TGA - Thorn Group

[Nutmeg]

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.

 

[Nutmeg]

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.

 

[Nutmeg]

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.

 

[Klogg]

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.

 

[Klogg]

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.

 

[robusta]

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.

 

[Nutmeg]

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.

 

[Nutmeg]

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%.

 

[odds-on]

I bought today. A large % of my portfolio is now TGA. Looking forward to the annual report.

 

[oldblue]

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?

 

[robusta]

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.

 

[Ves]

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.

 

[Klogg]

Is it? Looks like a massive reversal bar on huge volume today.

Interested to hear your thoughts.

That's exactly what I was thinking...

 

[slooi1]

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

 

[Pioupiou]

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]

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

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?

 

[Julia]

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]

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?

 

[Boggo]

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.

 

[Nutmeg]

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.