TGA - Thorn Group

[tech/a]

Have you ever asked yourself why the most successful investor in the world is a value/FA guy and not a price/TA guy?

Buffett buys control in companies and takes control.
Did you know that Buffett missed bankruptcy during the GFC
only because paper work for taking control of credit
Default swaps wasnt correct!

Have you every pondered as to why there is ONE Buffett
And a zillion wanna be's

Still my point is that there is some poor investment decisions being made by some on these boards.
As evidenced in recient posts.

 

[Nutmeg]

Did you know that Buffett missed bankruptcy during the GFC
only because paper work for taking control of credit
Default swaps wasnt correct!

What are you on, crack?

 

[Nutmeg]

I believe that the "investment quality" of TGA has deteriorated over the last 12 months.

If that is true, then it is not apparent from TGA's increase in earnings. It will be the quality of TGA's earnings that I'll be watching in the near term - a quality best measured by TGA's ROE. Increasing earnings - particularly as a result of acquisitions - but declining ROE paints a questionable bill of health.

 

[tech/a]

What are you on, crack?

Yeh Didn't think so

A copy of "THE QUANTS" by Scott Patterson
may educate you---.

 

[CanOz]

Was that a good read TECH?

 

[Nutmeg]

Yeh Didn't think so

A copy of "THE QUANTS" by Scott Patterson
may educate you---.

View attachment 47055

“Beware of geeks bearing formulas.”
Warren Buffett

 

[Nutmeg]

Did you know that Buffett missed bankruptcy during the GFC
only because paper work for taking control of credit
Default swaps wasnt correct!

Do you even know what credit default swaps are? If so and if by "taking control" of CDFs you mean Buffett issued CDFs (since you can't go bankrupt taking CDFs as any loss is limited to the "premium" paid upfront for the CDF), then find me one internet article in which that is referred to. Had it occurred, it would have been front page news.

 

[Ves]

If that is true, then it is not apparent from TGA's increase in earnings. It will be the quality of TGA's earnings that I'll be watching in the near term - a quality best measured by TGA's ROE. Increasing earnings - particularly as a result of acquisitions - but declining ROE paints a questionable bill of health.

Why not ROIC? Seems more accurate considering there is debt on the balance sheet.

 

[Nutmeg]

Why not ROIC? Seems more accurate considering there is debt on the balance sheet.

Or ROIC.

 

[Ves]

Or ROIC.

For the 2011 FY I get a ROIC of 16%. I haven't adjusted for the cash balance, because it isn't a large amount and also I deem it necessary for them to keep buying rental assets.

In a sense return on equity can act like a bit of a "glamour" formula and is easily enough to manipulate.

Another problem with a business like this is that NPAT can be manipulated by the method of accounting for income and expenses.

It could be more accurate to stabilise a free cash flow figure and use this instead of NPAT in the ROIC calculation. It would be interesting to note the difference.

Looking at the fluctuations between ROE and ROIC in time; it would appear that there probably is not too much of a moat around this business and the higher ROE of the last two years is more likely due to a growth spurt and the equity / debt on the balance sheet is just catching up.

 

[Nutmeg]

Looking at the fluctuations between ROE and ROIC in time; it would appear that there probably is not too much of a moat around this business and the higher ROE of the last two years is more likely due to a growth spurt and the equity / debt on the balance sheet is just catching up.

Why would the presence or absence of a moat have any impact on growing or declining ROE/ROIC?

 

[Ves]

Why would the presence or absence of a moat have any impact on growing or declining ROE/ROIC?

Clearly if you have no moat it is much harder to insulate your profits or maintain profitability when competition or harder times come along. This results in declining return on capital, in fact without a moat I do not know how you can expect to achieve long-term results above and beyond your cost of capital. There are of course certain situational factors where above average ROE / ROIC is possible; but they hardly ever translate into long-term out-performance unless you have a competitive advantage.

 

[odds-on]

Or ROIC.

Or this...

http://www.gurufocus.com/news/175393/free-cash-flow-isnt-everything

 

[tech/a]

I see this mentality---rational often on these boards
PEN
RED
MAD
to name a few threads.

TGA has twice been to $2.26.
That makes your holding $1,062,200 (470000 shares)---its been there twice.
Your current holding is valued at $655,650
In 12 mths for the sake of $67,000 franked dividends you have
gladly sacrificed $400K.

Yet we get from other posters



And Pioupiou is seen as one who has definately done his homework.
Today TGA dropped 1.5c or $7,050.

So



To let your profit in anything drop 40% when a phone call/mouse click can stop it is in my view NUTS.
No matter HOW you justify it.

I find people who have spent months analysing a holding and are committed as much as many here become---are blinded to the fact that they are wrong!
a $400K loss in 12 mths---your WRONG!

That 400K would buy 287000 more shares today!
or another $41,615 in dividends each and every year!
What on earth are you doing???

The silence is deafening

Was that a good read TECH?

Sure is.

 

[Pioupiou]

Why not ROIC? Seems more accurate considering there is debt on the balance sheet.

TGA has virtually no debt - $11 million as against equity of $132.388 million (8.3%) as at 30/09/2011.

On the matter of a moat - this has always worried me in a way, and not in another way. Firms like Coca Cola and McDonalds only have their names as a moat, but that seems to suffice to allow them to be profitable for a long time. TGA has a few weak moats. Its strong balance sheet is one - a new competitor needs a pile of cash to have a business like TGA. A second moat is that its business is so bloody boring, that it would not excite yuppies as a business option. TGA's core skill is customer management in the sense of screening them for reliability, and cajoling them into meeting their commitments, a skill that is not as generally available as one may think, and one that carries enough social odium to keep the yuppies away. Perhaps the limited size to which TGA can grow acts as a minor moat - big money would not be interested. These are not individually strong moats, but collectively they seem to have sufficed for a long time.

Adam Smith noted that odious businesses seemed to do well relative to the skills and effort required. In his day, butchers (who actually butchered) did relatively well, and Smith noted that hangmen did even better if one considered the few hours that they worked. This is why Invocare does so well - interring and cremating the departed is not a business that many aspire to own. I would buy Invocare shares, but its SP is too toppy.

 

[Ves]

Pioupiou, I was using the 2011 figures as a financial. The 2012 financials will be able to enlighten us some more and I don't think we need to go into any more depth until we see those numbers. Thanks for your points - I agree in a sense and they are part of the reason why I have a small holding.

 

[Julia]

Pioupiou, if you feel able to disclose the other companies you hold, that would be interesting.
No obligation, of course.

 

[Pioupiou]

TGA has twice been to $2.26.
That makes your holding $1,062,200 (470000 shares)---its been there twice.
Your current holding is valued at $655,650
In 12 mths for the sake of $67,000 franked dividends you have
gladly sacrificed $400K.

And Pioupiou is seen as one who has definately done his homework.
Today TGA dropped 1.5c or $7,050.

I did not own 470,000 when the price peaked at $2.27, so the loss was not as large as you suggest. I have bought many TGAs relatively recently. As the price was rising a year ago, I unfortunately decided to sell at $2.30, but it never got there, and my sell orders expired. Also, with the benefit of hindsight I should have then sold at a lower price, but then I would have kicked myself for getting out too early, if the slide was reversed. Lastly, where I may have erred in the past is spilled milk, what I want to know is where is TGA as a business going in the next 18 months and longer, and I'll get out on fundamentals, as I wanted to do when it peaked a year ago, not by the pattern of the graphs.

On the matter of dropping $7,050, my portfolio value bounces around about $10K a day, often three times that, but I do not have the talent to sell and buy so as to always avoid the downs and catch the ups. If anyone has that talent, then they should be extremely wealthy.

The point is, are they worth buying now at circa $1.40, or are they going to drop further? Time will tell.

 

[Pioupiou]

Pioupiou, if you feel able to disclose the other companies you hold, that would be interesting.
No obligation, of course.

Happy to oblige, but I will warn you that I entered the market in late 2007 at its peak with a wad of money to invest, and a poor understanding of shares. Most that I still hold are relics of those heady days. I have been culling them, so there are now 16, about half of what I had two years ago. They are ANZ, ARG, BHP, BOL, CCV, CSL, DOW, EGN, FFI, KSC, MLT, QBE, SGH, TGA, UGL, VMG (and VMGO), WBC and WOW. FFI and SGH are not relics - I acquired them in 2010. The only one that I really like is TGA. I should sell most of the others, but then what to buy? I'll focus on this during 2012 calandar year.

I only have a few CCV - bought at average of 62.2 cents - got out at 83.5 cents with about $10.3K profit, and a 2054 were left behind. BOL, EGN, and VMG have been huge disasters, and many of the others have been awful.

This is not the thread to discuss these, we get sidetracked into enough spurious exchanges discussing TGA alone.

 

[Nutmeg]

They are ANZ, ARG, BHP, BOL, CCV, CSL, DOW, EGN, FFI, KSC, MLT, QBE, SGH, TGA, UGL, VMG (and VMGO), WBC and WOW.

As a long term value investor, I would have thought you'd have required a higher ROE than those small caps in bold are giving you. You can get better returns in most fixed term deposits without the capital risk.