TGA - Thorn Group

[Boggo]

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.

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

 

[oldblue]

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!

 

[Klogg]

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]

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]

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 forté, but what was written seemed sensible. See:

http://www.facebook.com/note.php?note_id=449875805029231

 

[Ves]

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 forté, 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.

 

[Pioupiou]

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.

 

[Nutmeg]

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.

 

[tinhat]

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.

 

[McLovin]

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.

 

[Boggo]

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)

 

[Nutmeg]

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)

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?

 

[odds-on]

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)

I want the price to drop further as I have spare cash...........

Timeframe is key. I have a medium term view (5 years).

 

[Boggo]

Such penetrating analysis, Boggo!

On a par with some of the previous in depth psychological justification posts, why thank you !

 

[Pioupiou]

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.

 

[Klogg]

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)

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!

 

[Nutmeg]

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)

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.

 

[Nutmeg]

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!

 

[Nutmeg]

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.

 

[Nutmeg]

Boggo is a guy who knows the price of everything and the value of nothing.