TGA - Thorn Group

[So_Cynical]

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

 

[tinhat]

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.

 

[Tightwad]

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

 

[oldblue]

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.

 

[robusta]

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.

 

[ROE]

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

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

 

[Ves]

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?

 

[McLovin]

Topped up on TGA today at $1.50.

 

[McLovin]

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

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.

 

[Klogg]

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.

 

[ROE]

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.

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...

 

[Klogg]

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...

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.

 

[Pioupiou]

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).

 

[robusta]

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.

 

[craft]

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.

 

[skc]

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.

 

[skc]

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.

 

[Klogg]

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

 

[kermit345]

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?

 

[skc]

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.