TGA - Thorn Group

[robusta]

Nothing lately cant find too many good stuff ...

Have to agree with you there ROE, having trouble finding good new investments myself.

I just top up more CCV some weeks ago

I made a lot of money out of CCP but I could have made a lot more but I was a little conservative, I have many more opportunity to top up CCP as low as $1 to $2.50

I wont repeat this same mistake with CCV and I take step to action it some weeks ago, plus now my capital is a few hundred percent more than when I start pounding on CCP, so I can be a little more generous on each stocks...

There is another stock mirco-cap I'm looking at, it had a too much of a good run it discourage me from making the purchase

..at the current price is Ok but I don't have too much margin of safety..6 months ago it was perfect but 6 months ago my initial assessment blind me from looking deeper

then last night I had sometimes and I went back and check stocks I dismissed in the last few months and see how they are doing.... I came up with a different opinion this time around....check out the price, pretty sad for me it double....and another 10% or so rally today....so I decided to stay out and keep watching and learning

I'm still hoping it pull back but I have little hope, buy side outnumber seller 2-3 to 1
This could be the one that got away and could be a 10 baggers....

The search continue

very few investors in small and micro cap stocks maybe we can create a google groups and throw ideas around....keep it small (5-8 people) keep it relevant....
that give all of us opportunities to pound on stock we think could be the next 10 baggers...

Occasionally I venture into big brother territory when I see opportunity but this is purely for dividend play with a reasonable margin of safety and modest capital return that at least keeping track with inflation

but micro cap, small caps and mid cap is where it will delivers us the 10 baggers....
I have nothing but many many good memories with small caps and micro caps

Unless there is another major correction smaller caps seems to be the place to look for opportunities.

 

[Spudded]

very few investors in small and micro cap stocks maybe we can create a google groups and throw ideas around....keep it small (5-8 people) keep it relevant....

Would definitely be keen for that

 

[ROE]

didn't know TGA paid a dividend on 20/01

just show up on my account, that how much I care for price and dividend
it will come when the business and fundamental are in tact

 

[McCoy Pauley]

didn't know TGA paid a dividend on 20/01

just show up on my account, that how much I care for price and dividend
it will come when the business and fundamental are in tact

Yep, it was a pleasant surprise when the dividend statement arrived in the post last week!

Onwards and upwards, it appears. Hopefully the share price can consolidate around the $2.00/share mark and set that as the support level for the next rise up.

 

[McCoy Pauley]

It seems to me that Thorn Group has spent much of January and the early part of February consolidating, so it was a very pleasant surprise to see the share price set a new 52 week (and all-time high) on the close today. Hopefully that's a bullish sign for the next week.

 

[McCoy Pauley]

The share price pushed above $2.30/share recently but there's been a bit of a sell-off of late and as of this morning, the share price has dipped under $2.00/share.

Based on my calculations and TGA's guidance when it announced its first half results last year (TGA has adopted 1 April-31 March as its financial year), I think the company is undervalued and I'm seriously thinking hard about topping up my holdings, especially if the price weakness continues.

 

[Tightwad]

Anyone have an intrinsic value for this? I'm going to have a crack at working one out, ive only seen 1.70 which goes back a few months i think.

 

[McCoy Pauley]

Anyone have an intrinsic value for this? I'm going to have a crack at working one out, ive only seen 1.70 which goes back a few months i think.

If I use the normalised NPAT reported as at 31 March 2010, my intrinsic value as at 31 March 2010 was $2.16/share, based on equity of $81.8 million, 129.5 million shares issued, $16.40 million normalised NPAT, dividends of $7.05, prior year's equity of $69.2 million and a required return of 10%.

If I use the headline NPAT of $19.49 million reported as at 31 March 2010, my intrinsic value as at 31 March 2010 was $3.00/share, with the other inputs all the same.

I'm happy to use 10% required return on this company due to its stable management and zero debt.

 

[VSntchr]

I have TGA at around $2.

IMO no need to get very specific at the moment as there is an insignificant margin of safety. It has been dropping a little this past week or so, so I will be watching with interest.

Whilst it may have low debt-equity ratio, this business is not without its risks..and as such I prefer a slightly higher RR.

 

[Tightwad]

Around $2 sounds likely, still looking into it.

I'll keep any eye on it, I'm inclined to wait for something at more of a discount since I jumped in with my last share too close to IV.

 

[robusta]

Around $2 sounds likely, still looking into it.

I'll keep any eye on it, I'm inclined to wait for something at more of a discount since I jumped in with my last share too close to IV.

I came very close to buying today when the sp fell to $1.825 but kept my discipline. Looking for a larger margin of safety.

 

[ROE]

I came very close to buying today when the sp fell to $1.825 but kept my discipline. Looking for a larger margin of safety.

The patient of inactivity is gold in the fast financial world

Don't follow the financial engineers they only build dreams
Real engineer build bridges

I watched this over the weekend, watch out for those financial engineers

http://www.youtube.com/watch?v=FzrBurlJUNk

 

[Tightwad]

I came very close to buying today when the sp fell to $1.825 but kept my discipline. Looking for a larger margin of safety.

Yeah its one of many that i didnt act on so it becomes tempting. But then you end up reasoning.. its only slightly below IV.. and why do i want this stock that is close to IV when I could just buy JBH which is arguably a few dollars under.. or a couple of other stocks which are close to IV.

 

[McCoy Pauley]

What an interesting announcement on an otherwise sleepy Friday afternoon!

TGA has agreed to acquire National Credit Management Ltd for $32.5 million, which will be funded through debt (a renewal and expansion of TGA's funding facilities with Westpac to $50 millin).

TGA also upgraded its guidance for full year profit after tax to $22 million to $23 million for the year ending 31 March 2011, a 34% to 40% increase (excluding NMCL related costs of about $1 million) on the previous full year results of $16.4 million (excluding a one-off favourable tax effect of investment allowances).

NMCL is (according to TGA) "a leading provider of integrated receivables management services in Australia". It operates nationally, servicing over 800 active customers in the private and public sectors. The senior management team has agreed to stay on with TGA.

TGA didn't announce when completion of the acquisition will occur.

Looks to me that TGA is expanding into the space occupied by the likes of Credit Corp, in that NCML deals primarily in debt collection services, including the purchasing of debt ledgers from banks and financial companies.

TGA has released an investor presentation with respect to its acquisition and guidance update.

Share price has jumped almost 6% (compared to yesterday's closing price) in response.

 

[ROE]

What an interesting announcement on an otherwise sleepy Friday afternoon!

TGA has agreed to acquire National Credit Management Ltd for $32.5 million, which will be funded through debt (a renewal and expansion of TGA's funding facilities with Westpac to $50 millin).

TGA also upgraded its guidance for full year profit after tax to $22 million to $23 million for the year ending 31 March 2011, a 34% to 40% increase (excluding NMCL related costs of about $1 million) on the previous full year results of $16.4 million (excluding a one-off favourable tax effect of investment allowances).

NMCL is (according to TGA) "a leading provider of integrated receivables management services in Australia". It operates nationally, servicing over 800 active customers in the private and public sectors. The senior management team has agreed to stay on with TGA.

TGA didn't announce when completion of the acquisition will occur.

Looks to me that TGA is expanding into the space occupied by the likes of Credit Corp, in that NCML deals primarily in debt collection services, including the purchasing of debt ledgers from banks and financial companies.

TGA has released an investor presentation with respect to its acquisition and guidance update.

Share price has jumped almost 6% (compared to yesterday's closing price) in response.

I top up some more shares today .. I know where they are going....
I only bought 30% of what I want to buy because I just discovered another Gems
I'm doing some due diligent this weekend.. Monday is a pounding day so cant give all the cash to TGA

looking at CCV and CCP and you can see where TGA want to get into

and this market we haven't scratch too much off the surface yet.

Forward PE of 11 with increase earning expected for some years to come...

There will be plenty of room for CCP CCV and TGA ..the top three operators in their fields buy them all well I did any way hhehehe and for those who scare of CCV watch its return on equity this year onward ...

Here is my bold conclusion ...the last decade belongs to the banks
the next decade belong to rental and short term cash market and debt collectors

After a decade of debt binge and good time someone got to clean up the trash

 

[JTLP]

I top up some more shares today .. I know where they are going....
I only bought 30% of what I want to buy because I just discovered another Gems
I'm doing some due diligent this weekend.. Monday is a pounding day so cant give all the cash to TGA

looking at CCV and CCP and you can see where TGA want to get into

and this market we haven't scratch too much off the surface yet.

Forward PE of 11 with increase earning expected for some years to come...

There will be plenty of room for CCP CCV and TGA ..the top three operators in their fields buy them all well I did any way hhehehe and for those who scare of CCV watch its return on equity this year onward ...

Here is my bold conclusion ...the last decade belongs to the banks
the next decade belong to rental and short term cash market and debt collectors

After a decade of debt binge and good time someone got to clean up the trash

Hi ROE...

I wrote a PM to you a while back - did you get it? Just a few questions in there for you =)

RE: TGA - strategic movement that will bode well for future growth no doubt. I'm surprised they chucked the little doozie about a profit upgrade at the end of the presentation...thought it would have been one of the standouts?

Anyway - DNH

 

[ROE]

Hi ROE...

I wrote a PM to you a while back - did you get it? Just a few questions in there for you =)

RE: TGA - strategic movement that will bode well for future growth no doubt. I'm surprised they chucked the little doozie about a profit upgrade at the end of the presentation...thought it would have been one of the standouts?

Anyway - DNH

Sorry over look I PM back just then ....

good business don't need to talk themselves up, the market will know when you show them the money

I expect 15% up on NPAT, TGA give me 34% cant complain...

 

[Pioupiou]

I have heaps of TGA shares, and I bought 25,000 more a few days ago, which is why I invested the time to write the stuff below for my personal enlightenment, or perhaps to merely soothe my mind via selective cognition. Excuse its verbosity, but it would take too much effort to trim it. I also hold CCV, and it too has been generous to me. I hope somebody can gain something useful from the guff below.
=======================
I suggest that TGA is worth more than the current share price ($1.94 at COB 18/3/2011). Check my facts and figures and arrive at your own conclusions pursuant to your research and considerations, but I think $2.50 is a reasonable value for TGA.

Because of subjectivity, assumptions, approximations, ignorance and error, my guesstimation of the intrinsic value of a TGA share has latitude, and so I have ignored considering the 18/03/2011-announced NCML deal in my guesstimation because I do not know all the facts (debt for instance), and because I think that in the next year or two the NCML deal will neither do TGA significant good nor do it significant harm.

If one presumes the $32.5 million purchase price of NCML plus the $1 million related expense is borrowed at 11.5% (the current $6 million debt costs TGA $690K a year), then this is going to attract an extra interest expense of $3,852,500 (say $3.9 million), so NCML's reported EBIT of $6.2 million will be reduced to about $2.3 million, or about $1.53 after tax. TGA's profit for the year ending 31/3/11 is projected to be between $22 million and $23 million, and hence the extra $1.53 million for YE 31/3/12 is not hugely significant, and remember, one should downfactor this to recognise extra risk of having more debt, and to allow for the broadening of managerial focus.*

There are long-term synergies in owning NCML, and TGA's management have hitherto shown admirable astuteness and shareholder-friendly focus, so I'll assume the acquisition will do TGA no harm. One of the benefits of the NCML add-on is that it slows down the natural decay of growth and ROE that expanding into suboptimal sites would naturally occasion, and hence an increasing intrinsic value for TGA can be assumed for a few more years.*

Ignoring the $1 million NCML related cost (because it is accommodated above) the net TGA profit after tax for YE 31/3/11 should be $22.5 million (the mid point of the range projected). There are 130,737,000 shares, so the EPS is 17.21 cents. If you look at a company of this quality, one could reasonably pick a PER greater than 11.5. Depending on your PER, the intrinsic share price could be: 11.5 = $1.98; 12.0 = $2.07; 12.5 = $2.15; 13.0 = $2.24; 13.5 = $2.32; 14.0 = $2.41; 14.5 = $2.50; 15.0 = $2.58; 15.5 = $2.67; 16.0 = $2.75.

On the matter that TGA's quality suggests a reasonably high PER, TGA is a business made in heaven. It has: a high return on equity (about 27.5% for YE 31/3/2011); a low 7.6% debt to equity ratio; EPS has grown every year since YE 31/3/2008 (8.4c, 9.5c, 15.1c and 17.2c for YE 31/3/2011); and TGA pays about 50% of EPS as a 100% franked dividend. Also, unlike retailers, TGA's income is derived from myriads of rental streams, so a poor stint of new business would have a muted negative ramification (eat your heart out Gerry Harvey).*

TGA's rental terms is typically three years, and from memory 60% of the customers rent something else when the term ends, because they have got used to the cash-outflow commitment, and their proclivity for instant gratification readily finds new must-haves to hire (God bless them). The cash-strapped profile of the TGA customer demographic means that many TGA customers do not have mortgages, so rising interest rates have low impact on TGA, so whatever way the economy turns, TGA seems to do well. Many items rented are eligible to be paid by Centrelink's CentrePay facility, thus reducing defaults from folk that most firms would avoid. Also, TGA, as Radio Rentals, has been in business for over 70 years, so it knows how to manage the income streams that are central to its success, which understanding and processes are central to the NCML business too.

Shareholders will get reasonable warning if things start going bad for TGA - the customer count would decline and the average months of the residual rental terms would diminish. I wish I could say the same for some of my other investments like BOL, DOW, EGN, NOD and VMG, whose only certainty is the never-ending series of black swan events for losing money. As an aside, I often invest in pairs, so I also hold Cash Converters (CCV), which, like TGA, has been very kind to me. CCV and TGA to a degree share the same customer demographic, except that CCV has expanded internationally.

If you consider all the above TGA-related facts, suitably altered by your own research and subjectivity, and you compare TGA to other profitable companies that pay franked dividends, then by analogy you should be able to pick a reasonable PER to use in your own guesstimate of a reasonable intrinsic value for TGA.

If you want to go down the Roger Montgomery path as enunciated in his book, VALUABLE, you can derive an intrinsic value of a TGA share by dividing the ROE by say 10% to derive a factor to apply to the equity per share to get an intrinsic value, which factor applies where EPS = DPS. This factor increases via more arcane arithmetic if earnings are retained and invested by TGA at its ROE. Obviously debt-to-equity ratios, and EPS growth have a bearing, as would probability to cover the certainty of one's convictions, and as Roger has said on TV (Sky Business), after about thirty calculations, one arrives at intrinsic value. I am not intellectually equipped to think of thirty calculations, so I'll suggest seven calculations to guesstimate TGA's intrinsic value.

My baseline figures for TGA are:

* Equity as at 1/4/2010 = $81,767,000
* Shares = 130,737,000
* Estimated earnings for YE 31/3/2011 = $22.5 million (between $22M and $23M)
* 10% is a reasonable required return on investment*

Consequently, equity per share = 62.54 cents, EPS = 17.21 cents and ROE is 27.52%.

Dividing 27.52% by 10% gives a factor of 2.752, and if one multiplies the equity per share (62.54 cents) by 2.752, one gets $1.72, which is the "intrinsic value" of TGA if it paid the full EPS as a dividend. See Roger's book, page 183. Roger's book has another a table of factors on page 184 that apply if the EPS were held back and invested by TGA at the current ROE. Sticking with the 10% requirement, this table suggests an ROE of 27.52% would give a factor of about 6. Roger suggests that we simply use the weighted average of these two factors if only part of the EPS is paid as DPS. In TGA's case, we could average 2.752 and 6 to get 4.376, and 62.54 cents multiplied by that gives an intrinsic value of $2.74, which suggests a PER of 16 - see earlier provided table.

Considering that many investment estimates are based on the coming year, whereas these TGA-related estimates are for the year ending 31 March 2011, which is two weeks hence, and taking into account the many qualitative factors mentioned earlier, a PER of 16 is not so silly. I do not know how Roger arrived at the table on page 184 of his book, and and how he justifies the assumptions it contains, but my instincts tell me the table might give factors that are too generous, and so I am happy to dampen the factor down to value TGA at $2.50. If TGA were a more liquid large-cap investment, its quality would easily justify a PER of 16. I suppose one could invent another calculation to recognise debt-to-equity ratio, another for Capital Valuation and a third for liquidity - after all, for any common intrinsic value calculated by the foregoing seven steps we, we would be foolish to rank a micro cap with high debt and low liquidity on a par with a firm with the opposite characteristics. For instance, I hold and like FFI and SGH, but for reasons of size in the case of FFI and lack of liquidity in both, I would not encourage others to consider them.*

I have been buying TGA for years, some only days ago, and I hold 285,000 shares (half in my SMSF and half personally at an average buy-in price of 91 cents). I should sell some TGA to de-risk my portfolio, but I'll only do that when I can find a share of comparable quality/value into which I can divert the proceeds, and I would be loath to sell any at below $2.30. In the meantime I'll pocket the dividends.

 

[ROE]

Nice write up

with that you may retire rich with TGA, I wouldn't worry about TGA debt

these guys know exactly what they are doing, debt will be less than today this time next year.. they going to raise more equity from shareholder to pay off debt
and I reckon wont be long before debt is a history for them.

Essential they already got it all mapped out, acquire business at decent price short term it can fund from cash flow and retained earning then raise equity to knock it down to a low level and they pay it off sometimes soon in the future.

Repeat the process

 

[McCoy Pauley]

Thanks for that in-depth analysis of TGA, Pioupiou.

As ROE mentioned, there was a little snippet in the weekend AFR noting that TGA intends to raise capital in the next 12 months to pay down the debt it's taking on to fund the acquisition it announced on Friday.