TGA - Thorn Group

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)

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.

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.

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.

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).

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.

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?

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.

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.

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.

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.

oldblue · 21 April 2012

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

Nutmeg · 23 April 2012

PPT is dumping TGA stock, I see.

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.

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

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.

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.

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.

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.

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.

TGA - Thorn Group

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