TGA - Thorn Group

Firstly IM A DUCK!

Secondly Im not trading TGA and WOULDNT UNLESS it traded over $1.50.
A fall below the Control bar zone on a gap or volume will be very bad news for TGA.
A break above the zone with a gap or strong volume would be seen as great news.

This is a time to wait for TGA in a technical opinion.

tech/a said:

Firstly IM A DUCK!

Secondly Im not trading TGA and WOULDNT UNLESS it traded over $1.50.
A fall below the Control bar zone on a gap or volume will be very bad news for TGA.
A break above the zone with a gap or strong volume would be seen as great news.

This is a time to wait for TGA in a technical opinion.

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It's has been said that "if you were to put 1 billion monkeys in front of a computer keyboard they'd eventually type out the works of Shakespeare. But with the advent of the internet, we now know that that is not true".

Similar reasoning applies to traders staring at charts.

Nutmeg said:

It's has been said that "if you were to put 1 billion monkeys in front of a computer keyboard they'd eventually type out the works of Shakespeare. But with the advent of the internet, we now know that that is not true".

Similar reasoning applies to traders staring at charts.

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Yes Ive never been able to see the works of Shakespeare in a chart so what you say must be true.

Quite intelligent coming from a Food spice.

This thread is not going the way of the fundy/tech argument so lets get back on topic.

Thanks for your chart Daffy.

CanOz

CanOz said:

This thread is not going the way of the fundy/tech argument so lets get back on topic.

Thanks for your chart Daffy.

CanOz

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No its not.
More Master Chef!

Thanks for the chart, tech/a.

What is the possible range of EPS to be released this week? Management said the result would be a substantial increase on previous.

catfish said:

What is the possible range of EPS to be released this week? Management said the result would be a substantial increase on previous.

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If one simply doubled the EPS for H1, one would get an EPS for the year of 19.5c. If you increased this by 2.5% to equate to an annual growth of 5%, you will get 20c. A glance at the Westpac estimates gives the following:

Median - - - - 19.4c
High - - - - - - 20.0c
Low - - - - - - 18.8c
7 Days Ago -- 19.4c
30 Days Ago - 19.6c
60 Days Ago - 19.7c
90 Days Ago - 19.7c

I am at a loss to know what information has come to the notice of analysts in the last week or so to cause them to fractionally adjust their EPS estimates downward. Being herd animals, they probably, collectively retreated when one of their number did so after a seeing negative signs in his teacup.

Invent an EPS at the medium of the lowest in the above table of 18.8c and my 20.3c (see below) to get 19.6c, which will not be far wrong.

TGA's MD has been coy on the matter of suggesting an EPS for 2012, other than to say (when the analysts on average mooted 19.7c) that the analysts had it “about right”, which gives latitude for the final figure to be higher. Also, remember that there is usually a small difference between basic EPS and diluted EPS to account for bonus shares and options.

I performed a crude calculation and arrived at 20.3c. My logic to calculate for H2 was to start with the H1 net profit of $14.307M, and adjust it for:

a) the on-off NCML acquisition-related impairment expense of $630K;
b) the higher interest paid in H1 that would have been reduced by reducing debt by $25 million;
c) taking out the contribution to EBIT by the subsequently-lost ATO business;
d) uplifting the residual by 5% to account for growth (annual rate 10%); and then
e) adjusting for 30% tax.

Being a tad lazy, I guesstimated the interest differential by simply deducting what was paid in H1 relative to the previous H1 – that is $1135K less $278K = $857K. The end result is as follows: $14.307M plus (($.630M + $.857M - $800) x 1.05 x .7 = $.46309M), which is $14.770M. Divide the two half years' net profit by 146606000 shares and one gets ($14.307M + $14.770M)/146606000 = 20.324 cents.

As an aside, I looked at the 2006 prospectus, and it pitched the 2007 EPS at an expected 6.5c for 2007, and by using a PER of 8 arrived at the float SP of 8 x $0.0625 = $0.50. It also stated an EBIT multiplier of 6. If you multiplied 20c by 8 you would get $1.60, which to me is the bottom end of the fair-value SP range. After five years of stellar performance, TGA deserves a better PER than 8, so if you picked 10, your fair-value SP could be about $2.00. If one excludes banks and the mining companies from the ASX, I understand from FNArena's 30/04/2012 dated “Weekly Insights” that the average EPS is 14.8, which may be too high, so a PER of 13 for TGA is not such a silly number, and hence there are analysts' reports that venture12-month target SPs as high as $2.60.

At the risk of stating the obvious, should TGA merely come in bang on on analyst's forecasts, it will constitute one of the few bright spots relative to the dark cloud hanging over the rest of the market. In that context, it will be interesting to see what effect, if any, that has on the mood of Mr Market.

Nutmeg said:

At the risk of stating the obvious, should TGA merely come in bang on on analyst's forecasts, it will constitute one of the few bright spots relative to the dark cloud hanging over the rest of the market. In that context, it will be interesting to see what affect, if any, that has on the mood of Mr Market.

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Yeah, I've got TGA and another (RCG) both coming in with good increases in earnings (TGA moreso), and both fundamentally sound.

Waiting to see how the market reacts to TGA's annual and RCG investor update.

Today is the day of reckoning.

Reading through now, but just announced a 26.4% profit increase

No surprises, really. Came in bang on on analysts' forecasts. But I found the following interesting (and promising):

"Thorn has been investigating the potential for a Rent Try Buy! ® type product in the used car market and is now sufficiently confident in the concept that it has approved the commencement of a trial in the second half of FY13".

I had earlier flagged the prospect of TGA initiating further rental lines, notably cars. MMS leases cars as well and it has turned out very well (although on FBT terms, so the market is slightly different).

The remarks on TGA's outlook may dampen any buoyancy that we had hoped that the share price might receive following today's announcement:

"Thorn's rate of growth over the past years has been substantial but market factors may slow this rate in FY13. Among these factors are the subdued economy, poor retail conditions and changing consumer preferences with products such as furniture taking over as the growth drivers from the likes of flat panel TVs and personal computers. There will also be costs associated with continued investment in additional Radio Rentals outlets.
Additionally the Rent Drive Buy! ® trial will have a short term cost impact, however the board feels it is an important strategic opportunity that should not be delayed".

This outlook accords with Macquarie Bank's recent analysis.

I saw that! I'm glad that they're already branching out, given their rent try buy is only just starting to mature (going by customer growth).

Nutmeg said:

No surprises, really. Came in bang on on analysts' forecasts. But I found the following interesting (and promising):

"Thorn has been investigating the potential for a Rent Try Buy! ® type product in the used car market and is now sufficiently confident in the concept that it has approved the commencement of a trial in the second half of FY13".

I had earlier flagged the prospect of TGA initiating further rental lines, notably cars. MMS leases cars as well and it has turned out very well (although on FBT terms, so the market is slightly different).

The remarks on TGA's outlook may dampen any buoyancy that we had hoped that the share price might receive following today's announcement:

"Thorn's rate of growth over the past years has been substantial but market factors may slow this rate in FY13. Among these factors are the subdued economy, poor retail conditions and changing consumer preferences with products such as furniture taking over as the growth drivers from the likes of flat panel TVs and personal computers. There will also be costs associated with continued investment in additional Radio Rentals outlets.
Additionally the Rent Drive Buy! ® trial will have a short term cost impact, however the board feels it is an important strategic opportunity that should not be delayed".

This outlook accords with Macquarie Bank's recent analysis.

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The Macquarie report shows no growth for the next FY - IMO it's not quite the same msg as TGA management are trying to get across.

Klogg said:

The Macquarie report shows no growth for the next FY - IMO it's not quite the same msg as TGA management are trying to get across.

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True.

Pioupiou said:

If one simply doubled the EPS for H1, one would get an EPS for the year of 19.5c. If you increased this by 2.5% to equate to an annual growth of 5%, you will get 20c. A glance at the Westpac estimates gives the following:

I performed a crude calculation and arrived at 20.3c. My logic to calculate for H2 was to start with the H1 net profit of $14.307M, and adjust it for:

a) the on-off NCML acquisition-related impairment expense of $630K;
b) the higher interest paid in H1 that would have been reduced by reducing debt by $25 million;
c) taking out the contribution to EBIT by the subsequently-lost ATO business;
d) uplifting the residual by 5% to account for growth (annual rate 10%); and then
e) adjusting for 30% tax.

Being a tad lazy, I guesstimated the interest differential by simply deducting what was paid in H1 relative to the previous H1 – that is $1135K less $278K = $857K. The end result is as follows: $14.307M plus (($.630M + $.857M - $800) x 1.05 x .7 = $.46309M), which is $14.770M. Divide the two half years' net profit by 146606000 shares and one gets ($14.307M + $14.770M)/146606000 = 20.324 cents.

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Well, the EPS came in 1 cent below what I expected. This is substantially because an additional $1,130K was written off NCML-customer relationships (goodwill) in H2. I had thought this might happen, and in an earlier post I wrote: "If there is a negative to detract from the rosy picture, it will spring from the NCML acquisition, in my opinion - e.g., impairment of goodwill." An analyst later took this up with John Hughes, and his response led me to think that the $630K impairment in H1 sufficed.

Total impairment was $1,760K, so I presume a further $1,130K was impaired in H2. Things like provisions and amortisations are not an exact science, and management of companies will often tweak them to suit their purpose. If one uses EPS numbers to guesstimate future years EPS metrics, these one-off expenses are usually ignored, and hence the "normalised" EPS would be about 8 cents higher, or 20.1c.

I have not gone through the interim annual report carefully, but it looks positive from the long-term perspective. This is not a company experiencing the final flare-up just before its last match is snuffed out for the want of fuel.

This is not a company experiencing the final flare-up just before its last match is snuffed out for the want of fuel

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No, definitely not - and no-one's saying that!

What I want to determine is whether TGA warrants any more of my hard-earned, and if so, whether it ranks ahead of any other candidates for investment. Still an open question at this stage, for me.

oldblue said:

No, definitely not - and no-one's saying that!

What I want to determine is whether TGA warrants any more of my hard-earned, and if so, whether it ranks ahead of any other candidates for investment. Still an open question at this stage, for me.

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If you think of stocks that are nearly as good as TGA, let me know. I want to rejig my two portfolios to allow me to sell some of the crud that I hold, and perhaps even shed some TGAs if I can find stocks roughly on par with it. Basically I want candidates that pay a dividend (not necessarily a large dividend), have little debt (will look at debt/equity as high as 35%), have reasonable growth (about 10% will do) and have capitalisations north of $100M. These are stocks I intend to hold - I am not a trader. I am already retired, and living off my SMSF and a personal share portfolios.

It would be good to have something other than TGA occupying my mindspace.

Pioupiou said:

Well, the EPS came in 1 cent below what I expected. This is substantially because an additional $1,130K was written off NCML-customer relationships (goodwill) in H2. I had thought this might happen, and in an earlier post I wrote: "If there is a negative to detract from the rosy picture, it will spring from the NCML acquisition, in my opinion - e.g., impairment of goodwill." An analyst later took this up with John Hughes, and his response led me to think that the $630K impairment in H1 sufficed.

Total impairment was $1,760K, so I presume a further $1,130K was impaired in H2. Things like provisions and amortisations are not an exact science, and management of companies will often tweak them to suit their purpose. If one uses EPS numbers to guesstimate future years EPS metrics, these one-off expenses are usually ignored, and hence the "normalised" EPS would be about 8 cents higher, or 20.1c.

I have not gone through the interim annual report carefully, but it looks positive from the long-term perspective. This is not a company experiencing the final flare-up just before its last match is snuffed out for the want of fuel.

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This is amortisation of customer contracts. It was original over 7 years – they have bought it back to 5 years. @ 7 years the amort is 1,256 per year @ 5 Years it is 1,759. This charge will continue for another 4 years. It is not impairment of Goodwill.

Change in PDL fair value of 1,897 is a bit of a soft revenue item.

Tax cost base from NCML has been increased above balance sheet figures for PDL's and Plant and equipment???