last pivot.

Just my amateur 

(click to expand)


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## Pioupiou (12 October 2012)

Thanks Boggo.  On current buy-sell metrics it looks like TGA will struggle to get to $1.92, and then move up at a quicker pace to say $1.95.  By that time, the buy-sell dynamic would have changed, and the upward move slowed again as sellers pile in at higher prices, but I suspect in this calendar year the SP will zigzag to the $2.10 that you have mooted.  The H1 results (to be reported 20/11/2012) might change the buy-sell dynamic, depending whether it surprises on the upside, downside or not at all.  I expect an upside surprise - that is, EPS growth exceeding 6%, plus a positive outlook hinting at moving back to TGA's historical EPS growth trajectory.

I do not know anything about the credibility of stoxline.com, but http://au.stoxline.com/q_au.php?symbol=tga&c=ax has a 6-month target of $2.25.  Six months is so far away that I think this SP must spring from a feeling in someones's waters rather than the result of arithmetic, however subjective its underlying metrics are.  Your $2.10 seems "fundamentally" sound (19 cents diluted EPS grows by say 10%, and P/E ratio of 10 yields $1.09).  There is, of course, nothing fundamentally correct about "fundamental" analysis - it's very subjective).  Anyhow, let us see what the 20/11/2012 announcement contains, and how the market reacts.


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## Pioupiou (17 October 2012)

Pioupiou said:


> Thanks Boggo.  On current buy-sell metrics it looks like TGA will struggle to get to $1.92, and then move up at a quicker pace to say $1.95.  By that time, the buy-sell dynamic would have changed, and the upward move slowed again as sellers pile in at higher prices, but I suspect in this calendar year the SP will zigzag to the $2.10 that you have mooted.  The H1 results (to be reported 20/11/2012) might change the buy-sell dynamic, depending whether it surprises on the upside, downside or not at all.  I expect an upside surprise - that is, EPS growth exceeding 6%, plus a positive outlook hinting at moving back to TGA's historical EPS growth trajectory. . . .




Well, TGA managed to get to $1.955 at COB today (Wed 17/10/20120).  As for the buy-sell dynamics, there has been much enthusiasm to acquire TGA this week, so my next 5-cent mark is $2.00.  That moves its SP out of what I have called no-brainer territory, which is a pity, because now investors must think.  All the traditional FA valuation methodologies come up with target SPs in the $2.00-to-$3.00 range.  My view is that TGA is a better than average stock when it comes to performance history (remember the EPS metric of YE 30/03/2007 is better thought of as 5.1 cents than Morningstar's 11.5 cents, because of the massive share tally expansion occasioned by the December 2006 float).  I have written endlessly on this topic, and the summation of what I have written can be seen at http://www.jochimaker.com/ (Magnum Opum of PiouPiou).  From my perspective, in spite of spending days looking for alternatives, I have not found a stock that trumps TGA, and on this basis I'll be so bold as to venture that for a long-term investor, TGA should enjoy the conventional multipliers that the average ASX stock enjoys, and according to FNArena today, the average ASX-listed stock enjoys a P/E ratio of 13.2 on forward earnings - to quote "On FNArena's calculations (corrected for disruptive, non-representative outliers) the Australian share market is currently trading on a forward looking Price Earnings Ratio of 13.2. This is below the 14.5 average established in the two decades before 2008, but above the 12.5 average established post-GFC."

TGA's forward earnings consensus is 20.5 cents, and 20.5 x 13.2 = $2.705.  Being a cautious man, I suggest that the borderline of no-brainer territory is about 80% of that - namely, about $2.15 - not that I would sell at that price. Actually, I think TGA will earn a superior EPS than consensus now holds, but I'll wait for the half-year announcement on 20 November to get a better handle on the EPS for YE 30/03/2012.  In the meantime I'll sit on my $370K paper profit on 500,000 units like Scrooge McDuck, while at the same time trying to find something nearly as good to allow me to offload other stocks I hold (in much smaller values), and re-invest in a TGA-quality alternative.

As an aside, I sleep easily at night, in spite of having so much at risk on one stock.  The trick is to know such a stock well.  J Maynard Keynes, who was a very successful investor -  See http://www.maynardkeynes.org/keynes-the-investor.html, wrote “As time goes on, I get more and more convinced that the right method in investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes. It is a mistake to think that one limits one’s risk by spreading too much between enterprises about which one knows little and has no reason for special confidence… One’s knowledge and experience are definitely limited and there are seldom more than two or three enterprises at any given time in which I personally feel myself entitled to put full confidence.”


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## Pioupiou (17 October 2012)

Pioupiou said:


> Thanks Boggo.  On current buy-sell metrics it looks like TGA will struggle to get to $1.92, and then move up at a quicker pace to say $1.95.  By that time, the buy-sell dynamic would have changed, and the upward move slowed again as sellers pile in at higher prices, but I suspect in this calendar year the SP will zigzag to the $2.10 that you have mooted.  The H1 results (to be reported 20/11/2012) might change the buy-sell dynamic, depending whether it surprises on the upside, downside or not at all.  I expect an upside surprise - that is, EPS growth exceeding 6%, plus a positive outlook hinting at moving back to TGA's historical EPS growth trajectory. . . .




Well, TGA managed to get to $1.955 at COB today (Wed 17/10/2012).  As for the buy-sell dynamics, there has been much enthusiasm to acquire TGA this week, so my next 5-cent mark is $2.00.  That moves its SP out of what I have called no-brainer territory, which is a pity, because now investors must think.  All the traditional FA valuation methodologies come up with target SPs in the $2.00-to-$3.00 range.  My view is that TGA is a better than average stock when it comes to performance history (remember the EPS metric of YE 30/03/2007 is better thought of as 5.1 cents than Morningstar's 11.5 cents, because of the massive share tally expansion occasioned by the December 2006 float).  I have written endlessly on this topic, and the summation of what I have written can be seen at http://www.jochimaker.com/ (Magnum Opum of PiouPiou).  From my perspective, in spite of spending days looking for alternatives, I have not found a stock that trumps TGA, and on this basis I'll be so bold as to venture that for a long-term investor, TGA should enjoy the conventional multipliers that the average ASX stock enjoys, and according to FNArena today, the average ASX-listed stock enjoys a P/E ratio of 13.2 on forward earnings - to quote "On FNArena's calculations (corrected for disruptive, non-representative outliers) the Australian share market is currently trading on a forward looking Price Earnings Ratio of 13.2. This is below the 14.5 average established in the two decades before 2008, but above the 12.5 average established post-GFC."

TGA's forward earnings consensus is 20.5 cents, and 20.5 x 13.2 = $2.705.  Being a cautious man, I suggest that the borderline of no-brainer territory is about 80% of that - namely, about $2.15 - not that I would sell at that price. Actually, I think TGA will earn a superior EPS than consensus now holds, but I'll wait for the half-year announcement on 20 November to get a better handle on the EPS for YE 30/03/2013.  In the meantime I'll sit on my $370K paper profit on 500,000 units like Scrooge McDuck, while at the same time trying to find something nearly as good to allow me to offload other stocks I hold (in much smaller values), and re-invest in a TGA-quality alternative.

As an aside, I sleep easily at night, in spite of having so much at risk on one stock.  The trick is to know such a stock well.  J Maynard Keynes, who was a very successful investor (see http://www.maynardkeynes.org/keynes-the-investor.html) wrote “As time goes on, I get more and more convinced that the right method in investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes. It is a mistake to think that one limits one’s risk by spreading too much between enterprises about which one knows little and has no reason for special confidence… One’s knowledge and experience are definitely limited and there are seldom more than two or three enterprises at any given time in which I personally feel myself entitled to put full confidence.”


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## zac (18 October 2012)

Pioupiou said:


> As an aside, I sleep easily at night, in spite of having so much at risk on one stock.  The trick is to know such a stock well.




Risk comes from not knowing what you're doing. The investor greats, ie Buffet, Soros, they didnt get rich by diversifying.
They picked 'High Probability' trades and hit them with a bazooka.
Ive noticed Pioupiou youve done the same and kudos to you.

All the best with it,


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## Intrinsic Value (18 October 2012)

zac said:


> Risk comes from not knowing what you're doing. The investor greats, ie Buffet, Soros, they didnt get rich by diversifying.
> They picked 'High Probability' trades and hit them with a bazooka.
> Ive noticed Pioupiou youve done the same and kudos to you.
> 
> All the best with it,




It depends what you mean by diversifying. 

I think it is only prudent to spread your risks over a number of stocks. 5 or 6 may be enough but certainly not putting everything into 1 or 2 stocks.  Anything  unforseen happens and you are a shot duck with only one or two stocks. Besides which  you cannot compare small time individual investors like us with people like Buffet. What they have at their disposal and what we have are entirely two different things.


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## McCoy Pauley (19 October 2012)

zac said:


> Risk comes from not knowing what you're doing. The investor greats, ie Buffet, Soros, they didnt get rich by diversifying.
> They picked 'High Probability' trades and hit them with a bazooka.
> Ive noticed Pioupiou youve done the same and kudos to you.
> 
> All the best with it,




Marcus Padley in his book published a few years ago suggested something on the same lines.  The theory is that you put all your eggs in the one basket then watch the basket like a hawk.

But as Intrinsic Value remarked, if you don't have the time to constantly track what happens to the company or companies in which you invest, then by diversifying, you also spread the risk of suffering a "black swan" event when a company you've invested in blows up.


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## zac (19 October 2012)

Putting all your eggs in 1 basket certainly isnt advisable. 
I know with Soros for example, he waited around 3 years for a nice trade to line up and smacked it hard.
Buffet has been similar with his choices.

However even Mutual Funds managers will tell you (in private) that diversyifying is a sure way to make sure you dont get rich, 
Basically you become an Index yourself when you do that and just follow the wide trend.
Having said that, without knowledge of the markets, its the best thing people can do.

So I can admire Pioupiou for his committment to TGA, he's hit it hard from his 'specialised knowledge' and confidence. Not sure what risk management there is as that would be the most important thing.
Most successful people take on risk but far less risk than people would think they do.


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## McLovin (19 October 2012)

Pioupiou said:


> I have written endlessly on this topic, and the summation of what I have written can be seen at http://www.jochimaker.com/ (Magnum Opum of PiouPiou).




I thought you were much older than 20, Pioupiou! Well done, you even made it onto the news!!


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## zac (19 October 2012)

McLovin said:


> I thought you were much older than 20, Pioupiou! Well done, you even made it onto the news!!




Is there a reference anywhere?


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## McLovin (19 October 2012)

zac said:


> Is there a reference anywhere?




http://www.jochimaker.com/p/about-jm.html

http://www.jochimaker.com/p/pvf-news-story.html

For some reason I thought PP was in his 50's.


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## Pioupiou (19 October 2012)

I started off in 2007 with 31 stocks and about six managed funds, and I did not have clue what I was doing, except that I knew that the mob who managed my SMSF earlier knew even less.  In spite of dropping some $700K in the GFC, I realised that clueless Pioupiou actually did better with the equities than the self-proclaimed cognoscenti who ran the managed funds that I held, so I increased the ratio of directly invested equities relative to investment funds, paring back over time to 16 stocks that I now hold.

It just happens that I have liked TGA better than the other stocks, and via a mixture of capital appreciation and hurling more money at it, I now have over half of my net wealth in TGA.  I have spent countless hours looking for alternatives to TGA - thus far without success.  I have recovered most, if not all of of the $700K I lost, substantially thanks to TGA.  I would like to get down to a dozen stocks as my next goal, and the main problem is finding something TGA-like (other than TGA itself) into which I can invest the proceeds.

There has been much wasted energy expended in this forum on the TA-versus-FA debate.  The path that I now prefer would be called FA, but in truth it is a mixture of both.  Let me explain.  TA, I think, uses SP history to second-guess where the SP is going in the short term.  By using various "conventions", FA also second-guesses future SPs based on herd behavior - only the time-span of its focus tends to be longer.   P/E ratios, EV/EBIT ratios and a host of other ratios are all simply "conventions" (read, herd behavior).  It is on this basis, that I am prepared to say that given time, TGA's SP should allow it to enjoy the average of these multipliers, and for convenience I used the current average  P/E ratio of 13.2.  By the way, I include a risk-adjusted required rate of return as just another "conventional" ratio, and if an investor uses 10% to justify holding WOW, then it is unreasonable to use double that for TGA, given that TGA has the better set of metrics, on average.  I hold WOW, and think it is probably over priced, whereas TGA at today's close of $2.00 is still under priced by my reckoning (my $607,656 investment is now worth $1m - very pleasing).


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## prawn_86 (19 October 2012)

Without wanting to pry, so feel free not to respond, can i ask how a teenager got access to a high six figure portfolio in the first place?


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## kermit345 (19 October 2012)

I'm of the understanding Jochi Maker who runs that blog and posts as PVF on the forums is a completely different person to Pioupiou and therefore Pioupiou is not 20 years old unless its a coincidence or i'm completely off base?


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## Pioupiou (19 October 2012)

McLovin said:


> http://www.jochimaker.com/p/about-jm.html
> 
> http://www.jochimaker.com/p/pvf-news-story.html
> 
> For some reason I thought PP was in his 50's.




For the record I am 71 - Jochi Maker (his real name) is in his 20s.  Jochi is one of about four people with whom I had correspondence about TGA, and as he said he was going to write something about TGA, I sent him a report that I had written for myself, and he decided to publish it, rather than write his own blurb.  Had I known it was going to be published, I would have edited it - cut out repetition and some dross.

I plan to update that report when I have read the interim TGA report to be published on 20/11/2012, and I'll slim my report down then.  I'll ask someone to whack it on the Internet.

Getting back to TGA, the last transaction before 4:00PM was at $2.06, the COB SP was pulled back by a relatively large number of trades by the gnomes who come out after the ASX closes.  Monday will be an interesting day for TGA's SP, I think.


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## Pioupiou (22 October 2012)

Pioupiou said:


> . . . Getting back to TGA, the last transaction before 4:00PM was at $2.06, the COB SP was pulled back by a relatively large number of trades by the gnomes who come out after the ASX closes.  Monday will be an interesting day for TGA's SP, I think.




Today could be a rum day for TGA.  When I looked on Friday just after 4:00PM, there was a large sell order (over 60,000 units at $2.00, which seemed odd).  Anyhow, at about 4:10PM two dozen transactions went through at $2.00, and when I looked again later, the 60,000+ sell order had vanished.

Early this morning (Monday 22/10/2012) there were some 8,000 shares for sale ranging from $1.98 and $2.05, and 10,000 at $2.09.  In total, not that this is a good indicator, because the outliers are meaningless, there were roughly 5.5 more shares sought than offered for sale.  From a long-term investment perspective TGA is still cheap, so I would not be surprised to see the SP settle at circa $2.09 today.  Predicting how Mr Market will act in the short term is not my fortÃ©, so take this as wishful thinking rather than sage advice.

There is a wad of serious money looking for a home in safe-haven stocks, and these investors are not looking for bargains (witness WOW currently on a P/E ratio of 16).  Apart from size and liquidity, TGA has better metrics than WOW, and when this seeps into the awareness of this class of investor, they will want in.  Let's see what TGA's interim report (to be published on 20/11/2012) reports, and how commentators and Mr Market react to it.  It is this underlying FA basis of demand working with the views of speculative buying on a TA basis that should see TGA head north, in my less-than-humble opinion.  A chartist's opinion is more valid in the short term than mine.

Further on the matter of many eggs in a few baskets, two disadvantages are: a) for an illiquid stock it may be difficult to exit quickjly; and b) when the stock is fully valued, one cannot skip out easily without the Taxman putting out his grubby hand for a share of the pelf.  That is why I want to find a few more TGA-like stocks.  This is not a problem for my SMSF portfolio, but it applies to my personal holding of 312,125 TGA shares showing a $174K on-paper capital gain at $2.00 a share, and it will be more than that as the SP increases.  I am currently couch surfing (within family), and with TGA having increased in value I could sell and buy a place of my own, and then taxation considerations have to be considered, although I have some accumulated losses from other investments to reduce the impost.


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## Boggo (23 October 2012)

Wanted to follow up on this before today but been in Sydney since Fri last without access to my charts.

Below is the latest chart as of today, got to within 2c of 'ideal' target as calculated on the post in the link below where I mentioned that Wave 5's can be of limited life. It actually hit the 2.08 indicated in the link below before it rebounded.
I tend to lose interest at this point until a new Wave 2 and 3 type pattern re-emerges.
https://www.aussiestockforums.com/f...=18617&page=47&p=732749&viewfull=1#post732749

(click to expand)


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## tinhat (20 November 2012)

The market hasn't responded well to the half year report and figures. NPAT down 2%. Revenue up 4% but EPS down 5% to 9.57c. Interim dividend up half a cent to 4.5c

It seems that the debt collection business NCML is dragging the results down.

Nothing that exciting in the results. Gearing and cash position very healthy. Furniture rentals are replacing declining electronics and whitegoods. TGA is just onne more of the low earnings growth, solid yielding income stocks in the SMSF so it seams.


----------



## McLovin (20 November 2012)

tinhat said:


> The market hasn't responded well to the half year report and figures. NPAT down 2%. Revenue up 4% but EPS down 5% to 9.57c. Interim dividend up half a cent to 4.5c
> 
> It seems that the debt collection business NCML is dragging the results down.
> 
> Nothing that exciting in the results. Gearing and cash position very healthy. Furniture rentals are replacing declining electronics and whitegoods. TGA is just onne more of the low earnings growth, solid yielding income stocks in the SMSF so it seams.




The purchase of NCML was clearly a mistake in hindsight. The aggresive pricing competitiveness in PDL's was documented in CCP's FY result.

Apart from that, this seems to be tracking to about where it should be. There's been a slowdown in growth as flat panels and PC's decline. We'll see how they go finding a new revenue source.

Why is a $20m loan book only generating $580k in EBITDA for the half?


----------



## Klogg (20 November 2012)

McLovin said:


> Why is a $20m loan book only generating $580k in EBITDA for the half?




I had the same thought... My only explanation thus far is they're aggressively marketing/building that area of the company, so expenses are higher...

I'll be looking forward to tomorrow's presentation for a little more detail


----------



## robusta (20 November 2012)

Picked up some more today on price weakness for both my super and personal accounts.


----------



## TikoMike (20 November 2012)

I'm having trouble understanding as to why receivables have increased substantially with only a slight increase in revenue. Are they having trouble collecting?


----------



## McLovin (20 November 2012)

TikoMike said:


> I'm having trouble understanding as to why receivables have increased substantially with only a slight increase in revenue. Are they having trouble collecting?




P15 of the presentation will explain it.


----------



## Klogg (20 November 2012)

TikoMike said:


> I'm having trouble understanding as to why receivables have increased substantially with only a slight increase in revenue. Are they having trouble collecting?




Given receivables increased during this half, wouldn't it stand to reason that the entire impact on revenue would be shown in the next half? 

That being said, there was still a 4.1% improvement in revenue... Not amazing, but it's quite impressive given the macro scene.


----------



## TikoMike (20 November 2012)

Klogg said:


> Given receivables increased during this half, wouldn't it stand to reason that the entire impact on revenue would be shown in the next half?
> 
> That being said, there was still a 4.1% improvement in revenue... Not amazing, but it's quite impressive given the macro scene.




Sorry could you please elaborate? From basic accounting my understanding is that you recognise revenue straight away after taking a receivable. Hence, revenue reported in the same period


----------



## McLovin (20 November 2012)

TikoMike said:


> Sorry could you please elaborate? From basic accounting my understanding is that you recognise revenue straight away after taking a receivable. Hence, revenue reported in the same period




Finance lease accounting is a bit different. You recognise the revenue for the fair value of the good at the initiation of the lease and create a receivable for the present value of the minimum lease payments (ie the fair value plus the interest recieveable over the life of the lease).


----------



## TikoMike (20 November 2012)

McLovin said:


> Finance lease accounting is a bit different. You recognise the revenue for the fair value of the good at the initiation of the lease and create a receivable for the present value of the minimum lease payments (ie the fair value plus the interest recieveable over the life of the lease).




Thanks.


----------



## Klogg (20 November 2012)

I'm failing to understand one item in the cash flow statement and was hoping someone could help.

The "Equipment finance settlements" - can anyone tell me what these refer to?
I can only guess that this is to do with Thorn Equipment Finance and the purchase of the rental assets, but I'm not too sure...

Thanks in advance.


----------



## Ves (20 November 2012)

The Rentals business is pretty much at the peak of its earnings cycle now - so the softness is to be expected.  Receivables deliquency and debtors ratios in general still look pretty solid, which is what I was really looking forward to seeing.

Cash flow looks pretty good to me actually.  They seem to be spending a lot ramping up most of the new business segments and can afford to do this almost entirely from earnings.  So far, so good in that respect.

Still holding.  But would not buy at these prices.


----------



## Pioupiou (21 November 2012)

Ves said:


> The Rentals business is pretty much at the peak of its earnings cycle now - so the softness is to be expected.  Receivables deliquency and debtors ratios in general still look pretty solid, which is what I was really looking forward to seeing. . .




TGA is only into "rentals" in a very small way.  What TGA calls rentals are lease payments, and what it calls operating leases would be determined to be finance leases in other accounting standards' jurisdictions, because of the low residual price at which ownership passes to the customer at the end of a fairly short lease (three years).  In effect, TGA substantially sells items via leasing arrangements, and treating 36-month Rent-Try-$1-Buy leases as "rentals' is useful-to-TGA sophistry - by delaying revenue recognition it delays profit recognition, and hence taxation.


----------



## McLovin (21 November 2012)

Ves said:


> Cash flow looks pretty good to me actually.  They seem to be spending a lot ramping up most of the new business segments and can afford to do this almost entirely from earnings.  So far, so good in that respect.




Agree on cash flow. And the originations in TEF have really taken off, from zero a couple of years ago to $18m for the half year. There's definitley some good shoots coming through which should help the RR business through it's cycle.

Klogg, check out note 3 it might help answer your question.


----------



## Ves (21 November 2012)

I'm not convinced that NCML was such a bad acquisition - it makes sense as a piece of their overall business model  (think: credit management - which is very important to their operations and something that they have traditionally been very good at).   So far, it has had teething problems, and is facing headwinds in its own industry.  It won't shoot the lights out, but I expect it to be a modest contributer going forward.  It's starting on a very low base at the moment.

I think they've done well if, as others have suggested elsewhere, they have held back on the PDLs market because it is hotly contested at the moment, and prices are overheated.  Makes perfect sense to avoid this risk.


----------



## Klogg (21 November 2012)

McLovin said:


> Klogg, check out note 3 it might help answer your question.




That's exactly what I was looking for - Thanks!

@Ves - I agree with you about NCML. The idea of Credit Management within the company basically completes the loop so to speak. What I don't agree with it is the amount they paid for the company.

Nevertheless, in the scheme of things it is a small set-back, so long as management have learnt from the mistake.

And after listening to the Half Year presentation, this company is set for some pretty big things... Although the debt/equity structure will change, as they've announced that they'll fund the growth of the TEF book directly from debt.
I guess that just puts it in line with FXL and SIV.


----------



## Ves (21 November 2012)

Klogg said:


> What I don't agree with it is the amount they paid for the company.



Too hard to comment on this with any great accuracy at this point of the cycle IMO.


----------



## Pioupiou (22 November 2012)

Ves said:


> Too hard to comment on this with any great accuracy at this point of the cycle IMO.




The only thing TGA obtained of value from NCML were customers for collections as a service.  There was, as far as I can see, no unique know-how, software or procedures that TGA did not already have.  Also, there did not appear to be the usual short-term financial performance provisions in the contract to acquire NCML, which would have allowed TGA some redress for the loss of the ATO business, and other below-expectation outcomes.  I wonder why TGA did not simply branch into this business organically, as is its wont (witness Cashfirst; Thorn Equipment Finance; the new baby, Rent-Drive-Buy; and the aborted Big Brown Box, an on-line retail business that was sold to the Winn family).

There is not much point discussing the acquisition of NCML further - it's spilled milk, and management admit that it has performed poorly relative to their expectations.

The BRR presentation of the half-year results is well worth listening to.


----------



## oldblue (22 November 2012)

Someone please correct me if I have this wrong but I see a major difference between TGA's expertise in credit assessment and subsequent management/collection of their own accounts on the one hand  and the NCML business, which is purely management and collection of someone else's credit decisions, on the other. There are certainly synergies and expertise overlaps but to expect to be able to replicate outcomes is being rather optimistic, IMO.


----------



## Pioupiou (22 November 2012)

Buying PDLs probably involves a skill new to TGA - namely, how to value them.  However, PDLs is a minor part of NCML's business (25% was bandied around in earlier presentations).  I understand that TGA had already adjusted software and processes for Cashfirst, and it extended these to handle NMCL.


----------



## McLovin (22 November 2012)

Ves said:


> Too hard to comment on this with any great accuracy at this point of the cycle IMO.




Except...You have to assume given the way things have panned out that the previous owners had some idea that they were maximising their sale price as the cycle peaked and with the potential loss of the ATO contract. This was an area (PDL market) that TGA had zero experience in, so the sellers clearly had an advantage, and in hindsight they used it.


----------



## Pioupiou (25 November 2012)

Klogg said:


> . . . . Nevertheless, in the scheme of things it is a small set-back, so long as management have learnt from the mistake. . . .




Too true - if TGA paid twice as much as it should have for NCML, in loose terms that would be about $15M or $16M too much, or about 10c or 11c a share.  The market has long ago adjusted for that.

As a matter of interest, rather than significance, according to the recent presentation, TGA itself is parceling its debt and selling it for a few cents in the dollar to firms who specialise in collecting subprime debt.  I cannot imagine who would buy those PDLs, other than bikie gangs who would not be too troubled about the niceties of the law favouring welchers.  TGA are now going to sell such debts regularly (four times a year).  This could bring in a few hundred thousand dollars a year that TGA may have abandoned in the past.  Anyhow, it's small beer - just interesting.


----------



## oldblue (26 November 2012)

If there's any significance it would be that TGA are needing to adopt this new tactic, possibly signalling that the debt portfolio wasn't as clean as thought to be at the time of purchase. Not a good reflection on a company whose business largely rests on its expertise in assessing credit risk.


----------



## Not Rene (18 December 2012)

Starting to trade north of $2 with a bit more confidence now, it is certainly making me happy


----------



## GG999 (3 January 2013)

tinhat said:


> Yikes!, I'd have nothing to say.




LOL


----------



## GG999 (5 January 2013)

Boggo said:


> Its quite interesting      snip
> 
> This is an extract from an article by Radge...
> _Consider, though, the average fund manager lost between 40 to 50 per cent during 2008. A 50 per cent decline in capital requires a 100 per cent gain just to recover.
> Over the (very) long term the stock market has an annual return of about 8.5 per cent which means it will take 3100 days, or over eight years, to get back to where you started. _




Does this mislead the reader - because the quoted 8.5% would include the times that the market crashes. Surely what would be relevant is the return to an investor in the next few years after a market crash of 50%. I would guess that the return is far higher than 8.5% if you invested after a 50% crash.

And as for the 50% decline needs a 100% gain to get equal and so this is a terrible thing - is it just me but -   is there any sense in using percentages in this way? If the market drops by 1000 you need 1000 to get back to the same point. Isn't it just a lack of understanding about how percentages should be used? Yes 100% is more than 50% but it's just that the percentage is being calculated on a lower number, so of course it will be higher. But every time the market drops by a certain number of points, you always need  to gain exactly the same number of points to get back to where you were.

But I see this quoted everywhere - it's harder to get  back to where you were "because you need a higher percentage change"


----------



## galumay (5 January 2013)

GG999 said:


> But I see this quoted everywhere - it's harder to get  back to where you were "because you need a higher percentage change"




I think you are right, it seems to me to be a lack of basic high school maths. Percentages cant be directly compared when the numbers they are calculated on are different.


----------



## VSntchr (30 January 2013)

Sold half my TGA holding today.
If the MD thinks its a good time to sell, then why not for me too 

I still like TGA (hence still holding), but I have it at around its fair value...and I have other opportunities for the funds.
Still has a good yield so even if it stays at current levels I am happy to continue holding my other half....


----------



## tinhat (31 January 2013)

VSntchr said:


> Sold half my TGA holding today.
> If the MD thinks its a good time to sell, then why not for me too
> 
> I still like TGA (hence still holding), but I have it at around its fair value...and I have other opportunities for the funds.
> Still has a good yield so even if it stays at current levels I am happy to continue holding my other half....




I'm holding for yield. I'm finding it hard to justify a case to set trailing stop-losses on a lot of stocks because of the risk of losing a darned good (and needed) income stream. I like btw, how in the statement to ASX, the MD said that he had sold around $1M of shares to cover tax and other expenses. It's a tough life. We live in times of substantial cost of living pressures


----------



## oldblue (31 January 2013)

Yes, we all have " tax and other expenses", don't we?

But seriously, that's the usual reason given for such disclosures. Very rare to see " to settle my gambling debts" or, " to pay my alimony settlement".



In fact, given the size of this particular holding, a million dollars worth probably isn't that significant.


----------



## VSntchr (31 January 2013)

oldblue said:


> Yes, we all have " tax and other expenses", don't we?
> 
> But seriously, that's the usual reason given for such disclosures. Very rare to see " to settle my gambling debts" or, " to pay my alimony settlement".
> 
> ...




Im pretty sure it was 500,000 shares, and he owns 3.5m. So its not huge, but not insignificant...


----------



## Klogg (4 February 2013)

Hmmm... other directors selling today. Doesn't fill me with confidence for the annual report.


----------



## tinhat (4 February 2013)

Klogg said:


> Hmmm... other directors selling today. Doesn't fill me with confidence for the annual report.



Indeed - came here to post the same thing. the share price is due for a rest anyway, on the weekly its been hitting the upper bollinger band quite regularly in the past couple of months.


----------



## tech/a (4 February 2013)

tinhat said:


> Indeed - came here to post the same thing. the share price is due for a rest anyway, on the weekly its been hitting the upper bollinger band quite regularly in the past couple of months.




Why does that indicate its due for a rest?
Its only a displaced SMA.
It just tracks the price??


----------



## Klogg (4 February 2013)

tinhat said:


> Indeed - came here to post the same thing.




It's beyond me why the two directors who sold today would sell such a small amount... 

If you're going to the trouble of selling a company in which you are a director, would you really do it for just 25k/50k...?


----------



## tinhat (4 February 2013)

tech/a said:


> Why does that indicate its due for a rest?
> Its only a displaced SMA.
> It just tracks the price??




Tech/A I'm not well versed in technical analysis as you know. I have noticed that over the past couple of years the XAO generally retraces after hitting the upper bollinger band in the weekly chart. Maybe that's just more a sign of the sideways market we've been in for the past three years? That was the case up until seven weeks ago anyway.

I suppose I'm looking for mean reversion over time; that is, that at some point the price is going to revert back to the mean. I gather what you are suggesting is that just because the price is moving at two standard deviations above the SMA over a certain period of time, this doesn't provide any clue or signal that the price is about to revert to the average? That is what you are implying and if so I would defer to you knowledge and insight on this given that I have no tech skills, nor have I ever tested any of my observations.


----------



## tech/a (4 February 2013)

Klogg said:


> It's beyond me why the two directors who sold today would sell such a small amount...
> 
> If you're going to the trouble of selling a company in which you are a director, would you really do it for just 25k/50k...?




Some sort of emergency funding possibly.
Personal use maybe.


----------



## tech/a (4 February 2013)

Tin
Point I'm making is an M/A displaced or not is simply a reflection of the past n bars closing or other price point on a bar. From day to day you cannot determine the long term path that M/A is likely to take.


----------



## Ves (4 February 2013)

Klogg said:


> It's beyond me why the two directors who sold today would sell such a small amount...
> 
> If you're going to the trouble of selling a company in which you are a director, would you really do it for just 25k/50k...?



The previous Appendix 3Y for Peter Henley might help your speculation a little bit.

Don't get me wrong though - I don't use these events as buying or selling decisions.


----------



## Klogg (4 February 2013)

Ves said:


> The previous Appendix 3Y for Peter Henley might help your speculation a little bit.
> 
> Don't get me wrong though - I don't use these events as buying or selling decisions.




Wow, nice. I didn't even notice that.

I'm not really using it as a selling decision on its own, but should other events transpire and they all point to sell, then you start to wonder.

Thanks Ves.


----------



## robusta (4 February 2013)

Klogg said:


> It's beyond me why the two directors who sold today would sell such a small amount...
> 
> If you're going to the trouble of selling a company in which you are a director, would you really do it for just 25k/50k...?




Just my view but I am not worried about it, the business is not worth 6.84% less than it was yesterday despite that movement in price. Maybe one director is putting in a new pool and the other wants to buy a boat, who knows. I am happy as long as TGA keeps investing in New products while increasing the dividend.


----------



## tinhat (4 February 2013)

Ves said:


> The previous Appendix 3Y for Peter Henley might help your speculation a little bit.
> 
> Don't get me wrong though - I don't use these events as buying or selling decisions.




He's probably been following this discussion! Still, for me its slightly disconcerting that a director has sold down his holding in his family super fund when you consider that at his buy price of $1.52 the stock is yielding 6.58%, which is 8% after franking credits, net of tax (assuming accumulation phase, 15% tax on income). Foregoing an 8% per annum income stream for a capital gain of 24% (after tax).

He is also a director and shareholder of AP Eagers and I notice he hasn't sold down any of those shares lately.

But anyway, as others have already discussed its most likely neither here nor there.


----------



## Pioupiou (10 February 2013)

Other than the usual reason to sell (to put the funds into a better investment) there are other reasons for selling a stock held in a SMSF.  I proffer some examples below: 

* If the SMSF's rules are that no single investment should exceed X% of the whole, then there is pressure to reduce a holding that exceeds X%.  I personally have come under mild pressure from the co-trustee of my SMSF to reduce the SMSF's holding of TGA, but I have ignored the suggestion.

* If I die, my heirs will have to pay 15% capital gains tax (or so I was told by one of them), and hence I am under pressure from the co-trustee (one of the heirs) to sell TGA, and lock the profit in tax free.  The SMSF holds 187,875 TGA at an average buy-in price of 83.8 cents.  I do not feel frail enough to act immediately on this matter.

* In my case again, I have in recent months reluctantly sold SMSF investments to to raise a third of the price of a unit that I needed to put a roof over my head.  I did not sell TGA, but I could have, and would have if they enjoyed a higher SP at the time. 

* Marriage dissolution and personal debts force many investors to sell investments that ordinarily they would prefer to hold. 

It is a bit disconcerting for three TGA directors to sell at about the same time.  If all three sold relatively large percentages of their individual holdings, one could surmise that things are going badly.  Selling a small percentage probably suggests that YE 30/03/2013 is not going to be stellar, but we have been told as much by management, so that is not news.

If I were a director and I were possessed of a Machiavellian mind, and I knew things were going very well, then I would be tempted to sell just enough to spook the market to drop the SP, and then I would buy in big time at a healthy margin of safety.  Who knows why directors sold?  They do not appear to be Machiavellian.

TGA is re-inventing itself in the sense that it is augmenting its original Radio Rentals/Rentlo business with home-grown new lines like Cashfirst, Thorn Equipment Finance and the Rent-Drive-Buy initiative, plus making the best of what it can from the NCML acquisition.  There is no certainty that TGA will do as well in these new areas as established players like CCP, SIV, CCV and others are doing, but there is no reason why it should not.  I think it will do well, but it will take time, and hence in broad terms I concur with the gist of the Thomson Consensus Estimates – to wit:

- - - - - 2012 - - 2013 - - 2014 - - 2015
EPS - - 19.0 - -- 19.4 - - 19.6 - -- 25.1
DPS -- - 9.5 - -- 10.0 - - 10.3 - -- 12.5

The actual fiscal profits for 2013 and 2014 will probably understate the true health of the business.  One has to scratch below the surface to get a feel for how well TGA performs, because it tends to take a conservative accounting approach – expensing whatever it can early, and delaying profit and revenue recognition wherever possible.  Expensing also covers asset valuation – the lower the valuation the greater the expensing via depreciation and amortisation.

Anyhow, I am neither buying nor selling, and I hold all the TGA shares that I have ever bought, both within my SMSF and a larger holding within my own-name portfolio.  My average buy-in price for the sum of both holdings is $1.215.  I should sell on the highs, and buy on the lows, but I am not smart enough to get the selling side right – when I sell shares, the prices seem to rocket upward.


----------



## Out Too Soon (11 February 2013)

So a couple of directors needed to put a deposit on a new Mercedes sports car ready for delivery to the mistress on Valentines day. I call this a buying opportunity 
 Have been in & out of this a few times, not as profitably as IRI but still a good roller coaster 

Correction - it's still going down (watch for bottom of dip)


----------



## oldblue (14 March 2013)

I've just watched CEO John Hughes' presentation to the recent ASX roadshow in New York - on another forum.

I may have missed this before but the  point that registered most with me was the remark that the new business segments that TGA has entered recently will  result in debt to equity eventually reaching the 50% mark. Previous policy has been to restrict this to 10% - currently sits at 14%. Stands to reason of course, as the company expands its money-lending activities - and 50% would hardly be excessive.


----------



## Klogg (14 March 2013)

oldblue said:


> I've just watched CEO John Hughes' presentation to the recent ASX roadshow in New York - on another forum.
> 
> I may have missed this before but the  point that registered most with me was the remark that the new business segments that TGA has entered recently will  result in debt to equity eventually reaching the 50% mark. Previous policy has been to restrict this to 10% - currently sits at 14%. Stands to reason of course, as the company expands its money-lending activities - and 50% would hardly be excessive.




I believe they mentioned the debt to equity levels in the full-year presentation - reason being that they want to grow Thorn Equipment Finance much faster, (therefore fund it with debt) whereas the Radio Rentals component will remain as is (virtually debt-free).

Given the rates TEF is growing at, the only way to enable that growth is to borrow, as they don't really have the cash aside for it (or raise capital, but I'd much prefer the former).


----------



## Pioupiou (14 March 2013)

Nothing new was said by John Hughes.  The only item that was new to me is that he is more than being simply aware of Aaron's and Rent-A-Center - the companies swap information.  On the matter of using more debt, previous  presentations said that this would happen, and implied that the money would come from Westpac.

More debt is a positive, because if TGA wants to expand TEF, doing so without relying on debt would be like running a race with calipers on.  Look at SIV's debt/equity ratio - it makes TGA's mooted 50% look modest in the extreme.


----------



## Pioupiou (19 March 2013)

Out Too Soon said:


> . . .  still going down (watch for bottom of dip)




The dip has done its dip, and SP has moved up, with more folk wanting in than out.  I normally focus on TGA as a business (EPS, DPS - boring things like that), because for me its a keeper whose dividends substantially underpin my total income, but the SP is a reasonable side interest, so what do the chartists think?

Also, any comments on sites like:

http://asxiq.com/detail/ASXIQ/thorn-group-limited/ and
http://au.stoxline.com/q_au.php?symbol=tga&c=ax ?


----------



## chops_a_must (20 March 2013)

Pioupiou said:


> The dip has done its dip, and SP has moved up, with more folk wanting in than out.  I normally focus on TGA as a business (EPS, DPS - boring things like that), because for me its a keeper whose dividends substantially underpin my total income, but the SP is a reasonable side interest, so what do the chartists think?
> 
> Also, any comments on sites like:
> 
> ...




Long term up trend.

Couldn't quite get through all time highs, but has been supported on a dip.

Still setting higher lows in the short term.

In short term resistance.

Your fundamentals seem to back up my opinion that I reckon this will have another crack at all time highs.

Obviously, nothing like the strength in the SIV technicals, but looks ok to me.


----------



## Pioupiou (26 March 2013)

chops_a_must said:


> Long term up trend.
> 
> Couldn't quite get through all time highs, but has been supported on a dip.
> 
> ...




Hi chops_a_must - thanks for that.  Today seemed to be one of reluctance on both sides, so a lower than average volume was traded, and even that had 40% (110,051 shares out of 272,358) traded via the gnomes who come out to play after 4:00pm.  Looking at the buy and sell offers 4 cents either side of $2.06 suggests the SP could easily get to $2.10.  Not that $2.10, or even $2.20 would make any difference to me – I am neither selling nor buying.

TGA's year end is only a few days away, so the well-connected already have a fair picture of the results.


----------



## oldblue (9 May 2013)

Nothing happening at TGA - or at least on the TGA thread!

Meanwhile, the SP makes quiet gains - up strongly today which suggests a solid result pending.

I hold.


----------



## VSntchr (9 May 2013)

oldblue said:


> Nothing happening at TGA - or at least on the TGA thread!
> 
> Meanwhile, the SP makes quiet gains - up strongly today which suggests a solid result pending.
> 
> I hold.




Result is out 20/5 I think, so it is good to see it break to the upside from its current tight range. 
A lot of commentary to follow the result with the good following that TGA has amongst both fundamentalists and techies!


----------



## Pioupiou (10 May 2013)

VSntchr said:


> Result is out 20/5 I think, so it is good to see it break to the upside from its current tight range.
> A lot of commentary to follow the result with the good following that TGA has amongst both fundamentalists and techies!




I agree 100% - what will be published on 21/5/2013 (mooted date of interim report) is already known to a fistful of people, and unless they are saints, to a small degree the word will be on the street already.  I for one will go through the report with a fine-tooth comb, and commenting from the FA perspective, because I have a lot riding on TGA's well being.


----------



## tinhat (11 May 2013)

Pioupiou said:


> I agree 100% - what will be published on 21/5/2013 (mooted date of interim report) is already known to a fistful of people, and unless they are saints, to a small degree the word will be on the street already.  I for one will go through the report with a fine-tooth comb, and commenting from the FA perspective, because I have a lot riding on TGA's well being.




I look forward to that. It's been moving sideways through congestion for some time but still showing an underlying uptrend on the P&F chart. If it can break out above 2.30 there is blue sky ahead and a break above 2.22 should see it be able to get to 2.30 without too much trouble.


----------



## VSntchr (21 May 2013)

Result is out with no negative suprises.

There are alot of positives in here - my general thinking from the report is that we will look back in 5-10 years time and think that this period was a good time to accumulate TGA.

It frustrates me that they are increasing the dividend, yet they are continuing with the DRP and expanding financing....their ROC is still well above their cost of capital, I am more than happy for them to re-invest.


Still holding from the lows of $1.40ish and subsequent parcels around $1.60.


----------



## ROE (21 May 2013)

Steady as she goes I like it ...
No grand plan, no massive capital outlay apart from that crazy nclm bungle, they better steady
The ship for a while


----------



## Huskar (21 May 2013)

I still don't quite understand the cash flow statement. 

Operating cash flow number looks real pretty but more than offset by investing cash flows.

What percentage of rental asset acquisitions and Thorn Equipment Finance settlements is growth capex and what percent is maintenance? 

I think you tried to dispel my confusion before McLovin but I am still not clear..


----------



## Pioupiou (22 May 2013)

Huskar said:


> I still don't quite understand the cash flow statement.
> 
> Operating cash flow number looks real pretty but more than offset by investing cash flows.
> 
> ...




I have not looked at the cashflow statement, but I am prepared to venture that you can dismiss the concept of maintenance as a factor in TGA's case.  It is not as though TGA's CAPEX involves capital items like cranes and things that can be refurbished.  TGA's CAPEX is substantially so-called rental stock.  I use the hyphenated word "so-called" because there is an element of fiction skulking there, and that is because TGA supplies most items under operating leases, rather than finance leases, and this lease-type distinction borders on being a sham.  If one gets a TV under a three-year finance lease, the cost of the TV is expensed via COGS (cost of goods sold).  If one gets a bed under a three-year operating lease with a $1 option to buy the bed at the end of the lease, TGA capitalises the cost of the bed, so it goes into the so-called CAPEX.

In summary, for TGA, when CAPEX rises, it is good news, because it substantially means more so-called rental streams - operating lease payment streams, actually.  The cash streams are undervalued in the accounting process, because they are valued via the depreciated value of the asset, not the value of the lease commitment, which includes the profit margin.  The profit dribbles in over the lease of the term.  In contrast, with finance leases, the profit is taken up-front, and the balance sheet value resides in the lease.  Consequently, as TGA shifts more towards operating leases, in the short term profits seem to be lower, but it's all part of that rubbery art called accounting.

Start worrying when TGA's CAPEX falls.


----------



## chops_a_must (22 May 2013)

Well, it has finally broken out, and I'm finally in.

It's playmate SIV also looks to be resetting up as well.

But this is a strong break out. I'm always a fan of trading breakouts where the fundies like it as well.


----------



## oldblue (25 September 2013)

You called it well, chops!

It's been a nice steady rise these last few months.


----------



## robusta (25 September 2013)

oldblue said:


> You called it well, chops!
> 
> It's been a nice steady rise these last few months.




The doo seem to have a habit of increasing dividends and growing revenues. I might be tempted to top up again if the price ever dips enough again.


----------



## kermit345 (26 September 2013)

Consdering all the heated discussion that took place in this thread particularly from an FA vs TA point of view i'd say a lot of people would've made considerable returns if they took part in the discussion in this thread.

Pretty much every angle of TA and FA was covered with no stone un-turned. It's certainly been one of my best performers.

I'd assume Pioupiou's portfolio is looking quite healthy at the moment given his large stake in TGA.


----------



## Boggo (26 September 2013)

kermit345 said:


> Consdering all the heated discussion that took place in this thread particularly from an FA vs TA point of view i'd say a lot of people would've made considerable returns if they took part in the discussion in this thread.
> 
> Pretty much every angle of TA and FA was covered with no stone un-turned. It's certainly been one of my best performers.




As one of those involved in that educational debate I do have to admit that I do hold a few of these.
Fairly average performance so far though for TGA when compared with both BOQ and CWN which were bought two days later.

TGA bought from a purely TA approach of course


----------



## tinhat (27 September 2013)

Boggo said:


> As one of those involved in that educational debate I do have to admit that I do hold a few of these.
> Fairly average performance so far though for TGA when compared with both BOQ and CWN which were bought two days later.
> 
> TGA bought from a purely TA approach of course




I bought a lot of these shares before I  knew about the debate here. I agree the debate occurred at a good time to jump on and was very interesting. TGA is not my best performer nor my worst. Been very happy with my investment which I made purely on FA but, for example, Telstra has far out performed TGA over the same period I've been holding. CBA has probably give me better returns too. 

That said, in a market that has been very volatile and very sideways moving for most of the past four years I am very grateful for learning what I have about TA (which has been 90% from this forum) which I very much overlay onto my FA when timing entry and exit from stocks these days.


----------



## kermit345 (27 September 2013)

tinhat, I was the same as you, I bought about a week before the discussion started in this thread and then added some more when the price went down a little. The attention to detail and in-depth discussion by the majority in this thread was both educational and rewarding for those that were involved, both from a TA and FA point of view.

The reason TGA sticks out for me is along with CGF last year they have been two of the easiest FA buy decisions i've made since I started investing 4.5 years ago. Since I bought CGF in Aug last year there really has not been any standout FA buys for me like those two which probably has a lot to do with the markets rise hence nothing looks 'cheap'.

So for those that still hold TGA now, where are people looking from here, both from a TA and FA standpoint?

Personally i'm happy to hold due to the steady cashflow/earnings with the opportunity of gradual growth, increasing dividend and therefore steadily increasing shareprice. Also as I said earlier I don't see many options elsewhere to deploy my capital to would rather continue to hold this.

Note: I think $2.30-$2.40 is getting very close to fully priced, $2 or under is a buying opportunity providing its not accompanied by bad news and $2.60+ as time to sell unless positive long-term news is the driver.


----------



## craft (27 September 2013)

Boggo said:


> As one of those involved in that educational debate I do have to admit that I do hold a few of these.
> Fairly average performance so far though for TGA when compared with both BOQ and CWN which were bought two days later.
> 
> TGA bought from a purely TA approach of course




$2.11! Crikey I thought we were talking accumulation sub $1.50.

Far too early for judgment yet IMO we have only had three cash flows: 
5.50C FF 8/6/12
4.50C FF 20/12/13
6.0c FF 11/6/13

Everything is on track – the business is performing within expectation. Stand by for my review in a decade or two (or when something turns south with the business.)

An obsession with immediate justification and gratification is going to keep so many from becoming truly wealthy.


----------



## Boggo (28 September 2013)

tinhat said:


> ... TGA is not my best performer nor my worst. Been very happy with my investment which I made purely on FA but, for example, *Telstra has far out performed TGA over the same period I've been holding. CBA has probably give me better returns too. *
> 
> That said, in a market that has been very volatile and very sideways moving for most of the past four years I am very grateful for learning what I have about TA (which has been 90% from this forum) which I very much overlay onto my FA when timing entry and exit from stocks these days.




Agree tinny. TGA is good when it is moving but it can tie up funds that can be made to work elsewhere when it is having its 'two steps back of three steps up' periods. I picked up the last divvy on it then bailed out until the buy above.

TLS has been a great performer for me, I don't hold the stock but hold instalment warrants instead since I bought TLSIOU in July 2011, now holding TLSIOI in two accounts and have picked up every dividend since 2011 in both my account below and in my SMSF.

Being prepared to move workers ($$$$) around to where they are productive is the key, especially in the current market. I have (unrealised) more profit from MBE in the last week than I would have from TGA in the last year for the same dollar cost. To fund MBE I sold SEA because it wasn't continuing to perform.

The moving cost of between $7 and $33 depending on the broker is the fuel cost to move your "workers" from one job to another, a no brainer imo.

Below is the contents of one of my accounts, CCV and TGA are the two worst performers so far.


----------



## robusta (28 September 2013)

Don't forget to include the tax you have to pay on all those capital gains.


----------



## burglar (28 September 2013)

robusta said:


> Don't forget to include the tax you have to pay on all those capital gains.




A punch below the belt!?


----------



## robusta (28 September 2013)

burglar said:


> A punch below the belt!?




Not intended to be, I don't consider myself smart enough to trade stocks short term and make money but one of the advantages I have with a longer holding period is tax.


----------



## Julia (28 September 2013)

robusta said:


> Don't forget to include the tax you have to pay on all those capital gains.






robusta said:


> Not intended to be, I don't consider myself smart enough to trade stocks short term and make money but one of the advantages I have with a longer holding period is tax.



Don't get so hung up about tax, robusta.

From the thread on MCE to which brty drew our attention earlier today:
https://www.aussiestockforums.com/forums/showthread.php?t=27450&p=796079#post796079

specifically



> Looks like MCE has copped a bit of a battering this morning down under 5 dollars.
> 
> I bought at 4 and 5 dollars last year.
> 
> Looks like I should have sold when it hit 9 but I didn't want to pay the large capital gains tax




The last SP on Friday was just 71 cents.  Paying a bit of tax is nothing in comparison to that sort of capital loss.


----------



## galumay (28 September 2013)

Julia said:


> Don't get so hung up about tax, robusta.
> 
> From the thread on MCE to which brty drew our attention earlier today:
> https://www.aussiestockforums.com/forums/showthread.php?t=27450&p=796079#post796079
> ...




Thats a bit disingenuous Julia, the two things are not really connected. Robusta is talking about the issue of the CGT liability in trading in good shares, and the reality that fundamental investors holding for the long term growth and yield have the advantage of not attracting CGT.  The example you quote is someone choosing not to sell at all, shares in a dog of a company that were in freefall, just to avoid a potential CGT exposure. (Ironically they probably did manage to avoid a CGT exposure!)


----------



## Julia (28 September 2013)

Not disingenuous at all.  If you refer to the link I provided you will see just one example of what is a quite common phenomenon, i.e. people not taking profits while they can in order to avoid tax.

However, it's unlikely you and I will agree on much, so I'll respectfully decline to further this discussion with you.


----------



## galumay (28 September 2013)

Julia said:


> Not disingenuous at all.  If you refer to the link I provided you will see just one example of what is a quite common phenomenon, i.e. people not taking profits while they can in order to avoid tax.
> 
> However, it's unlikely you and I will agree on much, so I'll respectfully decline to further this discussion with you.




Again, Robusta wasnt suggesting not taking a profit to avoid CGT, he was pointing out one of the benefits of his strategy of holding for long term growth and yield as opposed to trading - less exposure to CGT.

I am not asking you to agree with me, merely pointing out that you are creating a strawman argument.


----------



## TikoMike (28 September 2013)

galumay said:


> Again, Robusta wasnt suggesting not taking a profit to avoid CGT, he was pointing out one of the benefits of his strategy of holding for long term growth and yield as opposed to trading - less exposure to CGT.
> 
> I am not asking you to agree with me, merely pointing out that you are creating a strawman argument.




+1

Is it not already a known fact that Julia frequently creates stawman arguments on this forum anyway? Anyway to illustrate Robusta's point - assuming the prospects for the company is and will continue to be great which obviously MCE was not:


----------



## Boggo (29 September 2013)

You may need to Google the Australian version of that TikoMike, in the USA in a lot of cases there is no CGT if you have held for greater than the minimum defined periods.

Currently I am in the second highest tax bracket and my tax is $17,547 plus 37c for each $1 over $80,000 pa.
In comparison the second lowest tax bracket pays 19c for each $1 over $18,200 pa.

Which tax bracket would I be financially better off in at the end of any year I wonder ? 
I will gladly pay more tax anyday.

I would gladly take profit and pay the CGT rather than riding a stock down because you may become a trader.
Look at WES as an example, down from $40 to $15 and now back to todays price which is around the same as it was in June 2007.

Look at QAN, would you rather have taken profit at the obvious turn down in May 2013 and pay the CGT or be still holding it now :bad:

The point that seems to be missed is that taking a CGT hit is better than riding a stock down as in the examples above or even holding a stock that is trading sideways when the same money could be put to use on a stock that is increasing in value.

Try a graphing this, sell QAN on the turn down, take the profit, buy BOQ two weeks later with the funds from the QAN sale and pay the CGT on the QAN profit when due 
(How is that "outperform" % figure looking now TikoMike ?)

Caution. Following my process may result in your family/friends disowning you because you run the risk of being called a trader, especially if they find out you paid CGT


----------



## cynic (29 September 2013)

TikoMike said:


> +1
> 
> Is it not already a known fact that Julia frequently creates stawman arguments on this forum anyway?



Really?!! That's completely news to me! I've never experienced Julia to be that way inclined!



> Anyway to illustrate Robusta's point - assuming the prospects for the company is and will continue to be great which obviously MCE was not:
> 
> View attachment 54595





Whilst I have no problem with people considering all relevant factors in their investment decisions (inclusive of CGT implications), if one were to take the time to perform the requisite mathematical operations for the reproduction of those percentages, one would immediately discover that numerous unstated assumptions would need to be made. So in effect, the only thing that your regurgitated chart truly illustrates is a lack of competence upon the part of its author.

To me this is simply further evidence of the fact that some people simply aren't intelligent enough to realise how truly unintelligent they are, or to put it another way, some people are too stupid to know that they're stupid!


----------



## Boggo (29 September 2013)

cynic said:


> Really?!! That's completely news to me! I've never experienced Julia to be that way inclined!




+1




cynic said:


> Whilst I have no problem with people considering all relevant factors in their investment decisions (inclusive of CGT implications), if one were to take the time to perform the requisite mathematical operations for the reproduction of those percentages, one would immediately discover that numerous unstated assumptions would need to be made. So in effect, the only thing that your regurgitated chart truly illustrates is a lack of competence upon the part of its author.




Agree, those percentages in the graph don't account for the reason for selling, ie, the stock has failed to continue performing or as I have shown above with QAN has rapidly declined.


----------



## galumay (29 September 2013)

Boggo said:


> I would gladly take profit and pay the CGT rather than riding a stock down because you may become a trader.




Again, more strawman arguments, no one is saying they would avoid a profit to minimise tax, or so as not to become a trader. The only statement that has been made in relation to tax was that one of the advantages of a strategy of holding shares for capital growth and yield as opposed to trading is a reduction of CGT exposure.

Its a bit like saying that an advantage of holding as opposed to trading is that you avoid transaction costs, its a simple fact, that doesnt mean that anyone would advocate making a loss to avoid transaction costs.

I can only think that this defensive and poor use of argument is a reflection of some members taking the original comment an attack on trading as a strategy, I dont believe this was the case or the intention.


----------



## oldblue (29 September 2013)

Could someone on this CGT thread redirect us to the TGA thread, please?


----------



## galumay (29 September 2013)

oldblue said:


> Could someone on this CGT thread redirect us to the TGA thread, please?




Happy to oblige! I bought in late June, and although they are a long term hold in my portfolio, I am very happy to see them up over 13% in the 3 months since I purchased.


----------



## robusta (29 September 2013)

Julia said:


> Don't get so hung up about tax, robusta.
> 
> From the thread on MCE to which brty drew our attention earlier today:
> https://www.aussiestockforums.com/forums/showthread.php?t=27450&p=796079#post796079
> ...




When I think the correct decision is to sell I do not even think about the Tax implications. My comment earlier on this thread was related to the advantages of holding good growing businesses for the long term without constantly trading in and out of them and incurring brokerage and tax costs.

Once again I do not doubt that many on this forum make money from TA and trend following techniques but I do not consider these techniques suit my temperament nor can I see an edge I can exploit over my chosen strategy.


----------



## burglar (29 September 2013)

galumay said:


> Happy to oblige! I bought in late June, and although they are a long term hold in my portfolio, I am very happy to see them up over 13% in the 3 months since I purchased.




Sorry!

That does not make sense!


----------



## craft (29 September 2013)

compound annual return since listing now 22%+ (excludes franking benefits)

And that's over a period that covers the GFC.

Not a bad effort for some lazy working $$$$$

No need to be called off side by market price action – a pretty simple hold based on business performance metrics.

Effective interest free loan from the government in the form of deferred tax liability working a treat for the long term holder – not to mention the CGT discount amount that is ignored as a permanent difference. 


Ps 
Happy Hawthorn Day for yesterday


----------



## burglar (29 September 2013)

robusta said:


> ...  I do not consider these techniques suit my temperament nor can I see an edge I can exploit over my chosen strategy.




It's a cool strategy, from my point of reference.
Nothing wrong with being a value investor in spirit and occasionally deciding to sell.



You are a target because you vigorously defend your chosen strategy.
Some that have a go, cannot see that you are happy to find a path by heuristics.


----------



## robusta (29 September 2013)

burglar said:


> It's a cool strategy, from my point of reference.
> Nothing wrong with being a value investor in spirit and occasionally deciding to sell.
> 
> 
> ...




Value investors sell all the time for all sorts of different reasons.

I have to admit to needing to look up the definition of heuristics I does seem to accurately define my learning experience.

+1 regarding Craft's post above, I would like to copy it to the letting profits run thread.


----------



## craft (29 September 2013)

cynic said:


> if one were to take the time to perform the requisite mathematical operations for the reproduction of those percentages, one would immediately discover that numerous unstated assumptions would need to be made. So in effect, the only thing that your regurgitated chart truly illustrates is a lack of competence upon the part of its author.
> 
> To me this is simply further evidence of the fact that some people simply aren't intelligent enough to realise how truly unintelligent they are, or to put it another way, some people are too stupid to know that they're stupid!




Stupid is a stupid does.

How about some ‘requisite mathematical operations’ *workings out *to illustrate the author’s incompetence and proof your conclusion.


----------



## Ves (29 September 2013)

craft said:


> Stupid is a stupid does.
> 
> How about some ‘requisite mathematical operations’ *workings out *to illustrate the author’s incompetence and proof your conclusion.



The author was just using the concept of _ceterus paribus_ to demonstrate something in insolation.  It is common in economic theory and science in general.

The only assumptions that were made are those assumptions made by the 'intelligent' people in this thread to win a forum argument / debate that only exists in their own minds.    

If it is the guy with the same last name (Schwab) that I believe it is he is worth $4.3 billion.   Sounds very incompetent.


----------



## Ves (29 September 2013)

Ves said:


> _ceteris paribus_



Spelling correction - would be good if the admin team could edit my original post and delete this one.  Cheers.


----------



## burglar (29 September 2013)

Wise old Polish saying:
"Jesteśmy biedni bo jesteśmy głupi!
Jesteśmy głupi bo jesteśmy biedni!!"

Translates roughly to:

We are poor because we are stupid!
We are stupid because we are poor!!


----------



## burglar (29 September 2013)

robusta said:


> Value investors sell all the time for all sorts of different reasons ...




Oh dear, did I say it badly … again?!

Nothing wrong with opportunistic trading no matter what kind of investor you are.

Did I say selling is bad … 
Your detractors say, you are often trading when you claim to be investing.

I say, find your own path. 

You have pluck and courage, posting warts and all.
Good on you.


(Heuristics is an ambiguous word! 
In a good way it could mean learning by experience! 
In a not so good way it could mean trial and error.)


----------



## Julia (29 September 2013)

robusta said:


> When I think the correct decision is to sell I do not even think about the Tax implications. My comment earlier on this thread was related to the advantages of holding good growing businesses for the long term without constantly trading in and out of them and incurring brokerage and tax costs.
> 
> Once again I do not doubt that many on this forum make money from TA and trend following techniques but I do not consider these techniques suit my temperament nor can I see an edge I can exploit over my chosen strategy.



We all do what we're comfortable with, robusta.  I wish you luck and hope the outcome is happier for you than on MCE


----------



## Julia (29 September 2013)

TikoMike said:


> Is it not already a known fact that Julia frequently creates stawman arguments on this forum anyway?






cynic said:


> Really?!! That's completely news to me! I've never experienced Julia to be that way inclined!






Boggo said:


> +1



Tiko Mike, perhaps you'd like to give some examples of these straw man arguments.  It's certainly not something I set out to do.
Perhaps not here, though as some people actually want to discuss TGA and/or whether tax should be a consideration in deciding when to sell.  Start a separate thread where you can list all your criticisms.

(Thanks to cynic and Boggo.)


----------



## burglar (29 September 2013)

galumay said:


> Happy to oblige! I bought in late June, and although they are a long term hold in my portfolio, I am very happy to see them up over 13% in the 3 months since I purchased.





If it is indeed a long-term hold you should be happy until the tipping point.
Then you should sell and still be happy. But then it's not a long-term hold anymore.

You know ... property value means nothing unless you sell.
House value means nothing unless you sell. You cannot eat bricks.


----------



## galumay (29 September 2013)

burglar said:


> If it is indeed a long-term hold you should be happy until the tipping point.
> Then you should sell and still be happy. But then it's not a long-term hold anymore.
> 
> You know ... property value means nothing unless you sell.
> House value means nothing unless you sell. You cannot eat bricks.




I am not sure if I have understood your point correctly, but if you are gently pointing out to me that its irrelevant if the share price is up 13% and I continue to hold as I have not realised the potential profit, then, yes, I am aware of that.

I guess one of the differences with shares as opposed to property is that on any given day I know exactly what 1 or all of my shares are worth on the market. That can be a double edged sword for the long term holder.


----------



## cynic (29 September 2013)

Firstly, just a generic (and off topic - apologies!) response to the recent flurry of replies to my abrasive post. 

It is the prerogative of each individual to discover one's respective "strong suit" and play one's cards accordingly.

Having said that I believe that it would be a serious error to presume the infallibility of statements made by any guru in any field (investment, medical, scientific ,spiritual, legal etc.) based solely upon their personal health, wealth or ideology.
Those whom disagree need only ask themselves how many kilobytes of RAM their current computer technology requires in order to participate on this forum. (We do all still remember that famous Bill Gates quote, don't we?!).

Whilst I can understand that some will be in disagreement with the vehemence of my post, I'm not quite sure how anyone other than the author (Schwab) can recognise meaning in that chart. 
Perhaps his target audience could be expected to know these things in advance. As a minimum, I would certainly want to know the pertinent CGT rates when contemplating that chart, otherwise it is meaningless!

It comes as no surprise to me that some members failed to recognise that my intelligence and stupidity rant wasn't intended to be limited to Schwab! It had a much broader scope! I believe the more intelligent members will understand the implications of my last two sentences.

Secondly (and back onto topic),

I have had past acquaintance with TGA's operations via a brief period of employment within their group. At that time (1999) their parent had just increased market dominance via acquisition of their largest competitors. Based upon my observations, the increased client base combined with structural savings (integration of duplicated administration processes etc.) and a newly created dearth of serious competition would undoubtedly have enabled them to improve their bottom line.
Their client application, certification and credit approval processes were regimented and thorough. As for their arrears department - those guys were truly a force to be reckoned with!

Given the nature of their dominance and target demographic, it comes as no surprise to me that this company has weathered the GFC, but, like all investment decisions, it is prudent to maintain vigilance for any changes material to one's original assessment.

P.S. For reasons more personal than professional,  I have been shunning TGA. (My experiences during, and subsequent to, the closure of one of their branches are still far too fresh in my mind).


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## burglar (30 September 2013)

cynic said:


> ... how many kilobytes of RAM their current computer technology requires in order to participate on this forum. (We do all still remember that famous Bill Gates quote, don't we?!) ...



I had to look it up!
Then I thought to share


> 640K ought to be enough for anybody.
> Bill Gates



Read more at http://www.brainyquote.com/quotes/authors/b/bill_gates.html#4Iu1dXei18hz8h58.99


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## oldblue (30 September 2013)

Thanks to all for the spirited discussion since I woke this thread from its slumbers on 25 September!


----------



## RottenValue (30 September 2013)

The interesting discussion on this thread was back in May 2012 - those that bought at $1.40 and held have made a total return of 52% per annum (including dividends) and 75% overall.  The easy money has now been made but no reason to sell when the stock is likely to continue to return 11% per annum even at the current $2.30.

The free advice provided by many on this forum at that time is worth reflecting on.

Holder.


----------



## burglar (30 September 2013)

galumay said:


> I am not sure if I have understood your point correctly, but if you are gently pointing out to me that its irrelevant if the share price is up 13% and I continue to hold as I have not realised the potential profit, then, yes, I am aware of that.
> 
> I guess one of the differences with shares as opposed to property is that on any given day I know exactly what 1 or all of my shares are worth on the market. That can be a double edged sword for the long term holder.




You have understood my point correctly, ... 

We all deserve happiness, regardless of how we trade.


----------



## Boggo (30 September 2013)

RottenValue said:


> ...*The easy money has now been made* but no reason to sell when the stock is likely *to continue to return 11% per annum even at the current $2.30.*




I agree with the first bit but I have a query on the second bit of that statement.

The TGA share price is now back to just a few cents above where it was in Feb 2011.
Since Feb 2011 it has paid a total of approx 25 cents per share in dividends.
With an average inflation rate of 2.5% there would be an erosion of value of approx 14 cents per share over the same period.
The gain would therefore be 11 cents over that two and a half year period or roughly 4.5 cents per share pa.

That is around 2% pa average over the last two and a half years ?


----------



## oldblue (30 September 2013)

I took the comment to refer to the increase in SP from around $1.40 in May last year.


----------



## RottenValue (30 September 2013)

Yep - the return to date is based on the $1.40 buy price which I thought was obvious.  Hence the 75% (or 52% per annum effective).

The strong return is because the stock was undervalued and has since returned to a fair level.  A look at the fundamentals over the past 5 years will show you it has increased sales by 11%, EPS by 19% and dividends by 20% per annum over that period.  

I'll leave you to do the numbers but an expected total return of about 11% is not unreasonable, in fact more like 16% if the PE holds at 12 rather than 9 which is its long term average.


----------



## Boggo (30 September 2013)

RottenValue said:


> The strong return is because the stock was undervalued and has since returned to a fair level.  A look at the fundamentals *over the past 5 years* will show you it has increased sales *by 11%*, EPS *by 19%* and dividends *by 20%* per annum over that period.




Pick a number, the reality is 2% over the last 50% of that period. Inflation is currently 2.4% and the cash rate is 2.5% !

Nice to see that Alan Kohler is starting to see the light, tonight he stated that regardless of the theory and numbers the reality is that the market has broken the trendline as he looked at a chart


----------



## RottenValue (30 September 2013)

Boggo

I give up, I'll just go and draw a line on a chart.  Seems too hard to grasp anything else


----------



## kermit345 (1 October 2013)

Your both talking about different periods of time from different dates so the comparison is pointless anyway? Essentially your both correct given the timeframes each of you are looking at, not sure it really serves much purpose though.

RV, while EPS has continually grown for TGA the growth wasn't as substantial YoY for 2013 compared to 2012. I understand it had a lot to do with their investment into growing new revenue streams but i'd like to see the EPS continue to improve in the 2014 reporting.

Certainly agree with you regarding dividends though which are also fully franked, still can get a reasonable yield at the moment of around 4.5% excluding the franking credits. Luckily my cost base is $1.50 so i'm getting a 7% yield on invested capital plus franking.

I'm not sure TGA will continue to grow at 11% per annum, to make that simple assumption is a bit extreme but i'm comfortable to continue holding as I can't find any other opportunities at the moment and i'm happy with the position TGA is in as I don't see it being overvalued just yet, just fairly valued.


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## Pioupiou (11 October 2013)

With the benefit of hindsight, there are various points in time between 2011 and now when I should have sold TGA at SPs in the $2.25 - $2.40 range, but I did not, and there were times when I should have bought, but I did not (although I did buy 80,000 at $1.433 in May-June 2012).  Drawing lines between SPs at these high and low time points and the current SP will give a variety of slopes – comparing them is pointless.

My current view is that 2011 was a disaster caused by TGA paying far too much for NCML.  This did not reflect in the EPS then, but it has been shifted to the five years ending 30/03/2016 via the $1,760,000 a year amortisation of NCML's so-called Customer Relations asset.  The real cost may be worse, because one could ask where TGA would be today without the NCML distraction, and without the need to increase share numbers to raise the capital to buy NCML.  I take heart in the notion that management will not repeat that mistake, and stick to organic growth in future. 

The value of TGA substantially depends on the current view of TGA's EPS growth, which varies from investor to investor, so I can only venture what I think.  I presume that the initiatives like TEF, Thorn Financial Services, the now-bedded-down NCML and small changes within Radio Rentals/Rentlo will, because some expenses pertaining to initiatives will not grow at the same pace as gross profit, see TGA grow EPS at an increasing tempo of something like 6% in 2014, 7% in 2015, 8% in 2016 and 9% in 2017.  Retail margins will play a lesser role, but increased use of debt funding should compensate for that.

All companies decelerate revenue growth and profitability over time, so I presume the current growth spurt occasioned by TGA's relatively new initiatives will do that too.  For my model I have the 9% EPS growth in 2017 being repeated in 2018, and then retreating at the rate of .9  of the preceding year's growth until it plateaus at say 4.5%.   This equates to an average growth of 5.444%.  This is not too toppy for TGA, which currently has a ROIC of about 20%, a WACC of 9.42% and a dividend payout ratio of 55%.

To derive a value-for-me I use my mortgage rate of 5.4% uplifted by an equity-risk-premium factor of 1.8, and I apply it as the discount rate to the stream of after-tax income that I get from TGA, which is (EPS x Payout Ratio Ã· .7) x (1-.325) for holding TGA personally, and for holding it within my SMSF I change the last multiple to (1-.15), because I have assumed my marginal tax there is 15%.  In essence, I reduce the matter to either holding TGA for the benefit of the dividends, or reducing my mortgage to reduce the interest it racks up.  I have not adjusted the monthly-compounding mortgage rate to an annual equivalent, nor have I recognised that the dividend comes in two six-monthly payments, but as my 1.8 equity-premium uplift factor is on the rough side, and it bounces about with mood swings, not much purpose is gained by more feigned precision than I have already used. 

Depending on EPS growth being as per my model (5.444% average), to me TGA is worth about $2.50 in my personal portfolio, rather than hurling funds at my mortgage.   Obviously, if I knew of a better competitor than paying money off my mortgage, then I should examine that option.  Below is a table for different EPS growths converted to after-tax dividend-cum-franking-credit income, pursuant to the assumptions provided so far.

Personal - Growth - SMSF
$1.042 - - 0.00% - - $1.312
$1.338 - - 2.00% - - $1.652
$1.553 - - 3.00% - - $1.898
$1.842 - - 4.00% - - $2.230
$2.253 - - 5.00% - - $2.703
$2.886 - - 6.00% - - $3.429

$2.498 - - 5.444% - $2.983

I do not expect Mr Market to share my views on TGA, but by the end of calendar year 2013, my punt is that TGA will be about $2.40.  The half-year report due on 20 November should help to shed light on its EPS trajectory.  As an aside, I can now live off my TGA dividend, and the money invested in it cost me a little over half what the portfolio is now worth - I wish there were more stocks like it.


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## Pioupiou (12 November 2013)

Pioupiou said:


> . . . blah, blah blah . . .  I do not expect Mr Market to share my views on TGA, but by the end of calendar year 2013, my punt is that TGA will be about $2.40.  The half-year report due on 20 November should help to shed light on its EPS trajectory.  . .




I am happy to see that Xmas came early for me, and TGA reached $2.40 in October.  I had 515,500 shares, with the 15,500 bought recently at about $2.22 with the intention of making a small and relatively speedy profit, so I sold them today at $2.60.  As for the 500,000, they are worth just over twice what I paid for them, and I am happy to sit on them and milk their growing dividend, which forms a large part of my annual income as a self-funded retiree.  Bless the day that I tumbled on TGA - it has saved my bacon after the ravages of the GFC (I entered the market in late 2007 - the worst possible entry point, generally speaking).

Knowing my track record of SPs bounding ahead as soon as I sell, TGA shares may well hit $3.00.  I had in this or another site ventured $2.40 by Xmas 2013 and $3.00 by Xmas 2014, but I now suspect Xmas 2014 will come very early.  On 19 November the half-year-ended-30/09/2013 announcement is due, and that should give an idea of how well the traditional Radio Rentals/Rentlo business is tracking, and how well a fistful of new initiatives are gaining traction, including the turn-around of NCML as a service company.


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## oldblue (27 November 2013)

It's over a week now since TGA reported its interim numbers. With reported NPAT -5% and that "other" number, underlying profit +2.9% it seems a steady as she goes result - can't call it disappointing in that the company didn't provide any prior guidance. But it justifies the weakness in the SP in recent weeks!



Thorn Financial Services has me a bit puzzled. Customer base is down y/y and the average loan value is steady at $2,400, yet the Loan Book has increased! I wonder how that works?


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## oldblue (27 November 2013)

oldblue said:


> It's over a week now since TGA reported its interim numbers. With reported NPAT -5% and that "other" number, underlying profit +2.9% it seems a steady as she goes result - can't call it disappointing in that the company didn't provide any prior guidance. But it justifies the weakness in the SP in recent weeks!
> 
> 
> 
> Thorn Financial Services has me a bit puzzled. Customer base is down y/y and the average loan value is steady at $2,400, yet the Loan Book has increased! I wonder how that works?




Got it!

It must be customers with multiple loans!


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## Pioupiou (27 November 2013)

oldblue said:


> Got it!
> 
> It must be customers with multiple loans!




I doubt if that is the reason for the apparent anomaly.  The anomaly result from Cashfirst being a new business, so the loan book has not had sufficient time to average into a steady-state for a set number of customers.

The average loan of $2,400 relates to the value on the day the deal is done.  Consequently, the average loan outstanding is a smaller value, and those close to expiry much smaller.  The impact on the loan book of expired loans is small, because a year ago they would on average have repaid most of the loan.  In contrast, if in the last 12 months Cashfirst signed up as many $2,400-a-pop new customers to replace those that expired in that period, their relative newness would occasion the impact on the loan book to be roughly $2,000 per customer.  Also, I think the average loan some three years ago was less than $2,400, which would exaggerate the anomaly, and a spurt of new loans recently would do likewise.


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## Ves (29 November 2013)

An analysis of Thorn Group / RR’s margin history may provide useful for those with a more long-term view on the stock.  It can be mildly cyclical over the whole business cycle, and as mentioned in a few of the past posts since 2011 we are going to approach the peak of that cycle in the next few years (if we have not already).  Their business is generally impacted by price deflation in product categories, wage growth and stagnation in their socioeconomic target areas and the price competition (both by direct competitors and inadvertently through companies in related industries).

I’m not sure how others deal with margin fluctuations in their valuations of TGA – but it would appear, at least to myself,  that using the margins achieved in 2012 and 2013, and extrapolating them into the future would be a dangerous game to play.

Historical EBITDA margins for the whole business (EBITDA used to neutralize any changes in accounting policy)

2003 – 21.73%
2004 – 29.62%
2005 – 31.7%
2006 – 34.2%
2007 – 35.2%
2008 – 33.0%
2009 – 31.0%
2010 – 31.8%
2011 – 35.5%
2012 – 37.5%
2013 – 36.8%
20141H – 33.8%

Please note that a more in-depth analysis of the segment margins are required in the years post-acquisition of NCML and the ramp up of TEF and Cash First etc.


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## Pioupiou (1 December 2013)

Ves said:


> An analysis of Thorn Group / RR’s margin history may provide useful for those with a more long-term view on the stock.  . . blah blah . . . using the margins achieved in 2012 and 2013, and extrapolating them into the future would be a dangerous game to play. . .




I think TGA's margins will shrink, because for Radio Rentals/Rentlo certain new lines like Apple products have very slim retail margins, and furniture has a higher delivery cost.  The stuff that TEF shifts would also have a lower retail margin than the traditional products sold in earlier years by Radio Rentals/Rentlo.  TGA may have to look to profit from financing to recover the loss of retail margin, and to do this it will increase borrowing and attempt to make up for the loss of margin via greater volume.  Paying interest on borrowings would itself lower the margin further.  There would in this thinner-margin business setting have to be a huge growth in volume if TGA is to retain/grow its EPS.


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## craft (1 December 2013)

As I see it retail margin is just a small part of the TGA picture. The real story that drives their margins is Net Interest spread. TGA have taken on lower retail margins to drive higher volume exposed to positive credit spread, this has an accounting timing impact on margins as volumes change but not an economic one. They are also incurring some short term pain to get other lines of extending credit going – quite unfashionable to a market that only looks to the next earnings report but the sort of thing that keeps me on the register. 

On the funding side, to lower their cost of funds they are moving more towards debt financing and considering the current conservativeness of the balance sheet – that to a *limited* degree is acceptable. 

On the revenue side – anybody can lend money to low credit borrowers and reap the initial excess risk premium.  It is however the company that can manage credit losses the best that will have the highest long term loss adjusted spread.  

The low of TGA's margin cycle will be the height of economic difficulties for their customers. Retail margin is insignificant compared to interest spread and bad loans.  

Selling stuff is just a way of extending credit. TGA is essentially a finance company to low grade borrowers – Its long term success lays in the credit spread and considering the market controls the cost of its funds and competition controls the margin it can extract from its customers – its real area of potential competitive advantage is in assessing and collecting the credit it extends – that’s why unlike many others I liked the strategic thinking behind NCML – it demonstrates the focus on their core controllable advantage.

It will be interesting to see with the change of CEO whether the credit focus and conservative balance sheet is entrenched in the culture or if it gets led in a new direction. I know lots would think TGA should be more aggressive but I’m not one. Turtle on TGA.


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## Pioupiou (2 December 2013)

craft said:


> As I see it retail margin is just a small part of the TGA picture. The real story that drives their margins is Net Interest spread. . . blah blah . . .




I agree with all that you wrote Craft, but I would like to get a feel for the magnitude of the retail margin in the total picture.  Is it 5%, 10% or even higher?  My percentage assumptions below are crude, so somebody who has a better set of metrics could improve on them. 

I do not know how much of TGA's profit springs from sales margins as opposed to financing spreads.  To invent numbers, let us say that it was historically 15% and 85% respectively when the average retail margin was 30%.  In this historical setting, any thin-margin (say 10%) business would margin would change these percentages to something like 6% and 94%.

If the entire future business were to be thin-margin lines, then TGA would have to expand its volume of items shipped by about 10% just to stand still EPS-wise.  There are small time-related distortions in real life, because TGA treats the profit recognition of the retail margin immediately under finance leases, and it spreads them over the term of the lease under operating leases.  If the recent spurt in thin-margin smartphone business had been in normal-margin (30%) business the profits recognised in that time would, assuming the latter too were handled via finance leases, then would have been noticeably higher.

Obviously, some of the new business, Cashfirst for instance, does not have a retail margin, but this can simply be part of the averaging down of the retail margin as a percentage of the whole of TGA's business.


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## Ves (2 December 2013)

craft said:


> As I see it retail margin is just a small part of the TGA picture. The real story that drives their margins is Net Interest spread. TGA have taken on lower retail margins to drive higher volume exposed to positive credit spread, this has an accounting timing impact on margins as volumes change but not an economic one. They are also incurring some short term pain to get other lines of extending credit going – quite unfashionable to a market that only looks to the next earnings report but the sort of thing that keeps me on the register.
> 
> On the funding side, to lower their cost of funds they are moving more towards debt financing and considering the current conservativeness of the balance sheet – that to a *limited* degree is acceptable.
> 
> ...



Hi craft - thank you for the generous contribution and insight.   It does fill in some gaps in my thinking and (shamefully – disappointed with myself) whilst I had thought of a lot of these things I hadn't been able to tie them all together nearly as well as you have in your post.  I felt a little bit inadequate after reading your summary yesterday…  whether that is a function of my own lack of experience or a lack of insight skill or both remains to be seen.

I said in my first post that the cyclical nature of TGA's margins was impacted by wage growth and stagnation in the socioeconomic bracket of their customers (and this directly impacts their customer's desire for credit and their ability to service it).  That’s only really part of the story.   The elephant in the room that I did leave out is employment / unemployment.  There's obviously also the element of this demographic that Fund their purchases via Centrelink and other government entitlements.  Borrowing capacity / credit servicing capacity and ability to repay are always going to be cyclical in nature… and I think you are right, the bottom of the cycle is going to be when TGA’s customers can least afford more debt (they’ve already borrowed too much) and that is the most dangerous period in terms of them protecting their exposure to bad debt from both existing credit and new credit.  They do have some safety nets in this respect (Pioupiou mentioned that they have an agreement with Centrelink) and they obviously have some expertise (at least historically) in managing credit risk over the whole cycle.   

I agree regarding NCML (see post #965 in this thread).  It’s much too early to judge the benefits provided by this acquisition outside of a desire for instant gratification in my opinion.

Continuing to learn every day…  and it’s beneficial that a business like this moves pretty slowly,  is pretty solid and lets you gain knowledge and insight over time…. Making it a bit harder to be immediately punished for your lack of knowledge at the outset.


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## craft (2 December 2013)

Ves said:


> Hi craft - thank you for the generous contribution and insight..



You do know I just make this **** up to try and make sense of the world - its possibly all wrong 



Ves said:


> It does fill in some gaps in my thinking and (shamefully – disappointed with myself)whilst I had thought of a lot of these things I hadn't been able to tie them all together nearly as well as you have in your post.  I felt a little bit inadequate after reading your summary yesterday…  whether that is a function of my own lack of experience or a lack of insight skill or both remains to be seen.




VES you woefully underestimate yourself. Young, smart, quick learner  - you've got it all over me. If it wasn't for my inventory of lessons learned the hard way (which I'm still accumulating) I wouldn't know much at all.


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## VSntchr (2 December 2013)

craft said:


> *VES you woefully underestimate yourself. Young, smart, quick learner..*




+1. I'll second that.


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## McLovin (2 December 2013)

craft said:


> You do know I just make this **** up to try and make sense of the world - its possibly all wrong




Ahh cr@p, and I've been listening to you!

I was reading Ves' comments in the UGL thread, the guy has gone from novice newbie to seasoned pro in about 18 months.


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## Ves (2 December 2013)

craft said:


> You do know I just make this **** up to try and make sense of the world - its possibly all wrong
> 
> 
> 
> VES you woefully underestimate yourself. Young, smart, quick learner  - you've got it all over me. If it wasn't for my inventory of lessons learned the hard way (which I'm still accumulating) I wouldn't know much at all.






VSntchr said:


> +1. I'll second that.






McLovin said:


> Ahh cr@p, and I've been listening to you!
> 
> I was reading Ves' comments in the UGL thread, the guy has gone from novice newbie to seasoned pro in about 18 months.



Thanks guys,  really means a lot.   If we all learn from each other's posts it makes it well worth coming here and putting in the effort to write a few hundred words.


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## galumay (2 December 2013)

Ves said:


> Thanks guys,  really means a lot.   If we all learn from each other's posts it makes it well worth coming here and putting in the effort to write a few hundred words.




Absolutely! I have learnt so much from you guys, you are all so far ahead of me in my journey and I love reading all your thoughts on valuations. 

Sometimes I am a little daunted by the way that you guys delve into the complexity of corporate financials, but I try to use that as inspiration to improve my analytical skills.


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## oldblue (7 February 2014)

TGA's shareprice has been in a downtrend since hitting the heady heights of around $2.60 in November. Certainly, the company has forecast "only minimal growth" in the current year - and reiterated this a couple of days ago - but is the economic outlook really as dire as TGA's SP  performance would imply, or is there already a degree of over-pessimism/over-selling there?

I hold a few and waiting to add when the trend reverses.

Other views?


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## Klogg (7 February 2014)

oldblue said:


> TGA's shareprice has been in a downtrend since hitting the heady heights of around $2.60 in November. Certainly, the company has forecast "only minimal growth" in the current year - and reiterated this a couple of days ago - but is the economic outlook really as dire as TGA's SP  performance would imply, or is there already a degree of over-pessimism/over-selling there?
> 
> I hold a few and waiting to add when the trend reverses.
> 
> Other views?




I'd say people were looking for growth to come sooner, and didn't like the half-yearly. That said, I'm only guessing and don't really know what others think...

That said, if this keeps going down, I will be adding also. There are a few items I want to look at first though, including:
- TEF macro outlook given SIV profit warning
- impact of lower retail margin items i.e. smartphones
- Centrepay re-work (there was a mention of this months ago, but nothing since)
and a few other things. (To be honest, they're all very small concerns)


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## robusta (7 February 2014)

Seems overly pessimistic to me, TGA is investing in future growth and many short term investors want growth now. For what it's worth I picked up another small parcel this morning. The dividend yield should be satisfactory while we wait for EPS growth.


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## tinhat (7 February 2014)

oldblue said:


> TGA's shareprice has been in a downtrend since hitting the heady heights of around $2.60 in November. Certainly, the company has forecast "only minimal growth" in the current year - and reiterated this a couple of days ago - but is the economic outlook really as dire as TGA's SP  performance would imply, or is there already a degree of over-pessimism/over-selling there?
> 
> I hold a few and waiting to add when the trend reverses.
> 
> Other views?




I haven't performed the sort of fundamental analysis of this business as much as some others who have posted in this thread. I hold TGA as an income stock in the SMSF. My observation is that if a company is retaining almost 50% of earnings and only paying out around 50% as dividend then you would hope that company can invest that money in growing the business to at least maintain a healthy ROE. TGA's ROE, although healthy, has been slightly declining over the past three years and is forecast to do so over the next couple of years based on fairly flat earnings growth (according to consensus forecast). Forecast dividend yield this financial year is 5.5% which grossed up to 7.86% with franking credit.

There are a few solid companies with high yields but quite modest growth outlooks to chose from as income stocks. PRT and PBG come to mind. What this company is worth comes down to a judgement on what the management can achieve long term to keep transforming this company to changing times. As electronics and home appliances become less and less expensive there is going to be less demand for consumer finance for these goods.

As I said, I hold but I think the current share price represents reasonable value the price may fall further which would give a good opportunity to pick some up. It's found a lot of support around the $2 mark in the last couple of years but the price can get move around 10% in a week.


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## Klogg (7 February 2014)

tinhat said:


> There are a few solid companies with high yields but quite modest growth outlooks to chose from as income stocks. PRT and PBG come to mind. What this company is worth comes down to a judgement on what the management can achieve long term to keep transforming this company to changing times. As electronics and home appliances become less and less expensive there is going to be less demand for consumer finance for these goods.




While I don't know those companies very well, from a very superficial look I can say PRT and PBT aren't quite the same... PRT has far more leverage and PBT hasn't really turned a profit (again, only a superficial look, so I could be wrong).

On the topic of less demand - this is an area that management have always had a problem with... yet they keep finding ways to increase demand for their products. Store layout changes, introduction of different products and creating/rebranding businesses to deal with different markets are only a few changes that have been made. There's always some form of market research that they're conducting, and it has paid of thus far.

To be honest, it's the quality of management that really makes the difference to me (except for the price of the NCML acquisition).


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## skc (7 February 2014)

tinhat said:


> There are a few solid companies with high yields but quite modest growth outlooks to chose from as income stocks. PRT and PBG come to mind.




I don't know if either of PRT and PBG have much growth outlook.

PBG 24 Oct 







> Preliminary indications are that 1H14 EBIT and NPAT (before significant items) may be materially down compared to the previous corresponding period due to trading conditions, along with increased investment, a continued downturn in the Workwear market (particularly in the Industrials sector) and the non-renewal of certain licences in HFO. However, results will be heavily dependent on 2Q14 trading which accounts for the majority of earnings in the half.




PRT 19 Nov 







> Assuming the current trading conditions continue, and noting the earlier comment that ad spend remains unpredictable and short, we currently expect Core NPAT for the 2014 financial year to be in the range of $31m to $33m.




Last year ~$33m.



Klogg said:


> I'd say people were looking for growth to come sooner, and didn't like the half-yearly. That said, I'm only guessing and don't really know what others think...
> 
> That said, if this keeps going down, I will be adding also. There are a few items I want to look at first though, including:
> - TEF macro outlook given SIV profit warning
> ...




There may be something to read-through from FXL's report yesterday...


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## Klogg (7 February 2014)

Klogg said:


> PBT hasn't really turned a profit



Sorry, fatfingered it when searching. Should've searched PBG.



> There may be something to read-through from FXL's report yesterday...



Thanks skc - will check it out this weekend.


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## tinhat (7 February 2014)

skc said:


> I don't know if either of PRT and PBG have much growth outlook.
> 
> There may be something to read-through from FXL's report yesterday...




Agree about PRT and PGB not having much growth in their outlooks. I hold PRT and at the current price it is yielding 10% with imputation credits (SMSF pension phase). I  consider their outlook stable in the medium term. The point I was making is that the yield on TGA isn't that high given it has a flat earnings outlook. 

I don't own FXL. It's had a great run. They've made a couple of purchases recently so will check out the annual report. The consensus forecasts are for solid earnings growth.


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## VSntchr (7 February 2014)

The growth in FXL's earnings are coming from the interest free offering. The consumer leasing (also note that TGA is trending towards the term lease as compared to rent) has been described as flat (same as TGA has been saying).

From FXL report: _Due to the challenging retail environment, the Consumer and SME (Leases)
segment’s receivables portfolio has remained largely static compared to prior year; hence the segment
partly offsets the positive performance from the rest of the business._

Also wrt to consumer leasing: _Closing Receivables were $361m and remained unchanged compared to prior year. As mentioned
above, small ticket volumes have continued to fall over the last 5 years as a result of falling asset
prices and emergence of the tablet market. The increased business mix in SME has partly offset
decreases in the retail sector._


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## Klogg (9 February 2014)

tinhat said:


> The point I was making is that the yield on TGA isn't that high given it has a flat earnings outlook.



I don't know (and don't care) what analysts are predicting for TGA, but after this financial year, and maybe part of next, the growth initiatives should start bearing fruit...
It won't be 20% growth, but anywhere between 5-10% should be do-able.

As for PRT - not sure I'd hold a company on the basis of yield alone...


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## tinhat (20 May 2014)

Some people who post in this thread seem to have a lot of conviction around TGA (which I have held for several years) and this conversation seems to be somewhat subjective. 

Full year results released. Revenues up, margins down, profit steady, diversification of business continuing. Share price seems about right at the moment IMHO. Decent dividend but real (ie, above inflation) growth potential of the business is yet to be proven. Federal government policies to increase social inequality may help this business though.


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## Pioupiou (4 August 2014)

When I looked at the FY2014 results, the numbers looked relatively flat, but when I deducted 1HY2014 results from FY2014 to derive 2HY2014, it seemed that 1HY2014 was the low point of TGA's so-called transformation period, and that 2HY2014 showed signs of that pick-up that management often said would happen when new initiatives gained traction.  I suspect that 1HY2015 will show more of that traction.  If reality confirms my suspicion, Mr Market should react more positively than he did at the end of 2HY2014, because the reporting style used by listed companies tends to compare year with the previous year, and hence an improvement of a six-month period with the previous 6 months may pass unnoticed.  Obviously, some businesses have a pronounced seasonality bias due to reasons like Xmas shopping, and these must be factored into one's thinking.  Anyhow, let us see what the 1HY2015 metrics transpire to be.  Because TGA tends to spread its profit recording over the life of the leases it writes, I think that seasonality is muted in its statutory reporting metrics.


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## rryall (6 August 2014)

Anyone still following this stock?


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## ROE (6 August 2014)

one of those stock that sit in the portfolio and never need much attention and collect dividend
I just have a quick read of the report every time they release if nothing alarming back to sleep ... 

I still have them


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## RottenValue (6 August 2014)

same - held for a bit over 2 years, has returned 60% and see no reason to either buy or sell at this stage


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## galumay (6 August 2014)

Same, same! Will probably acquire some more now I have established my SMSF. Happy to hold.


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## craft (7 August 2014)

rryall said:


> Anyone still following this stock?




Yep - but not much to comment on - steady as she goes.


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## goccipgp (7 August 2014)

Based on the P/E, it is undervalued. Technical buying signal at au stoxline.


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## craft (7 August 2014)

Actually, one thing of interest. They got a shot across their bow with a first strike on the remuneration report last AGM, it will be interesting to see the vote this time - AGM is 26th Aug.


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## Pioupiou (12 August 2014)

In my previous comment I mentioned that I thought that the much vaunted “traction” of various initiatives were evident in FY2014, which requires comparing 1HY2014 with 2HY2014 to notice.  Additionally, if one drills down, one finds that due to the net effect of various one-offs, FY2014 compares better with FY2013 than statutory reporting suggests, and so from the underlying performance perspective, the low point was in FY2013, not FY2014.  What we should see in the 1HY2015 results is more “traction”, rather than the first buds of it.  In http://www.thorn.com.au/wp-content/uploads/2009/08/TGA-FY14-Full-Year-Results-Presentation.pdf you can see the following.

- - - - - - - - - - - - - - - - - FY2014 - - - - FY2013
Reported NPAT - - - - -- $28,151K - - - $28,021K
Debt Sale - - - - - - - - - - ($810K) - - - ($1,404K)
Rent Drive Buy Trial - - - - $239K - - - - - $136K
CEO Change - - - - - - - - - $500K - - - - - - - nil
New System Impact - - - - $358K - - - - - - - nil
Tax Effect - - - - - - - - - - ($86K) - - - - - $380K
Underlying NPAT - - - - $28,352K - - - $27,133K

The presentation ends with, “The continued investments in new business opportunities are expected to deliver solid NPAT growth to above $30M.” 

Intuitively, to see underlying improvements in FY2014 makes sense, because the major drag on profits has been the investment in Thorn Equipment Finance (TEF), and TEF's lease book grew from $12.122M at 31/03/2012 to $46M.521M at 31/03/2013, and to $63.6M as at 31/03/2014, and hence there was a growing finance margin to cover the relatively fixed costs of the TEF team that had been set up to be supported by a $100M lease book.

A similar dynamic is occurring at Thorn Financial Services (TFS), except that the team was substantially put in position in the closing months of FY2013, so FY2014 bore the brunt of that positioning expense, and FY2015 will see TFS's loan book grow to better absorb that overhead.  The other significant drag on FY2014 was the Rent-Drive-Buy trial run, but this initiative is not being pursued, so that expense should decline.

If one extracted NPAT for FY2012, FY2013 and FY2014 from Morningstar metrics, and assumed FY2015 was going to be $30.2M (i.e., above $30M), and extracted the share tallies reported for those years, and invented a tally for FY2015, you would end up with the following:

- - - - - - - - - - - - - - - - 2012/03 - - 2013/03 - - 2014/03 - - 2015/03 est
Net Profit - - - - - - - - - - $27.8M - - $28.0M - - - $28.2M - - $30.2M
Shares Outstanding - - - - 146.4M - - 147.6M - - 149.5M - - 151.0M
Share count increase - - - - - - - - - - 0.82% - - - 1.29% - - - 1.00%
EPS - - - - - - - - - - - - - - $0.190 - -- $0.190 - -- $0.189 - - $0.200

However, if you adjust the NPATs for FY2013 and FY2014 to the underlying NPATS, as detailed earlier, you get the following:				

- - - - - - - - - - - - - - - - 2012/03 - - 2013/03 - - 2014/03 - - 2015/03 est
Net Profit - - - - - - - - - - $27.8M - - $27.13M - - $28.35M - - $30.2M
EPS - - - - - - - - - - - - - - $0.190 - - - $0.184 - -- $0.190 - - - $0.200

The exact metrics are not important, all I want to demonstrate is that in my view the low point was FY2013, and that the heralded traction started in FY2014.  If you look at the current Thomson Consensus Estimates, the mooted EPS for FY2015 is given as $0.206.  This simply flows from what can be taken from management's outlook of “above $30 million”.  A ejaculated number like “above $30 million” could easily be 5% higher, and that would give an EPS of $30M*1.05/151M =  $0.209, so for now, somewhere between 20 cents and 21 cents should suffice.  EPS should grow by 2 cents in FY2016, and 3 cents in FY2017 (the extra cent coming from the expiry of the $1.76M annual amortisation of NCML's Customer Relations asset.

I am hoping the SP will hit $2.60 if the traction-is-happening story plays out as I suspect.  Of course, it may not.


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## oldblue (5 November 2014)

This is a nice, quiet thread - as TGA's SP climbs steadily. $2.71 today.

Disc: Holding happily.


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## hiddencow (5 November 2014)

Anyone can find any news to explain the price increases in the last few days?
Half year report is due in two weeks and I predict a 10-15% profit growth.
This has all been known for a while though with the company providing a profit forecast with the annual report.

Maybe it's just the market and traders doing their thing?


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## Klogg (5 November 2014)

hiddencow said:


> Anyone can find any news to explain the price increases in the last few days?
> Half year report is due in two weeks and I predict a 10-15% profit growth.
> This has all been known for a while though with the company providing a profit forecast with the annual report.
> 
> Maybe it's just the market and traders doing their thing?




Other than the self-fulfilling prophecy of TA, nothing note-worthy.
To be honest, it's now within my valuation range and has become my largest holding, so I need to adjust accordingly.


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## Tightwad (5 November 2014)

better than expected retail figures have come out over the last few days - also called undervalued on a blog


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## hiddencow (18 November 2014)

Any opinions on the results? 
Revenue growth was excellent and unlike last year we are starting to see some profit growth as well. It's a bit hard to judge as we don't have the rates of provisioning or profits recognised on inception of finance leases as opposed to over the life of the lease. It's apparent that phones have a higher level of provisioning which reduces the profit recognised on inception. Whether this is balanced out by finance income over the life of the lease or are just a lower margin product i don't know. Even at lower margins though TGA generate excellent returns as you would expect given the rental prices compared to retail purchases and I'm happy for them to keep using debt to write more leases.

Not too positive on the acquisition though. Not much has been disclosed about it yet but I would rather they use the cash to write more leases at the moment and their last acquisition didn't go to well. If you can grow your business at this rate, why not focus on it instead of an acquisition.

The commercial leasing segment is progressing nicely and we should continue to see increasing profit contributions from this segment in the next couple of years.
The consumer loans segment is a bit behind, the book and revenue have increased nicely but so have the cost base. Need another year or two until we see revenue growth without an equal cost increase for some meaningful profot contribution like with the commercial leasing segment.
NCML flat once again. Not much to say about this one. Once the amortisation from customer contracts ends in a couple of years there will be a slight boost in profit but no impact on cashflow. Won't impact segment results either as they are before amortisation.

Overall what I was expecting and a pretty good result. As long as management have remained conservative in their accounting and don't screw up another acquisition TGA should do well from here.


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## ROE (18 November 2014)

things are  looking ok back to sleep for another 6 months and collect dividend


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## Ves (21 November 2014)

hiddencow said:


> Any opinions on the results?



Result looked pretty solid to me.  My understanding is that we are reaching the point of the cycle where margins are starting to come under pressure.   Provisioning increased from something like 11.7% of receivables to about 14.7% because they've had to take on riskier sources of debtors to both drive and maintain profitability  (ie. comments about iPhones).  It just means that they'll need revenue growth to tread water in the short to medium term.  This will obviously turn around again at some point.

Not unhappy with the acquisition,   it looks fairly cheap...   I believe that the company needed a working capital injection to grow their platform which was not possible on their own standing.


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## hiddencow (21 November 2014)

Margins are down because they are provisioning more due to being inexperienced with smart phones so far. If it turns out that the provisioning was overly conservative then we'll get a big boost in profits later on.
The disclosure in the annual report is a bit lacking for provisioning. This is my understanding of how a finance lease transaction is accounted for by TGA.

The fair value of the phone is recognised as finance lease sales revenue at the start, say $800 dollars.
The cost of the phone is recognised as an expense, say $600.

The $800 is recognised as a receivable and interest revenue is recognised over time until the full undiscounted amount for the phone is received. Say $20*52*2 = $2080. So $1280 of interest revenue if the full 2 year term is completed. If the customer doesn't exercise their $1 buy option then the company would keep collecting revenue, I'm not sure if this is still recorded as interest income or it becomes operating lease income.

A provision is also recognised at the start for the expected early return or loss of products throughout the life of the contract. So the provision is not for bad debt impairments which are typically only 2% but for people who break their contract or lose their phone. TGA would receive some sort of fee in these instances and these appear to be recorded under operating lease revenues, which would explain why these revenues are so high compared to rental assets. I'm not sure if TGA take into account receipt of any fees in their provisioning levels.

This is just what I've inferred from reading their accounts, could be totally wrong. I sent some questions to clarify to the investor centre but have not received any responses yet. John Hughes was always quick to reply to my queries.

There's a lot of room for earnings manipulation in accounting for TGA's businesses but they are pretty conservative from what I see. Not much profit is recoginised up from after the cost and provision is recognised. The interest revenue over time is substantial though. If you look at the prices on their website, there shouldn't be much margin pressure there. Comparing with Mr Rentals, TGA's prices actually look cheap!

The very significant increase in receivables is a very good sign for TGA in the future.


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## VSntchr (21 November 2014)

Not a holder of TGA at the moment, but have been in the past and would not rule out joining the register again given the opportunity.

I thought the result was pretty good too. Most of what I gleaned has already been added...but an additional qualitative perspective is that my perception of management has been solidified after this result. In the 2013 period they didn't play down the fact that they were transitioning and growth had slowed down but re-assured investors that the TGA story had not finished. IMO this result shows that they still have plenty of room left to keep going and validates managements credibility.

On another note, I recall you (HiddenCow) stating you were a beginner investor in an earlier thread. Either your a very rapid learner, or there was quite a bit of modesty in that post. Your posts are always worthy of a read


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## hiddencow (22 November 2014)

Thanks for the kind words VS, I'm still at the beginning stages on what will hopefully be a long and prosperous investment journey. Working in accounting gives me a head start on looking at financial reports.


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## tinhat (24 November 2014)

I sold out of TGA today reluctantly. This stock was in my mum's super account which is in pension mode and I figure there are better dividend yields out there given the price TGA is now trading at (I picked up a few more ANZ today). The RSI on the weekly chart has gone above 80. With only about six weeks to the next ex-dividend date I've sacrificed the dividend and franking credits to do so (8.6c per share). If the price corrects I might buy back in. Knowing my luck it will keep on kicking up. 122% gross return over three years of holding. I wish all my stock picks performed as well.


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## oldblue (24 November 2014)

A great return tinhat!

I'm hanging in there but must admit that an RSI that strong looks vulnerable. On red alert!


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## Nortorious (24 November 2014)

Hi Tinhat,

I must have bought your shares as I entered this stock today.

I'm expecting a nice rise and if I get the divvy that will be a bonus. I'm in it for capital gains.... Short or long term depending how it progresses....


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## ukulele (10 December 2014)

TGA shot up past the psychological level of 3.00 pretty convincingly on 04/12/14, albeit only on slightly higher volume. 

I suspect it will now consolidate between 3.00 and 3.10 for (hopefully) another move up. A bonus is the small dividend next month. Right now my stop is @ 2.98 (just below 3), just incase the trend changes.

Appreciate any other thoughts?


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## ukulele (30 December 2014)

Got Stopped out of this a couple of weeks back at 2.98. Perhaps my stop was too tight! Dems the breaks I guess.

After trying a few times for 3.1, TGA finally closes above it, however volume was light (although that is expected at this time of year). Good luck to holders.


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## Huskar (22 January 2015)

Pulled back near 20% now from 3.11 high on apparently no news. A large holder heading for exits?


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## Tightwad (22 January 2015)

no idea really.  falling au dollar should increase the cost of importing electrical stuff and impact margins...  but then lower petrol prices mean more disposable cash for some people.


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## tinhat (22 January 2015)

This company has had a solid management, strong balance sheet and steady results, but real no earnings growth now for years. It operates in an industry where you have to assume that the margins in its traditional market segments, and product mix are not going to hold up. 

Go back thirty or forty years ago and most people use to rent their telephone from The Post Master General's office (later, Telecom). They would pay a rental fee that was added onto the phone bill.

The value of this share in the long run depends on your faith in whether management can find and exploit the opportunities  where future profitability lies. I recall posting these same comments a while ago. I don't follow this stock closely but I don't see great value at the current share price. That said, with another rate cut, income invested chasing franking credits will keep this boat afloat price wise.

The price is hovering around the October 14 peak and the November 13 peak. Will it break below?


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## VSntchr (20 March 2015)

A scathing article by ABC on Thorn, specifically "Radio Rentals", extended the negative sentiment towards TGA today.
ASIC has been pretty active on the payday lending sector of late which has brought down the prices of CCV, MNY along with TGA and CCP.

Regulation risks are always around these businesses but I think the points highlighted in the article are pretty stretched and look to be searching for headlines. 
http://mobile.abc.net.au/news/2015-...aps-90-million-in-centrelink-payments/6333690


Price looks like it fell through support and stop losses triggered a further sell down, but price has since recovered..

I haven't owned TGA for a while but if the negative sentiment remains in this sector it may get enticing in a few months time..


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## notting (20 March 2015)

Strong reversal and buying off the low today as it tested a break down through 2.60.
Well supported at this point!
Perhaps the end of an ABC correction.


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## hiddencow (20 March 2015)

Pretty much the same article was published last year:
http://www.abc.net.au/news/2014-11-27/companies-accused-of-preying-on-vulnerable-consumers/5921924
Didn't have any reaction then.

Bought back some of my TGA shares today that I sold late last year, thank you very much


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## robusta (27 May 2015)

Results out today.

Revenue up 25%, NPAT up 8.5%, underlying up 13.6% looks like nice growth.

http://www.asx.com.au/asxpdf/20150527/pdf/42ytnl64m2lcqy.pdf


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## Ann (8 June 2015)

TGA is traveling upward in solid channel pattern on the monthly chart. It may show some weakness after a Hold recommendation was put on it by two brokers on the 4/6/15 and will be going ex dividend on the 30/6/15. This may drag the price lower toward the rising channel support line and potentially offer a buying opportunity for anyone interested in the stock. It offers a Dividend Reinvestment Plan for anyone interested.


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## galumay (8 June 2015)

Yep, TGA has gone up solidly on the back of very good results, its been a very good investment for those that understood the financials of the company and its potential. As a result of the recent results I have changed my IV calculation for TGA and will continue to pick up the cheque everytime it passes go!


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## Ann (1 November 2015)

Sadly TGA did not continue its merry walk along the rising channel. It fell profoundly through and didn't stop until it hit an old $2 support/resistance line. Now I am thinking the original rising support line may well offer a new resistance, potentially forcing it back down eventually to the $2 support line or even lower in a worse case scenario.
A stock I had contemplated buying, but no longer at this time.


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## galumay (1 November 2015)

Ann said:


> ...
> A stock I had contemplated buying, but no longer at this time.




Looks like good buying to me! It is now trading well below intrinsic value - which increased last FY with healthy EOFY results showing improved results on most metrics i look at. 

The only reservation is the growth in debt to a level that is approaching my upper level of comfort, but I suspect it will be pretty quickly paid down. 

The whole sector has copped a flogging recently, some good value to be found at the moment, I hold TGA but topped up CCP with spare cash as I think they are an even better company long term.

ps thanks for the post - i hadnt got round to running the financials for 14/15 thru my valuation spreadsheet so you prompted me to do it!


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## Ann (1 November 2015)

galumay said:


> Looks like good buying to me! It is now trading well below intrinsic value - which increased last FY with healthy EOFY results showing improved results on most metrics i look at.
> 
> The only reservation is the growth in debt to a level that is approaching my upper level of comfort, but I suspect it will be pretty quickly paid down.
> 
> ...




G'day galumay why I am a little pessimistic is there is what appears to be a bearish chart pattern called a 'head and shoulders' forming. I didn't draw it into the chart, it would have made it too messy, I will next time if it evolves further. It has formed the left shoulder and head, it appears it may bounce back off the $2 support line and make its way back up to that rising bottom line on the channel and this may send it back down again creating the right hand 'shoulder'. This is a bearish pattern which may lead to some downside in the medium to longer term. Gosh that sounds like gobbledygook without any pictures to show, sorry folks!


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## galumay (2 November 2015)

Thanks for the explanation Ann, it helps confirm for me why I would never use TA for investment selection!! 

I am not trying to be rude or smartarse in saying that - simply that I so profoundly dont get the idea that charting the historical price action is of any use in predicting the future price action - and is irrelevant to understanding the fundamental value locked within a company. (please others, dont drag the thread away into a strategy debate.)

I do always read your posts and its often a prompt for me to do some inversion thinking and think about why price might be moving in the opposite direction to my perceived value - is my value incorrect? are there aspects of the financials I have missed? what might make the market misprice a company? 

Alternatively when your analysis coincides with mine in terms of price action then I can allow myself to feel slightly smug - when and if the fundamental reason for the action is one I forsaw!


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## Ann (2 November 2015)

galumay said:


> Thanks for the explanation Ann, it helps confirm for me why I would never use TA for investment selection!!
> 
> I am not trying to be rude or smartarse in saying that - simply that I so profoundly dont get the idea that charting the historical price action is of any use in predicting the future price action - and is irrelevant to understanding the fundamental value locked within a company. (please others, dont drag the thread away into a strategy debate.)
> 
> ...




Everyone to their own decision process galumay, however when I am selecting a stock, I do a darn sight more than just read a chart and cross my fingers! I start with a chart and if I see potential I then go into the fundamentals. However all fundamental and chart information is based on past history. I figure it is hard enough to make a good choice so the more information I have to base my judgment on the better...and charts I can take a quick glance which may be no more than one second. Saves a lot of reading in the beginning.

An old lady I met some thirty years ago made a huge amount of money on shares over the years, I asked her how she chose them. She said she just bought the shares people kept talking about, no charts no fundamentals just the newspaper business section and what kept being mentioned. I think everyone needs their own way and then just persist with it.


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## Boggo (2 November 2015)

galumay said:


> I am not trying to be rude or smartarse in saying that - simply that I so profoundly dont get the idea that charting the historical price action is of any use in predicting the future price action - and is irrelevant to understanding the fundamental value locked within a company.




I'm guessing that you never watch the weatherman use TA on TV then 

The reality regardless of but possibly influenced by the theory...


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## galumay (2 November 2015)

Boggo said:


> I'm guessing that you never watch the weatherman use TA on TV then
> 
> The reality regardless of but possibly influenced by the theory...




As I said not going to derail the thread, but the weatherman doesnt use TA, he uses physics.


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## robusta (14 January 2016)

Looked at this one today after taking profits not to long ago at  $2.40 plus, just had to fill my boots again at $1.80 Got to love the stock market.


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## omac (14 January 2016)

robusta said:


> Looked at this one today after taking profits not to long ago at  $2.40 plus, just had to fill my boots again at $1.80 Got to love the stock market.




Whats your opinion on the current senate inquiry? Reckon they'll come out OK? If they come out in good stead, then you've picked them up at a nice time I would think.


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## oldblue (28 April 2016)

TGA's shareprice has taken a big hit today on news of major company restructuring and the impact on reported profit. 

http://www.asx.com.au/asxpdf/20160427/pdf/436sgmbn2d1fmt.pdf

Nevertheless, the core business appears to be trading okay. Looks oversold to me so I'm buying a few.


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## VSntchr (28 April 2016)

oldblue said:


> TGA's shareprice has taken a big hit today on news of major company restructuring and the impact on reported profit.
> 
> http://www.asx.com.au/asxpdf/20160427/pdf/436sgmbn2d1fmt.pdf
> 
> Nevertheless, the core business appears to be trading okay. Looks oversold to me so I'm buying a few.



This years accounts are going to be pretty ugly. The one-offs are quite large at around $9.5m or close to 30% of earnings. 
Also of concern is the sector report which came out last week recommending caps for the leasing segment - so core business faces headwinds too IMO.
Lot's of uncertainty and to me it really looks like a good business has had the sh** hit the fan quickly!


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## craft (28 April 2016)

oldblue said:


> TGA's shareprice has taken a big hit today on news of major company restructuring and the impact on reported profit.
> 
> http://www.asx.com.au/asxpdf/20160427/pdf/436sgmbn2d1fmt.pdf
> 
> Nevertheless, the core business appears to be trading okay. Looks oversold to me so I'm buying a few.




I’ve been buying too. 

Had misgivings about the ROE target in their remuneration report and sold most of my holding following a bit of correspondence with the company where they at the time rationalised the hurdle as a result of perusing diversification. 

They have now basically done what I would have done if I was the new CEO (maybe they listened after all) The traditional core consumer and commercial leasing businesses still look O.K on rough calculations based on the information in the guidance.    

The balance sheet is still good and the funding in place for a while now to grow the traditional businesses from the run off of the TFS book.

There is some legislative risk but I think it is slight and the quantum small. TGA’s modest returns are the ultimate argument against the perception of needing to protect a market segment from gouging that is not going away even If I don’t understand why they acquire good in this fashion.  Would the policy makers really crimp down on the largest, cleanest “fair go” provider to make them unprofitable?  Chances are the legislation will actually aid by eliminating dodgy competition. 

Biggest risk for TGA is credit management competency and I still rate them on this aspect. No Idea what the near term price action will be but long term risk / return is adequate for me to wade back in.


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## VSntchr (28 April 2016)

craft said:


> Would the policy makers really crimp down on the largest, cleanest “fair go” provider to make them unprofitable?  Chances are the legislation will actually aid by eliminating dodgy competition.



I read somewhere recently (re: the Big4 banks) that increased regulation has always historically helped the bigger players. 
This reads through with what you are saying above, and also correlates with TGA running off the loan-book after conceding to other players like CCV, MNY (and even CCP now) which have more scale in this area.


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## McLovin (28 April 2016)

I'm a little surprised at the selloff. NCML was basically a write off about six months after it was bought, so it's hardly news. The lending always seemed a bit non-core and the traditional business lines are so profitable the diversification "strategy" never made much sense, to me at least. I lost interest with TGA about 18 months ago. Might have to sharpen the pencil and do some numbers.


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## craft (28 April 2016)

McLovin said:


> I'm a little surprised at the selloff. NCML was basically a write off about six months after it was bought, so it's hardly news. The lending always seemed a bit non-core and the traditional business lines are so profitable the diversification "strategy" never made much sense, to me at least. I lost interest with TGA about 18 months ago. Might have to sharpen the pencil and do some numbers.




Quick & Dirty

Underlying ongoing NPAT 30M = 20C per share @ $1.40 = 14%pa return on no 'valuable' growth prospects.

Organic growth prospects in traditional business probably add some value (potentially significant if they stick to their knitting) so you have 14%+ pa potential before any possible longer term earnings multiple adjustment when/if the nerves settle.

So the long term shareholders question becomes is this fair compensation in current interest environment for the inherent credit risk in TGA which if it goes bad will spank you.


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## hiddencow (29 April 2016)

Also did some buying yesterday as well as a couple of purchases in the last few months. I sold a lot of my holdings above 3 dollars. In hindsight I should have sold them all and waited until today to rebuy but what can you do.

I'm quite glad they are giving up on the consumer lending business. It takes a lot to get yourself established in that industry. CCP are spending a lot of advertising of their wallet wizard brand with CCV and nimble being the other major competitors. Overall the foray into lending wasn't a great financial cost, more the opportunity cost over the past few years. 

NCML has been a big cost but that was lost years ago and was responsible for the previous big drop in the share price. While they are impairing the goodwill, they did not say they were going to discontinue the NCML business. Recent commentary from CLH and PNC is that the PDL market has been improving so that should help a bit. The last time I looked at the PDL numbers, their accounting for it seemed very conservative, more so than CCP.

What's important though is how well the core leasing businesses are doing. There's a lot of noise this year so any commentary at the full year results will be important. The commercial leasing business looked like it was just starting to produce some meaningful profits and I think there's lots of room for growth there if things keep progressing well.

The consumer leasing business might have been impacted by all this negative publicity but it'll still remain a very profitable source of recurring revenues. We'll have to wait and see what the final outcomes of the regulatory review are. I agree that there is both positive and negatives in it but it might take a couple of years to play out.

The price to book ratio is down to about 1.1 and I think they'll be able to achieve ROE of 18% going forward so the numbers look good to me.


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## Ves (29 April 2016)

craft said:


> Quick & Dirty
> 
> Underlying ongoing NPAT 30M = 20C per share @ $1.40 = 14%pa return on no 'valuable' growth prospects.



$19-21 NPAT (reported).

Below the line,  one-off costs $11.8m  ($2.8m customer credit refunds,  $2.3m asset adjustments and closure costs,  $6.7m goodwill write down).

Not sure what the tax treatment of these items is.

But the NPAT impact is in the range of $8.26m (if there's 30% tax benefit) to $11.8m (no tax effect).

I can't remember off the top of my head,  but I think TFS Loan business did around $1m NPAT  (it's probably still including in the reported NPAT).  So I think going forward it needs to be reduced by this amount.

Brings the range of the adjustments to $7.26m to $10.8m.

So continuing underlying NPAT,   in my opinion,  would be in the range of $26.26m to $31.8m, depending on which interpretation you go with.

Depending on how you read the announcement / interpret the figures,   it's possible to suggest that the underlying business is going backwards and this is really a sleight of hand profit downgrade  and the 14% pa return is more like 12%.


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## hiddencow (29 April 2016)

Ves said:


> $19-21 NPAT (reported).
> 
> Below the line,  one-off costs $11.8m  ($2.8m customer credit refunds,  $2.3m asset adjustments and closure costs,  $6.7m goodwill write down).
> 
> ...




Goodwill writeoff will not have any tax effect, the $2.8 refunds do I think, not sure about the $2.3 writeoff from TFS closure. I doubt the reported will include $1 mil of profits from TFS given that they're going to close it and will have to write off $2.3 mil. There's also the legal costs of responding to the regulatory review so it's all a bit unclear.
Also there is $1.7 mil or so of amortisation that ends this year.
We will have to see the full year figures and all the adjustments.


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## craft (29 April 2016)

hiddencow said:


> CCP are spending a lot of advertising of their wallet wizard brand



 I guess it takes a lot of money to make the lamest TV ad I have ever seen.


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## hiddencow (29 April 2016)

craft said:


> I guess it takes a lot of money to make the lamest TV ad I have ever seen.




Yeah, I'm not sure those ads are money well spent...
They'll be spending a lot on google ads to generate the customers. There's analytic tools out there one can use too see the web data. CCP will probably be hoping that they get repeat customers in the future so won't have to keep paying google for them. Also important to note, CCP are the only ones who charge less than the legislated maximum cap as far as I'm aware.

TGA have also been running ads lately, I think they are pretty decent.


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## craft (29 April 2016)

hiddencow said:


> Goodwill writeoff will not have any tax effect, the $2.8 refunds do I think, not sure about the $2.3 writeoff from TFS closure. I doubt the reported will include $1 mil of profits from TFS given that they're going to close it and will have to write off $2.3 mil. There's also the legal costs of responding to the regulatory review so it's all a bit unclear.
> Also there is $1.7 mil or so of amortisation that ends this year.
> We will have to see the full year figures and all the adjustments.




You have pretty much made the response to Ves that I would have.

I too suspect the 19-21 doesn't include a contribution from TFS. I read the 2.3 as the net loss from that division and I suspect a fair bit of it is provisioning the crap out of the loan book (self interest of new CEO cleaning out this division sort of dictates that) Some of this may be clawed back in run off if the bad debts are not as bad as provisioned for. The 2.3 would have a tax effect.

The regulatory review costs were 0.9 in the first half and probably some more in the second half.

Best Guess at normalising earnings (including Tax effect)

20M Statutory Guidance
6.7 Goodwill Impairment
1.7 Customer Contract  Amort
1.0 Regulatory Review
2.0 Customer Refunds
1.6 Consumer Finance closure

I make that about 33M.

Best guess is core business is probably flatish. Comercial Finance probably still doing O.K but NCML under pressure. Consumer Leasing possibly down but cleaned up  - the panel report really didn't look to scary to me, there's obviously an intention to keep consumer leasing viable but to flush out the rouges. That's puts TGA in a good spot - they just have to make sure they are squeaky clean. So if I was a new CEO like Marshall I would be cleaning that deck with a tooth brush at the moment - lending/serviceability criteria, getting pricing under the proposed caps and shining sunlight on any legacy issues (which they did with the customer overpayments)

Flattish but decks cleared would be my guess.


----------



## Ves (29 April 2016)

Thanks gents,   I was really just pointing out that there is a number of ways different people may read the announcement   (which like a lot of such announcements isn't as straight forward as it should be).  Actually it's a pet hate of mine when companies talk about underlying EBITA and offer a statement like "slightly higher"  then give actual numbers for another line item like NPAT on a different basis (ie reported).  The line items of I, D, A, T often fluctuate from year to year in these kinds of companies and are always subject to accounting intricacies (which is a euphemism ), especially when there is restructuring or divisional closures.

I guess we will find out when they report next month.

I still hold it,  other than the DRP,  I haven't done anything with my holding since the last time it was at the current price.


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## Huskar (31 May 2016)

TGA reported last week with nothing too unexpected: Slight revenue gain to $300m and $32m EBIT. 13c EPS. 

I wonder about the high debt levels of nearly $200m now on a $220m market cap (so EV of $420m). 

As to the BV figure of about $200m, if you apply a 85% recovery to the $380m receivables figure then you pretty quickly get a more conservative BV of $150m (again, compare that to the $220m market cap).

EV/EBIT of 13x which seems a little on the high side though current P/E at 11x makes it look cheap.

As to regulatory risk, the government sought public submissions by 17 May and therefore you would suspect a response by late June on what changes the government will implement. Does anyone know if the election having been called changes whether or not a response is likely in that time frame?

One thing that I would very much like your folks' knowledgeable help with is: how long term does this business make money without the continual equity or debt raisings? Sure the OPCF figure is nice at $128m (6x $20m NPAT figure) but of course -ve investing cash flows of $170m more than offset this. (As an aside, interesting to note that MNY reports customer loan advances in OPCF while TGA reports in Investing CF.)

Therefore over $50m of debt needed to fund the business. How is this sustainable longer term? 

Thanks in advance!

I don't see the screaming value here (apart from on the P/E figure which, as I say above, I am not fully convinced of the "E" part)


----------



## Boggo (31 May 2016)

Follow up from this discussion 
https://www.aussiestockforums.com/f...=18617&page=57&p=888483&viewfull=1#post888483

My 

It would need to break up through mid $1.80's to show any kind of trend reversal and if it does then it will run into a brick wall as it approaches $2.00.

(click to expand)


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## Miner (31 May 2016)

Ves said:


> *Thanks gents, *  ....... price.




Hi Guys TGA is still a BUY by Motley Fools. But the current performance does not give the warm and fuzzy feeling to me. Still following for an opportunity if comes.
On a non TGA front. it is interesting to see Ves' comments "thanks gents". 
Are we a male only forum now ? I knew Julia (God bless her soul) used to be an avid contributor.
Grace has been as well (now not seen her posting for a while).
But surely there are other Julie Bishop, Carmen Lawrence, Julia Gillard, Maggie Thatcher, alike are hidden on ASF forum. I_f not Joe, wake up and encourage the President of IFC, Fed Treasurer, Chancellor of Germany  alike to come to this forum breaking the male monopoly ._


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## Boggo (31 May 2016)

Miner said:


> Hi Guys TGA is still a BUY by Motley Fools. But the current performance does not give the warm and fuzzy feeling to me. Still following for an opportunity if comes.




That should give the amateur Buffetologists a nice warm feeling though.
"can we have some more numbers and ratios please sir" - no, no, not the actual price action


----------



## craft (31 May 2016)

Boggo said:


> That should give the amateur Buffetologists a nice warm feeling though.
> "can we have some more numbers and ratios please sir" - no, no, not the actual price action




Exactly what value does this post add?


----------



## Boggo (31 May 2016)

craft said:


> Exactly what value does this post add?




None really craft and is not necessary I agree.
Probably a bit of tit for tat based on some quality postings elsewhere that had similiar standard of penmanship when it came to dealing with the reality of catching falling knives.

Back to TGA. Some of the postings on here really do highlight the shortcomings of some methods of analysing stocks that are in freefall. 

The even scarier bit is that people are paying for services that get them to either buy or hold and nobody refers to the reality of what is happening on a daily basis


----------



## Klogg (1 June 2016)

My concern here is not the review of lending standards and introduction of caps/fees. If they do cut the maximum interest rate charged, a huge amount of competition will flee (economies of scale are amplified, as the number of units sold to reach breakeven will increase).
Of greater concern to me is the ASIC review. I heard nothing of this (did I miss it?) until now, yet it covers a 3 year period.

Sure, the resulting payback to customers and/or fine is a short-term problem, but the potential law-suits from Maurice Blackburn and co. are not.

Did I miss the ASIC investigation announcement previously?


----------



## Ves (1 June 2016)

Klogg said:


> Of greater concern to me is the ASIC review. I heard nothing of this (did I miss it?) until now, yet it covers a 3 year period.



It was flagged in the 2016HY report.  They took up a provision due to a potential fine from ASIC due to inconsistencies in a _small_ number of previous customer transactions.



> Sure, the resulting payback to customers and/or fine is a short-term problem, but the potential law-suits from Maurice Blackburn and co. are not.



Civil lawsuits seeking damages for what, exactly?  AFAIK they initially confessed to ASIC after their own internal review, and as part of the process have already reimbursed customers for any previous errors.


----------



## galumay (1 June 2016)

Quoted from another place,

"ASIC found that TGA had not regularly updated its credit assessment calculations to accord with the latest Henderson Poverty Index. However, it transpired that ASIC did not like the blunt use of the Henderson Poverty Index either, so discussions took place between the parties to come up with a better credit evaluation procedures and algorithms, and these discussions are ongoing. TGA does not know if ASIC is going to fine it for the breach, or not, and it has not provided for a fine. If you Google “Thorn Group”, ASIC and “Henderson Poverty” you will find information on this matter."


----------



## craft (1 June 2016)

Ves said:


> It was flagged in the 2016HY report.  They took up a provision due to a potential fine from ASIC due to inconsistencies in a _small_ number of previous customer transactions.
> 
> 
> Civil lawsuits seeking damages for what, exactly?  AFAIK they initially confessed to ASIC after their own internal review, and as part of the process have already reimbursed customers for any previous errors.






Klogg said:


> My concern here is not the review of lending standards and introduction of caps/fees. If they do cut the maximum interest rate charged, a huge amount of competition will flee (economies of scale are amplified, as the number of units sold to reach breakeven will increase).
> Of greater concern to me is the ASIC review. I heard nothing of this (did I miss it?) until now, yet it covers a 3 year period.
> 
> Sure, the resulting payback to customers and/or fine is a short-term problem, but the potential law-suits from Maurice Blackburn and co. are not.
> ...




There are two separate issues here, Overpayments through CentrePay and Credit Assessment Procedures.

Both come to light in the 2016 half yearly where we found out that Thorn had advised ASIC. The overpayment resulted in 2.8m refunded/refundable. The credit Assessment Procedures were noted in Contingent Liabilities.  

From the half yearly.



> Contingent Liability
> Thorn’s consumer leasing business unit, Radio Rentals, while in the process of reviewing its business
> processes and origination systems as part of a wider risk management and governance exercise, found
> that it may have had some inconsistencies in its credit assessment procedures. Thorn is presently
> ...




And in the Commentary



> Thorn has noted a contingent liability in its accounts as a result of a concentrated focus to establish a
> ‘Gold Standard’ regulatory compliance framework to support the business as it continues to grow
> and diversify. The program, which includes a broader risk management and governance exercise,
> found that it may have had some inconsistencies in its credit assessment procedures. Thorn is
> ...




In the media it was reported that THORN had failed to update the quarterly increases to the Henderson Poverty Index and hence could be failing to correctly apply the requirements of the 2009 NCCP Act. 

The latest report the Contingent liability wording has changed



> Thorn’s consumer leasing division has been engaging with ASIC on matters pertaining to its customer credit refunds, its serviceability model and the appropriate and necessary extent of verification of items of customer income and expenditure.
> 
> In connection with that engagement, Thorn has been assisting ASIC in an investigation which ASIC has been undertaking into Thorn’s compliance with the responsible lending obligations pertaining to consumer leases under the National Consumer Credit Protection Act 2009. ASIC has informed Thorn that it is concerned about possible breaches of Thorn’s responsible lending obligations in respect of consumer leases entered into in the period 1 January 2012 to 1 May 2015. ASIC’s investigation is ongoing and Thorn is obtaining advice and considering its position in relation to ASIC’s concerns.
> 
> There are a number of potential outcomes from this engagement with ASIC, one of which is the imposition of penalties, but the outcome is not certain at this stage and accordingly Thorn has not taken up any liability in its balance sheet other than the provision for customer credit refunds and associated matters which was explained at the half year. Refunds to customers have been made and continue to be made as those customers affected are contacted and their address or banking details obtained to enable the refund.




It appears ASIC are not overly happy with what they have seen, indicating concerns for a specific timeframe.

The appropriate and necessary extent of verification of items of customer income and expenditure has now been highlighted and that has also been a feature of TGA's submissions to the various regulatory reviews.


If you have ever read any of the submissions around assessment for credit in any of the legislative reviews, you will see there are issues and I suspect at this stage ASIC are happier to work with instead of take a stick to Thorn in getting something in place that balances the potential of exploitation against unnecessary exclusion from credit.

My level of concern on this issue is less than zero, ie I see it as a positive. Normally we don't get to see the skeletons until the bad debts have skyrocketed and bad lending practices can't be ignored anymore. Just wait for the banks lending practices to come under scrutiny - that is where ASIC should be spending their time, but politics and influence is what it is.


----------



## craft (1 June 2016)

Boggo said:


> None really craft and is not necessary I agree.
> Probably a bit of tit for tat based on some quality postings elsewhere that had similiar standard of penmanship when it came to dealing with the reality of catching falling knives.
> 
> Back to TGA. Some of the postings on here really do highlight the shortcomings of some methods of analysing stocks that are in freefall.
> ...




So you were just **** stirring - you do that a lot.


----------



## Ves (1 June 2016)

Thanks craft and galumay,  it looks like I may have been guilty of conflating / confusing two separate issues.

However,  I see very little prospect of a class law suit being brought against Thorn,  as I don't really think there are any damages.


----------



## craft (1 June 2016)

craft said:


> I too suspect the 19-21 doesn't include a contribution from TFS. I read the 2.3 as the net loss from that division and *I suspect a fair bit of it is provisioning the crap out of the loan book (self interest of new CEO cleaning out this division sort of dictates that)* Some of this may be clawed back in run off if the bad debts are not as bad as provisioned for. The 2.3 would have a tax effect.




From the annual report.



> Credit risk grew in-line with the growth of the loan and lease receivables in all segments, except Consumer Finance where bad debt provisioning increased as a percentage of the loan receivables due to the proposed liquidation of the book.




Loans receivable - *NOT PAST DUE* decreased from 40.7M to 38.7M but provisioning *increased by 1.58M*

What is the link between not writing new loans and increased impairment in existing loans??


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## craft (1 June 2016)

craft said:


> Best Guess at normalising earnings (including Tax effect)
> 
> 20M Statutory Guidance
> 6.7 Goodwill Impairment
> ...




So they reported normalised Profit at 30.3M But customer Contract Amort is no longer included in that figure, that unambiguously flows to the bottom line next year and will increase reported Profit by 1.76M. All mention of the Regulatory review costs is gone despite noting the 0.9M in the first half - Maybe that cost is now embedded on an ongoing basis? 

A new item depressing the reported figure and is not included in the adjusted figure is a 1.2M devaluation of the PDL book. 

And we shant mention revenue recognition as consumer leasing swings over from operating to financial leases or near term earnings impact of provisioning when the receivables grow quickly.

Did I mention they upped their discount rate for impairment testing


----------



## craft (1 June 2016)

Huskar said:


> TGA reported last week with nothing too unexpected: Slight revenue gain to $300m and $32m EBIT. 13c EPS.
> 
> I wonder about the high debt levels of nearly $200m now on a $220m market cap (so EV of $420m).
> 
> ...




Hi Heskings

Thanks for this post - lots in it I want to discuss - but I want to do it in dribs and drabs. Hopefully some of the above posts will give you a little bit to consider on the "E" part.

If you don't mind I'll pick up other little aspects over a series of posts to discuss.

Cheers


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## Rainman (1 June 2016)

Huskar said:


> ... EV/EBIT of 13x which seems a little on the high side though current P/E at 11x makes it look cheap... I don't see the screaming value here (apart from on the P/E figure which, as I say above, I am not fully convinced of the "E" part)




TGA is more a financing business than a retailer.  Do you really think enterprise value is the appropriate metric for that kind of business?  

I like TGA at around $1.40.


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## craft (1 June 2016)

Huskar said:


> EV/EBIT of 13x which seems a little on the high side though current P/E at 11x makes it look cheap.




Even if you discount the potential of the latest report as an exercise in setting the bar low by the new CEO and take the bare minimum adjustments, Adjusted NPAT is 32M and Adjusted EBIT is 52M

That makes P/E 		220/32 	=	7
And EV/EBIT		420/52	=	8


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## McLovin (1 June 2016)

Huskar said:


> One thing that I would very much like your folks' knowledgeable help with is: how long term does this business make money without the continual equity or debt raisings? Sure the OPCF figure is nice at $128m (6x $20m NPAT figure) but of course -ve investing cash flows of $170m more than offset this. (As an aside, interesting to note that MNY reports customer loan advances in OPCF while TGA reports in Investing CF.)




The investing cash flows include the purchase of product that will be leased (either as finance or rental) and loan originations (ie they give someone a loan). You've got to remember that TGA has to pay its suppliers today, but receives payment over 3-4 years which shows up in OCF. Loan repayments come through OCF too. The cash flow statement will always have a matching problem because a large amount of money goes out the door initially, and trickles back in monthly repayments.


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## craft (3 June 2016)

Huskar said:


> One thing that I would very much like your folks' knowledgeable help with is: how long term does this business make money without the continual equity or debt raisings? Sure the OPCF figure is nice at $128m (6x $20m NPAT figure) but of course -ve investing cash flows of $170m more than offset this. (As an aside, interesting to note that MNY reports customer loan advances in OPCF while TGA reports in Investing CF.)
> 
> Therefore over $50m of debt needed to fund the business. How is this sustainable longer term?
> 
> Thanks in advance!




From the Cash Flow
TGA increased Interest Bearing Debt by 53.899M. 
The borrowings financed:

Net dividends to shareholders of 12.213M (gross dividend less DRP proceeds)
Investment in the business of 41.686M (Diff between operating cash flows and investing cash flows plus increase in cash)

If we jump to the balance sheet you will see the increase in assets more than offsets the increase in debt.
Total Assets Increased by 69.427M
Total Liabilities increased by 61.382M. Those liabilities are the 53.889M in interesting bearing debt plus another 7.483M in non interest bearing liabilities.

The difference between increase in assets and liabilities is an Owners’ Equity increase of 8.045M from business operations; it would have been 14.717m if not for the impairment charge.

So TGA made for its owners this year 8.045M (14.717 ignoring the non-cash impairment) which it retained in the business and which the market will apply some multiple to determine a share price. It also paid owners 12.213M in NET dividends. 

Yes it funded a lot of its 69.427M in balance sheet growth with 53.899M of new borrowings but for a finance company the structure is not real aggressive so that’s not necessarily a bad thing. 81.873M is Non-Recourse for equipment finance and the consumer lease business is actually backed by a fair bit of collateral in the form of the assets leased. (91M WDV).

This company is growing strongly – It has used up a fair bit of its debt funding headroom this year. I’m pleased to see it dump the consumer loans business – those loans had no collateral, poorer returns, a bad smell and as debt headroom is now not what it was the capital is much better directed to consumer or business leasing which is thumping along.

And now if you've stuck it out this far a little bonus to consider.  

The provisioning for impairment of the consumer finance leases that range from 2-4 years are taken in the first year and reflect the risk of expected early return or loss throughout the life of the contract. In other words there is an upfront hit to profitability when the lease book grows quickly as it has in the year just gone, but it comes back when the growth rate moderates.

Take a look at note 5: unearned income on financial leases which doesn’t show up on the balance sheet but will be coming to a P&L statement near you in the not too distant future increased this year by 41.7M – what do they have to do to earn that income? Pump out some invoices (and collect it of course) in accordance with the finance leases that have already been originated. 

Yep the share price is heading down with some easily seen issues (in fact I think management has kindly pointed out every issue they could lay their hands on) , but I think if you scratch the surface into the less easily seen detail this company is primed for P&L growth and when you factor that into a valuation and compare it to the current market price.............Opportunity????  But I could be wrong!!!!!!!!


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## Huskar (6 June 2016)

Thankyou Craft and Mclovin 

So, just like a bank, TGA raises funds at a certain rate and then seeks a return on those funds in excess of that rate. I suppose the issue is the source of financing - unlike a standard bank which has a lower cost stream of deposits, TGA must raise through debt or equity. Of course the more expensive financing demands a greater rate of return. Of course when these sources of financings dry up / get more expensive then that has a very direct effect on the business. 
I see that the margin of financing income earned over that raised then is owner earnings, which, being positive, is clearly a good sign.

And I certainly get the benefits of the unearned income - which although netted against receivables as a liability really is quite clear future earning streams.

I did notice your comment on the increase in the discount rate used by mgmt - from 10.5% to 13.85% (same now as receivables mgmt discount rate btw) is a near 30% increase so not insignificant. Just on interpreting this properly - mgmt is thinking that return scenarios were too optimistic or is it that higher returns now required. But I note that there is no impact even so on goodwill carrying amounts. I also note that an assumed revenue growth rate for 5 years of 2.5% for consumer leasing business is not very exciting..

I agree about dumping the consumer loans business - I can see the benefit as a customer of leasing a fridge etc for a sum total that is higher than an upfront payment. But I can't see the LT consumer benefit of borrowing money short term at very high annualised rates. And what is not good for the consumer will, I think, tend to be bad for the business. 
______

Learning something new every day thankyou


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## Klogg (9 June 2016)

Ves said:


> Civil lawsuits seeking damages for what, exactly?  AFAIK they initially confessed to ASIC after their own internal review, and as part of the process have already reimbursed customers for any previous errors.




I thought about this this morning, and you're spot on. I based this solely on CCV's past, which is hardly the same.

I need to think about this one in a quiet room for a while...


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## Ves (9 June 2016)

Klogg said:


> I thought about this this morning, and you're spot on. I based this solely on CCV's past, which is hardly the same.
> 
> I need to think about this one in a quiet room for a while...



I think it's really helpful to post scenarios / questions even if the responses / outcomes are different than you thought.

As with most things legal probably doesn't hurt to be a bit conservative and keep the unexpected in the back of your mind, either.


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## Klogg (16 June 2016)

Ves said:


> I think it's really helpful to post scenarios / questions even if the responses / outcomes are different than you thought.
> 
> As with most things legal probably doesn't hurt to be a bit conservative and keep the unexpected in the back of your mind, either.




In trying to assess probabilities of each possible outcome I came across this

They have a list of previous investigations and subsequent actions by ASIC. Some of the Consumer Lease and SACC providers in there seem to have been in similar situations, with very minor outcomes...


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## Klogg (17 June 2016)

I know there's been some time spent on this already, so I'm sorry to re-visit, but I'm having trouble understanding one thing:

On page 41 of the annual report (at the bottom) it states:
"Finance lease receivables are recognised at the present value of the minimum lease payments less impairment losses. The present value is calculated by discounting the minimum lease payments due, at the interest rate implicit in the lease."

So first, they provision what they deem suitable.
Then, the amount expected to receive in each year by the interest rate implied in the finance lease.

So, using some solid numbers:
If the repayment in the 2 years time (e.g. FY18) totaled $600 and the interest rate on the lease is 25%, this is discounted to get the net present value, being $384 (600/(1.25^2))

Ignoring the effect of the year 1 repayment - does this mean that the book value of the loan will increase by 25% when we hit the next financial year? By this I mean, will the book value of the loan then increase because we're only discounting for 1 year, rather than two? 
(i.e. it becomes 600/1.25 = $480)

I thought it was just recognized as interest revenue in the year it was received, rather than increasing the value of the book every year...


EDIT: I'm assuming this relates to the "Unearned Income" on finance leases.


----------



## Ves (17 June 2016)

Klogg said:


> So, using some solid numbers:
> If the repayment in the 2 years time (e.g. FY18) totaled $600 and the interest rate on the lease is 25%, this is discounted to get the net present value, being $384 (600/(1.25^2))
> 
> Ignoring the effect of the year 1 repayment - does this mean that the book value of the loan will increase by 25% when we hit the next financial year? By this I mean, will the book value of the loan then increase because we're only discounting for 1 year, rather than two?
> (i.e. it becomes 600/1.25 = $480)



What do you mean by ignoring the effect of the repayment?

Unless I'm misunderstanding you,  the client's repayment amount is exactly what cancels out the discounting effect at the end of year.

Ie.  the client pays and the balance sheet item is reduced.   Some also goes to P & L to account for the interest earned for the period.

It sounds like the Australian Accounting Standards require companies to discount the finance leases to NPV using the implied interest rate so that they only show the amount of what is basically equivalent to the principle owing.

So the amount is on the balance sheet at the inception of a finance lease would be equal to the cost of the asset less whatever probability for impairment they come up with.

And yes,  as you pointed out in your edit,  the difference between the actual amount receivable,  and the discounting,  is the unearned income shown in note 5.


----------



## Klogg (17 June 2016)

Ves said:


> What do you mean by ignoring the effect of the repayment?




Sorry, I worded myself badly. I mean that if we focus on the book value of the year 2 amount owed in the finance lease. 





Ves said:


> Unless I'm misunderstanding you, the client's repayment amount is exactly what cancels out the discounting effect at the end of year.




This part I get. But if I'm discounting over a number of years (e.g. a four year lease), does that mean as it moves from a four year to a three year lease, I increase the book value as the discounted portion is worth more because the time-frame changes? (adjusting, of course, for the part that has already been paid)
Or does this just increase the Unearned Income line item?


And thanks for your help - I feel like I'm confusing myself sometimes... so what hope can anyone else have of understanding what I post, lol.


----------



## Ves (17 June 2016)

Klogg said:


> This part I get. But if I'm discounting over a number of years (e.g. a four year lease), does that mean as it moves from a four year to a three year lease, I increase the book value as the discounted portion is worth more because the time-frame changes? (adjusting, of course, for the part that has already been paid)
> Or does this just increase the Unearned Income line item?



At the start of the lease,  let's call it year 0,  the total outstanding amount is $600.  Let's ignore the impairment to keep it simple.

Only $384 will be shown as the NPV on the balance sheet,  because $216 is unearned interest income.

At the end of year 1 the client will have paid $300.

What effectively happens $144 of this will be taken off the balance sheet as a principal payment.    A further $156 will go to the P & L as interest revenue  (which at the same time would reduce the $216 in unearned interest income to $60). 

 So at the end of year 1,  $300 is sill to be received.   $240 in principal  (384 - 144)  and $60 in interest (216 - 156)

In year 2,  balance sheet is zero.  Interest revenue on P & L is $60.




Klogg said:


> And thanks for your help - I feel like I'm confusing myself sometimes... so what hope can anyone else have of understanding what I post, lol.



No worries,   it's a good refresher course for me.   And I'm just as liable as most people to confusing myself at the best of times.


----------



## Ves (17 June 2016)

PS:   I'm not a financial accountant.   I haven't dealt with lease accounting in many years.

So if someone else is an expert,  I'm willing to step aside,  that's just my basic understanding.


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## McLovin (17 June 2016)

Does a loan amortisation schedule help you understand what's going on, Klogg?

The point of discounting is really just to match the interest to the repayment schedule, as the interest is only calculated on the remaining loan outstanding, not the initial principle.


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## Ves (17 June 2016)

McLovin said:


> Does a loan amortisation schedule help you understand what's going on, Klogg?



Thanks for that mate,   I'm pretty sure my interest calculations aren't exactly right,  but hopefully between the schedule and my explanation Klogg can see what's happening.


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## Klogg (17 June 2016)

McLovin said:


> Does a loan amortisation schedule help you understand what's going on, Klogg?
> 
> The point of discounting is really just to match the interest to the repayment schedule, as the interest is only calculated on the remaining loan outstanding, not the initial principle.




Between Ves' explanation and the amortisation schedule I get it now. Thanks, much appreciated 

(Funny part is, I initially thought about it this way, then read the footnote and confused myself...)


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## Klogg (16 November 2016)

Interesting set of HY numbers.

First, the *ASIC Investigation*:

The ASIC investigation goes on, with an additional amount of $8.3m in prepayments being refunded (0.3m of interest, so time held must be very short)

TGA ancitipates a fine, but no provision. As a comparison, I checked out the CCV fine:


> The Company has offered, and ASIC has accepted, an Enforceable Undertaking (EU) in relation to the
> matters investigated. In accordance with the EU, the Company will remediate certain customers who
> applied for and were granted small amount credit contracts via the Cash Converters website in the
> period 1 July 2013 to 1 June 2016. The total amount of remediation is $10.8 million. The Company has
> ...




Based on this figure, 10% of total amounts would be a sensible estimate, and including the $8m in prepayments would likely be overly conservative, but add it in nevertheless.
Total would be:
- $8.3m for prepayments
- $3.1m for Henderson Poverty Index modifications
- $2.8m for closed accounts (?)

Total $14.2m.

Given all of this has been accounted for, the additional provision for a fine at 10% would be $1.42m... Not really a material amount, all things considered.


Second, *the accounts*:
It seems that the additional costs around the changes to loan origination and investigation are taking their toll through Employee costs and costs of providing finance leases. These two alone have increased more than the $4.1m decrease (more on this in a second) in Consumer Leasing impairment and D&A. The real question here is whether they're temporary or permanent - gut feeling tells me they're a bit of both, given they have technology processes ongoing to change origination processes.

The impairment in the Consumer Leasing book is also a little concerning. There is a $4m drop in impairments, whilst the delinquency rate is now at 8%... an increase on previous figures. I know they've had a lot of fat built into these impairments, but they've chopped it quite quickly. I guess that's the benefit of building it in in the first place.
(For the record, actual impairments in CL was $7.9m, impairments $7.1m. Perhaps they see impairments dropping as a result of longer contract lengths, but one would think longer duration means increased credit risk)

Finally on T&DF - it seems they've lost their path a bit. Not a huge impact, but a drop in the book here indicates they're a little unsure of the target customer.  


Overall, I'll continue to hold as the above are mitigated by the price paid and overall returns once temporary matters are resolved. Of course, there's a risk that they go on longer than I anticipate, but that's a risk I need to account for I guess.


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## craft (16 November 2016)

Klogg said:


> The impairment in the Consumer Leasing book is also a little concerning. There is a $4m drop in impairments, whilst the delinquency rate is now at 8%... an increase on previous figures. I know they've had a lot of fat built into these impairments, but they've chopped it quite quickly. I guess that's the benefit of building it in in the first place.
> (For the record, actual impairments in CL was $7.9m, impairments $7.1m. Perhaps they see impairments dropping as a result of longer contract lengths, but one would think longer duration means increased credit risk)




Hey Klogg

I'm suspecting they transferred the 3.1M provision for the HPI issue from the consumer leasing general provision, as its a subcomponent. Not sure where the 3.1 provision is on the balance sheet yet. In total it might not be as dramatic as first appearance???   Just guessing haven't had a chance to dig yet.

Lending standards are clearly being forced upwards by regulators so perhaps there's a justification for a small lowering of provisions on credit quality???? but I wouldn't think 4m


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## Klogg (16 November 2016)

craft said:


> Hey Klogg
> 
> I'm suspecting they transferred the 3.1M provision for the HPI issue from the consumer leasing general provision, as its a subcomponent. Not sure where the 3.1 provision is on the balance sheet yet. In total it might not be as dramatic as first appearance???   Just guessing haven't had a chance to dig yet.




Thanks craft. It seems the half year accounts don't provide that information (or am I overlooking it??). I can't find the bridging information from previous Net Receivables to current Net receivables (i.e. gross new loans and any provisions applied).


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## oldblue (21 February 2017)

No news since November but the continual slide in the shareprice doesn't bode well. Is it just an expectation of pending poor results or is there something more to this?


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## InsvestoBoy (27 March 2017)

I bought some TGA today, only my second non ETF/LIC investment ever! I know I'm taking a bit of a risk buying in while it's falling so heavily.

Is there any interest in this stock around here still? Some really interesting reading from the previous posts.

What attracted me is the "Business Update" section of the profit guidance they posted on the 21st. Seems like it's so hard these days to find a company investing for future growth, where most companies are returning capital via share buybacks or worse dividends funded by borrowing. So I really liked that.



> Business update
> Thorn Group is implementing several major new initiatives to drive its business performance.
> These include an investment in the Radio Rentals store network with several stores relocating under the new RR format into popular high footfall shopping centre locations with exposure to larger consumer bases and higher demographics, the progressive establishment of metro location warehousing and distribution hubs to better service customers, the  closure of a number of underperforming stores, and a restructuring program which has resulted in a reduction of 53 jobs.
> 
> Further, the Company has merged its Trade & Debtor Finance Division with the Equipment Finance Division to improve efficiencies and management control at a time when the Equipment Finance Division is experiencing strong organic growth requiring significant capital investment.


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## Boggo (27 March 2017)

The other half was was watching some very negative stuff on the idiot box after the news tonight about Radio Rentals interest rate practices. They had a lady on there who apparently was going to end up paying $3200 for a $1400 vacuum, not a good look for RR (TGA) when they were protesting outside parliament house using this as an example of the ripoffs !


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## galumay (27 March 2017)

I hold TGA but with my very clear hindsight I now realise its not the best business in the sector! Thinking about it I should really move the capital elsewhere! 

I also hold CCP which is a much better business IMO.


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## Tightwad (28 March 2017)

i saw the tv report too, how many enquiries into this sector do we have to have..  i still hold too but i may sell some if one of my other buys hits a good price.  until then the dividend is good.. til they cut it


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## Klogg (28 March 2017)

galumay said:


> I hold TGA but with my very clear hindsight I now realise its not the best business in the sector! Thinking about it I should really move the capital elsewhere!
> 
> I also hold CCP which is a much better business IMO.




I would argue that since the SACC review, the interest rate caps have increased their competitive advantage. They have economies of scale and can afford to charge such low interest rates on leases, whereas other smaller players cannot (check submissions to the SACC review that just occurred).

Once the uncertainty around ASIC penalties is forgotten, this will be a business that is earning ~$27-28m NPAT, growing its lending books, has sufficient provisioning practices and fairly certain future cash flows.
It's not an amazing business because of the capital requirements, regulatory uncertainty and perception of the entire sector, but at the current price it's a bet with the odds strongly in my favour.


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## galumay (28 March 2017)

Always good to read a positive non-confirming opinion, Klogg!


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## pinkboy (28 March 2017)

Boggo said:


> The other half was was watching some very negative stuff on the idiot box after the news tonight about Radio Rentals interest rate practices. They had a lady on there who apparently was going to end up paying $3200 for a $1400 vacuum, not a good look for RR (TGA) when they were protesting outside parliament house using this as an example of the ripoffs !




While the example of the vacuum cleaner above is not a good look, it's an accepted practice by many. 

Do people realise that if they take out a $300,000 home loan at 30yrs principle and interest at 7% (the long term average over the life of the loan), they pay back $418,000 in interest alone (140%).
Try it and see:  https://www.commbank.com.au/digital/home-buying/calculator/home-loan-repayments

Take a look at the predatory practices by Wallet Wizzard (owned by CCP):
https://www.walletwizard.com.au/costs
48% interest rate.

Or what about Nimble.com.au (backed by Heritage):
https://nimble.com.au/faq/how-much-does-it-cost/
66% interest rate to borrow $2,500 over 2 years!

Very simple maths, with so many calculators available to the masses, yet people still fall victim to this practice through their own fault of no due diligence and desperation.

pinkboy


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## craft (28 March 2017)

Boggo said:


> The other half was was watching some very negative stuff on the idiot box after the news tonight about Radio Rentals interest rate practices. They had a lady on there who apparently was going to end up paying $3200 for a $1400 vacuum, not a good look for RR (TGA) when they were protesting outside parliament house using this as an example of the ripoffs !





Why oh why does somebody who financially needs to rent their domestic appliances think having a 1400-dollar vacuum in the first place is a good idea?


Trying not to make too many aspersions on what people buy and how they finance it – one thing is crystal clear – there is a market for the retail services TGA supplies.


Does TGA gouge?  Well if they do I wish they did a better job of it because their return on equity is less than the banks.  Unfortunately, if you have a low credit standing you get grouped with other low credit standing people and the major cost in providing financial services to you as a group is the fact that some won’t pay back the money.


Some people want to protect low credit worthy people from themselves – that inevitably means reducing financial services inclusion.  Which just leaves going without or getting it given too you. As bad as the expense of being grouped in the low credit pool is, maybe it’s better than going without or relying on handouts – especially if you use the credit facility wisely and improve your credit standing to lower future credit costs.


There are undoubtedly rouges in the industry that don’t give two hoots about lifting their customers up just harvesting the high interest rates on low credit individuals and applying huge pressure to try and control their defaults. As long as TGA is not one of them, they should do O.K as the industry is endlessly tightened, but I doubt they’ll ever completely distance themselves from the stench of the industry which is what makes them cheap.


And I say cheap because I see them as pregnant with near term profit growth as the expanded asset receivable balance starts to mature. Mind you the earnings baby is starting to feel a bit overdue and the punters aren’t going to like the cut in dividend to fund the mismatch between investment in and cash flow from the expanded receivables base – especially with the industry stench around. So it might be down for a while but on my best guess future cash flow assumptions it already gives a decent probable return.

The real risk for TGA is they get their provisioning wrong and have actually been under-pricing product blowing away shareholders equity as future defaults actually unfold.


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## InsvestoBoy (29 March 2017)

Wow some great thoughts, clearly some bright people are watching this stock even if not invested.

BTW, does anyone know of any other stocks like this which are currently investing in future projects rather than focusing on returning capital to shareholders?


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## galumay (29 March 2017)

New risk for TGA unfolding with a potential class action against them by Radio Rentals Customers,
http://www.abc.net.au/news/2017-03-...g-class-action-over-goods-loan-scheme/8394290


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## craft (29 March 2017)

galumay said:


> New risk for TGA unfolding with a potential class action against them by Radio Rentals Customers,
> http://www.abc.net.au/news/2017-03-...g-class-action-over-goods-loan-scheme/8394290



Legal action scrutiny will probably be more effective than ASIC. If the compensations fairly due extends to more than the 2.8m for overpayment and 4m for income threshold breaches that the company has set aside then a class action is probably warranted. If 6.8 covers it then participating in the class action will just see some of what would have been paid back to customers anyway end in the lawyers pocket. No surprise the provision got some attention from the lawyers.

A fair go was their motto and it is the key to their success. We will get to see how far they have strayed from their motto before this all quietens down.

I welcome the scrutiny as it will confirm or deny my underlying assumption that the company at least tries to walk it's talk.

The recent negative media and MB trying to get a class action up is probably not a coincidence


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## InsvestoBoy (29 March 2017)

galumay said:


> New risk for TGA unfolding with a potential class action against them by Radio Rentals Customers,
> http://www.abc.net.au/news/2017-03-...g-class-action-over-goods-loan-scheme/8394290




Haha oh wow, I am so bad for market timing...


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## McLovin (29 March 2017)

galumay said:


> New risk for TGA unfolding with a potential class action against them by Radio Rentals Customers,
> http://www.abc.net.au/news/2017-03-...g-class-action-over-goods-loan-scheme/8394290






> "She obtained for example a second-hand mattress and bed for $430, and yet she finds after a number of years she's paid over $3,400 for it."
> 
> Mr Slade said Ms Simpson kept having money automatically deducted from her account long after contract had ended.




She doesn't look like someone who has a spare $3,400 lying around, to not notice for a number of years. It seems like a case of laziness and then after the fact trying to get someone else to reimburse her.

What sort of precedent would this set? The whole fitness industry, as an example, is built around that business model. If you have fraudulent transactions on your credit card you need to notify the bank. If you do it years later they'll tell you it's your problem. I think a bit of personal responsibility is needed here.


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## Boggo (30 March 2017)

Looks like its happening !


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## InsvestoBoy (27 April 2017)

The price had rallied promisingly after the big fall caused by class action news, but then it fell again because the CEO is now resigning!


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## kermit345 (28 April 2017)

Can someone with more technical analysis capabilities then myself tell me if $1.26 is the resistance point for TGA? Looking at the 10 year chart and then also at more recent times it would appear that is the case but just wanted a second opinion.

I still believe the underlying business has merit and will continue to produce profit and reasonable dividends. Everything that's occurred in recent times is mainly noise as far as I'm concerned but typically the market likes noise and overreacts to it. Obviously holders wouldn't be happy with where the share price is currently but providing TGA can obtain a solid CEO and navigate the class action etc etc then I think we'll see the underlying value shine through once again.


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## peter2 (28 April 2017)

The 10yr chart shows that the share price of TGA is at a critical level.  TGA has followed the general index (XAO) quite well until the beginning of 2016 (marked by the arrow).  

Price trading below 2.00 was the confirmation that something was amiss with the business at that time. Longer term holders don't jump ship unless they think they think the ship is sinking. 

Right now it's another sink or swim moment. If the company has any worthwhile value new long term holders will invest. I suspect they'll wait until there is some clarity about the current issues.


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## kermit345 (16 May 2017)

Is it danger signs now from a technical point of view that its drifted below that resistance area?


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## Rainman (30 May 2017)

kermit345 said:


> ... I still believe the underlying business has merit and will continue to produce profit and reasonable dividends...




If you believe that, you should keep buying regardless of the price level.  In this game, the lowest average cost wins.

The exact same issues concerning TGA were debated on this thread in early 2012.  You might find it helpful to review the posts of that period and then see where the share price was about 2 years later.  Those who were bullish on TGA then and held it into 2014 saw 100% gains. 

 The fact is that TGA has a solid balance sheet and, despite the distractions that it has had with NCML and other parts of its business (all of which it has now disposed of or put into run-off), it has normalised earnings of easily $20 million NPAT.  You can buy the company in the market today for $185 million with a division making up 31% of group EBIT growing at around 80%.

With this kind of value profile, you really want TGA to go down further or to stay at current levels so that you can build up a sizeable position.


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## Boggo (30 May 2017)

Rainman said:


> The exact same issues concerning TGA were debated on this thread in early 2012.  You might find it helpful to review the posts of that period and then see where the share price was about 2 years later.  Those who were bullish on TGA then and held it into 2014 *saw 100% gains*.




Did they sell them then and capitalise or are they now seeing where it has been ?


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## Rainman (30 May 2017)

Boggo said:


> Did they sell them then and capitalise or are they now seeing where it has been ?




Ask them.  I sold out at $3 plus change.


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## Boggo (30 May 2017)

Rainman said:


> Ask them.  I sold out at $3 plus change.




I can probably guess the answer 

Well done exiting at $3 

A turn up through $1.26 might be the first indication that we have seen the bottom.


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## Rainman (30 May 2017)

Boggo said:


> I can probably guess the answer
> 
> Well done exiting at $3




The average selling price was lower. But the position was closed out around $3.   The point is that TGA offers a decent margin of safety at this level.

  In some ways, it is more attractive today than it was at the beginning of 2012 because its trade finance division today is growing so  much faster.  TGA didn't have that division in 2012.


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## Klogg (30 May 2017)

Rainman said:


> The exact same issues concerning TGA were debated on this thread in early 2012.  *You might find it helpful to review the posts of that period and then see where the share price was about 2 years later.  Those who were bullish on TGA then and held it into 2014 saw 100% gains. *




There's a difference between then and now. TGA was nowhere near as leveraged, credit provisioning was far more conservative and it wasn't using all of it's excess funds on a business that has dismal returns on capital (TEF).

Not to mention the Consumer Leasing business margins just got crunched, albeit some of those costs are transient (legal, systems implementation, etc.)


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## Rainman (30 May 2017)

Klogg said:


> There's a difference between then and now. TGA was nowhere near as leveraged, credit provisioning was far more conservative and it wasn't using all of it's excess funds on a business that has dismal returns on capital (TEF).
> 
> Not to mention the Consumer Leasing business margins just got crunched, albeit some of those costs are transient (legal, systems implementation, etc.)




None of this is permanent and none of it will be a permanent drag on TGA's earning power going forward.  You don't get to buy an ok business for 7 times forward earnings without some hair on it.


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## Klogg (30 May 2017)

Rainman said:


> None of this is permanent and none of it will be a permanent drag on TGA's earning power going forward.  You don't get to buy an ok business for 7 times forward earnings without some hair on it.




EPS in this case is easily manipulated.

Provisions for impairment were basically flat for the year, yet loan books increased substantially, particularly in a business that has not existed in rough times.

Historically TGA have been good at this, provisioning more than enough... It seems this is no longer so, at least for this financial year.
I can live with all the other hairs, but this particular one is a little too coarse for my liking.


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## Klogg (30 May 2017)

Klogg said:


> EPS in this case is easily manipulated.
> 
> Provisions for impairment were basically flat for the year, yet loan books increased substantially, particularly in a business that has not existed in rough times.
> 
> ...




And this doesn't even take into consideration the substantially reduced returns on equity...


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## Rainman (30 May 2017)

Klogg said:


> EPS in this case is easily manipulated...




When is that never true of any financial business?

I look at TGA's historical cash flow.  It is a cleaner measure than EPS.  On a per share basis, operating cash flow has been between 0.65 cents and 0.85 cents and has been on a steady upward trend for 10 years and more.   

That suggest that historically TGA's customers pay. But maybe the business finance division will deviate from historical precedent.  Then maybe it won't.  I don't know.  If forced to make a call, I'd think that small and medium business owners would be better credits than those in the consumer division. 

All you can do is to make allowance for the risk that they won't be in your valuation.  That is the point of having a margin of safety: to make room for adverse developments and still buy at a discount.


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## Klogg (31 May 2017)

Rainman said:


> When is that never true of any financial business?
> 
> I look at TGA's historical cash flow.  It is a cleaner measure than EPS.  On a per share basis, operating cash flow has been between 0.65 cents and 0.85 cents and has been on a steady upward trend for 10 years and more.
> 
> ...




"When is that never true of any financial business?"

Good point. But if you look into the levers they're pulling, you get a feeling for future profits and perhaps cash flows. If you look at the recent accounts, you'll find an increase of $0.7m in provisions for bad credit, whilst the loan books grew in size by 26% (Consumer Leasing) and 76% (TEF). 
Had they provisioned at the rates they normally use, I would suggest the P/E would be much higher than 7...


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## Rainman (1 June 2017)

Klogg said:


> ... If you look at the recent accounts, you'll find an increase of $0.7m in provisions for bad credit, whilst the loan books grew in size by 26% (Consumer Leasing) and 76% (TEF)...




Personally, I am comfortable with this provisioning for both the consumer leasing and the TEF line.  It might be a little worse but probably not by much.  

I reckon TGA is a good turnaround candidate at $1.20 a share.  Plenty of negativity surrounding the stock.  Technically, it is also at a good level at which to start building a position.  

I am making it my long call for the rest of the year.


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## zac (17 October 2017)

Whats the latest with TGA. I noticed the share price got smashed this week.
Anyone have any commentary?


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## Boggo (17 October 2017)

Follow up from here...
https://www.aussiestockforums.com/threads/tga-thorn-group.18617/page-60#post-948833

Looked like it had finished the run down but it took a dive to the next level.
Bit of a gap there now up to around 1.10 that needs to be treated with caution.

Just my


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## Value Hunter (5 November 2017)

I do not follow the company closely and at this stage I am undecided if its a falling knife or a genuine turnaround candidate.


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## VSntchr (18 January 2018)

The chartists might be pondering whether TGA poses as a good reversal candidate. 
A nice consolidation and break over 80c. The candle today wasn't overly convincing but it's certainly doing well in a downwards market this week.


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## galumay (18 January 2018)

It would need to recover a lot more before I was in the money again!


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## peter2 (18 January 2018)

There's lots of technical damage on the TGA chart. A was going to describe it as the "walking wounded" but that might be too kind. This is still horizontal and on life support for me. There's IV lines in every orifice. The daily chart does look good, but that's because it's the only skin that's not heavily bandaged.


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## oldblue (24 January 2018)

Very true, peter. My own damage on this one is far from recovering! But today's market appears to be encouraged by recent announcement. Hopefully?


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## VSntchr (25 January 2018)

With some uncertainty regarding the ASIC settlement removed price continued to move higher this week. Volume hasn't risen significantly and this rally could be killed quickly with some "give me my damn money back" traders who have been bagholding since the rude October gapdown.


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## McLovin (22 March 2018)

I've been wondering where KGN is getting their revenue growth from, and I think RR is part of the answer.

I haven't paid much attention to TGA in the last while, but this morning's announcement got me interested as to why a relatively stable business like RR is getting hammered and expects it to not let up for the medium term.

As a single data point. KGN will sell me a 49' LED TV for $479 with 0% interest for 6 months. That works out, assuming I pay it off in the interest free period (and they can get finance), at $20/week. RR will rent/try/buy me a 49' LED TV for $15/week on a *48 month* contract. So the difference in contract price is $479 v $3,120.

KGN don't compete in whitegoods and I don't know what sort of product mix RR have, but as that single data point, it doesn't look too good for RR. There are so many finance (Z1P, AFT etc) companies popping up at the moment and that's being coupled with price deflation at the bottom of the market that's making it easier to forgo expensive finance options and just buy outright.


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## tinhat (23 March 2018)

McLovin said:


> I've been wondering where KGN is getting their revenue growth from, and I think RR is part of the answer.
> 
> I haven't paid much attention to TGA in the last while, but this morning's announcement got me interested as to why a relatively stable business like RR is getting hammered and expects it to not let up for the medium term.
> 
> ...




I haven't looked at TGA and the RR business for quite a while, but it was flagged in this thread a few years ago that what used to be termed "brown goods" (home entertainment electronics) are now a low margin commodity. I recall that you were active in discussing this stock back then. This is why I have always steered away from JB HiFi (to my loss) which has continued to be a category slayer year after year.

While I appreciate that a large part of the consumer demand that RR caters for is the conspicuous consumption aspirations of people who may not be able to afford the "luxuries" of having a large flat screen TV, etc, so choose to hire purchase; another factor might be, that for those that are genuinely hard up and looking for a fridge, washing machine, lounge, bunk beds, TV, whatever, is that social media has, in my experience, promulgated the confluence of the sharing economy with the throw away society. If I go onto the various facebook groups that cater for buy/sell/swap/freebies in my local community I recon at any one time I could furnish a house and fit out a kitchen with appliances for free sourced on what people are giving away second hand for free.

That said, I would imagine the long period of zero interest finance of the post GFC monetary cycle, combined with the mass-availability and commoditization of consumer electronics and appliances retail distribution channels (including the disruption of online retail) has been the major factor.

The last time I looked at TGA they were looking to get into vehicle finance. Did anything come of that strategy?


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## Huskar (21 May 2019)

McLovin said:


> I've been wondering where KGN is getting their revenue growth from, and I think RR is part of the answer.
> 
> I haven't paid much attention to TGA in the last while, but this morning's announcement got me interested as to why a relatively stable business like RR is getting hammered and expects it to not let up for the medium term.
> 
> ...




Mclovin has hit the nail on the head for me - there are so many alternative financing options now, why would you go for RR? I only wish I had realised this sooner: short TGA, long APT....


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## Miner (21 May 2019)

tinhat said:


> I haven't looked at TGA and the RR business for quite a while, but it was flagged in this thread a few years ago that what used to be termed "brown goods" (home entertainment electronics) are now a low margin commodity. I recall that you were active in discussing this stock back then. This is why I have always steered away from JB HiFi (to my loss) which has continued to be a category slayer year after year.
> 
> While I appreciate that a large part of the consumer demand that RR caters for is the conspicuous consumption aspirations of people who may not be able to afford the "luxuries" of having a large flat screen TV, etc, so choose to hire purchase; another factor might be, that for those that are genuinely hard up and looking for a fridge, washing machine, lounge, bunk beds, TV, whatever, is that social media has, in my experience, promulgated the confluence of the sharing economy with the throw away society. If I go onto the various facebook groups that cater for buy/sell/swap/freebies in my local community I recon at any one time I could furnish a house and fit out a kitchen with appliances for free sourced on what people are giving away second hand for free.
> 
> ...



It may be strange when we talk of debts and glamour.
Taking debts through after pay could be perceived not only economically better than radio rentals, but more glamarous and perceived less dodgy . End of the day, it is loan when buyer can not have cash. 
That sums up the gradual demise of RR and a need a better business plan from TGA to be seen as investor's choice.
DNH.


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## booky (17 January 2020)

Any comments on this company? A write off or some light at end of tunnel?. I brought on advice from MF. Another fu! I thought shares were long term investment.


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## galumay (17 January 2020)

Sadly, buying on advice from MF is little different to buying on advice from HC. Personally I would consider TGA an investible business. (I am honest enough to admit I held them in the past, bought before I had developed my research and analysis skillset.)


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## Huskar (5 April 2020)

What a fall from grace. Was $3 at one stage now down to 5.5c. 

Forager Funds had bought in last year around 50c thinking there was value but it has just kept going lower and they now looked to have sold before the end. 

Can it survive with Corona likely impact on brown goods? I'm not sure it can with $300m in debt vs now $16m market cap and annualised revenue around $200m. Loss-making, and cash flows look woeful at the best of times (like many of these buy now pay later companies). 

Even if they don't lose their funding lines, losses keep mounting and I can't see them digging out of this hole. I won't be buying even at these very low prices. I think medium-term outlook is even worse.

Of course, if I'm wrong there could be an incredible rally from here...


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## Huskar (27 April 2020)

Huskar said:


> What a fall from grace. Was $3 at one stage now down to 5.5c.
> 
> Forager Funds had bought in last year around 50c thinking there was value but it has just kept going lower and they now looked to have sold before the end.
> 
> ...



I couldn't have timed the bottom better... Now up to 17c. That's because it is worth more dead than alive, as mgmt announce they are closing business and running off the loan book. 

Some interesting opportunity here now with $150m equity book value vs $50m market cap. If more than 30% of book value can be realised, then there is money to be made in this special situation. But a lot of costs still are to be incurred and loan writedowns are likely to be not insignificant given corona.

Reminds me of Rams Home Loans 10 years ago, which ran off its loan book and was a big winner for those who stayed along for the ride.


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## greggles (18 June 2021)

Somers Limited - an investment holding company specialising in the financial services sector - has made a cash offer bid for TGA at 21c a share. The Thorn Group Board has advised shareholders to take NO ACTION until they have reviewed the offer and made a formal statement in response.

A very opportunistic bid by Somers Limited and one that undervalues the company, in the eyes of the market at least. TGA is currently trading at 22c, one cent above the 21c bid price.

I think the Board is going to recommend shareholders reject the Somers offer. TGA looks to be on the road back operationally and I think shareholders are better off hanging on and hopefully riding the recovery up.


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## Miner (18 June 2021)

Miner said:


> It may be strange when we talk of debts and glamour.
> Taking debts through after pay could be perceived not only economically better than radio rentals, but more glamarous and perceived less dodgy . End of the day, it is loan when buyer can not have cash.
> That sums up the gradual demise of RR and a need a better business plan from TGA to be seen as investor's choice.
> DNH.



Some people like me could be talking the talk and not walking the talk when financial investment is concerned.
Looking back if I would have invested on APT in 2019, my retirement would have well timed.


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