Thanks. Do you think it is wise to own shares in a FM company? I doubt the industry is going to go away.
TGA - Thorn Group
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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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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
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
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.
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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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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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.
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, this was my suspicion. Another one to add to my ASX playbook.
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.
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.
So_Cynical
The Contrarian Averager
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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.
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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.
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.
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.
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.
But yes, they seem to be able to achieve this.
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%.
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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Interesting - SC, can I please get your view as to why you think this?
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.
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.
skc
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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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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
