Good call tech. What made you like the chart, was it breaking through the resistance at $1.56?
TGA - Thorn Group
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Good call tech. What made you like the chart, was it breaking through the resistance at $1.56?
tech/a
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First trade which was aggressive was stopped------it happens.
Basics like higher highs and higher lows----plus the break of resistance.
Simple really and easy to like.
If things alter it will be just as easy not to like!
So no longer a dead investment? Change your mind again and I might call you fickle.
tech/a has shown that he can well look after himself but it's worth pointing out that he comes from the perspective of a trader, not a longterm investor.
I value good posts from both viewpoints!
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I don't think that tech/a would care if you call him fickle. Read and learn would be my
The ability to constanly adapt to sorrounding conditions is the simple clue to survival/profitability in this traders market.
If you haven't got the ability to do and recognise that skill then you may as well just hand your money over to a financial planner.
tech/a has shown that he can well look after himself but it's worth pointing out that he comes from the perspective of a trader, not a longterm investor.
I value good posts from both viewpoints!
Anyway, back to TGA, a follow up from here - https://www.aussiestockforums.com/f...=18617&page=43&p=721130&viewfull=1#post721130
Nearly at its first target
I don't think that tech/a would care if you call him fickle. Read and learn would be my
The ability to constanly adapt to sorrounding conditions is the simple clue to survival/profitability in this traders market.
If you haven't got the ability to do and recognise that skill then you may as well just hand your money over to a financial planner.
Yeah well to invest then pull out with a loss then call it a dead investment then to invest again. Sounds fickle to me. Not that he would care like you said, just looks like one of those funny things to me.
Your advice has been noted thanks. Though does it apply to long-term investors who don't care about short-term fluctuations or are you saying that all investors should care about these short-term fluctuations and have the skill to analyse them?
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ABY and IAU (just to name two of many) started down with a short-term fluctuation too, based on your method then you would still be holding those and tech/a would have forgotten that he ever held them.
If TGA hadn't turned back up then tech/a would have had his funds in the next candidate after a controlled loss.
Had it continued down you would have been averaging down and most likely telling us how it is "a bargain at these prices", isn't that effectively what you are saying ?
Who says all long-term traders would invest in any old company like ABY and IAU in the first place? Are you saying you have a dart board with various companies on them and analyse/invest in which ever company the dart hits?
If TGA was to do that then I would be more than happy to accumulate more.
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Regardless of the names they either go up, down or sideways and will only make you money when they are going in the direction that you expected them too do when you bought them.
Have a read of some of the enlightening posts from this one onwards (this was when TGA was over $2.00 !), all completely irrelevant twaddle and all it does is psychologically reinforce the fact that it is ok to tie your funds up for well over a year, and TGA it still only back to sub $1.80.
https://www.aussiestockforums.com/f...t=18617&page=4&p=635361&viewfull=1#post635361
Julia
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This post doesn't address Boggo's preceding question.
Might be good to learn a bit about a technical approach before dissing one of ASF's most successful people.
Preceding question? I thought I said I would accumulate more. Didn't think I needed to expand further than that. But if you really need a more direct answer then yes I was basically saying it would be a bargain. Although I should of maybe added that only if the price drop wasn't warranted from a fundamental perspective.
Yes I did use the word fickle but it was more as light hearted poke. I haven't been "dissing" TA as you put it or meaning to insinuate that it's bad or an unreasonable basis of allocating capital.
Anyway, Julia would love to hear your input on TGA either on a fundamental or TA point. You past posts have been very resourceful with great logic and inspires me to learn more and more from you. Cute dog by the way. Any opinions I will value from you. Thanks mate.
On you first paragraph, there is little difference between the FA and TA approaches. If chartists think an SP is going up, they may buy in if they have the money, and if it is his best investment option at that point, just like FA investors would. Much the same is true for a falling SP. The difference is that chartists focus on herd movement for their cue, and fundamental investors look at business metrics and qualitative factors for theirs. Both techniques work on occasions, and both can fail on occasions - the trick is to be correct enough to make more money than one would earn in a bank (provided its not a Greek, Spanish, Portuguese, Icelandic, Zimbabwean, et cetera bank).
Chartists, I understand protect their interest by following the herd, and it works, as sardines, starlings, zebras and many other life forms can attest - woe betide the sardine that breaks rank. In contrast, I look for my protection by checking the health of the business and the dividends. Normally I select shares that yield about 5% dividend, and that have EPS to sustain that dividend and grow, and debt should be low. If the SP tanks with EPS and dividends moving in the opposite direction, with other factors not deteriorating, I either hold or buy more, and if that is contrarian, that is incidental - I don't set out to be contrary, I just prefer to back my own judgement. Hic non comprehendere scis, parum eruditionis habes – if you do not know to understand this, you have too little erudition. I could not resist the temptation to fiddle with your motto.
Now let us look at reality. I have invested $607,656 in TGA over the last five years, and on average received about 8% per annum return on that as dividend and franking credits, because I bought them when the expected dividend yield was 5% or higher. The holding was worth $885,000 at COB on Friday, so I have a capital gain of $277,344. I bought many more shares since 2010 (194,125 from March 2011 until July 2012) than I bought in 2007 (second half of calendar 2007) when I bought the first $10K worth, and in 2008 and the first half of 2009. Ascribing the gain to three years errs on the conservative side, and that gives me a crude average of 46% capital gain over three years, or about 13.5% compounded annually. My return per annum has hence been about 21.5% – not stunning, but I am well pleased with that result in these trying times.
When I think TGA as a business has had its day, and there are better deals in the offing, then I'll exit TGA. My belief is that TGA will do better on the EPS and dividend front than what brokers' have forecast, and this implies a bunch of other business metrics must be good too. If I hold, and the brokers turn out to be right, I'll be unhappy. If I sell now, and my hunch turns out to be right, I'll be even more unhappy, and so I'll watch and cogitate.
The SP could easily sit at about $1.85 for a long time on performance assumptions that would be difficult to argue against. Different assumptions that suggest a higher SP are also difficult to dismiss. I have no idea where Mr Market will push the SP in coming months. The mid-year report is slated to be published in late November, and it could be catalytic.
Pioupiou,
I beg to disagree, that is an above average return on capital. Compare those returns to most of the businesses listed on the ASX and you will be pleased.
Cheers
Oddson
The reason why TGA's CAPEX is high is that it treats the procurement of its rental assets as CAPEX, and then writes the value off over three years (typically). In the case of so-called rentals, TGA slaps down money for an item that it capitalises, and it collects it fortnightly via what it calls "rental" at a rate that yields a handsome profit. There is a deal of sophistry in the terminology and accounting treatment of such deals - most of which are disguised sales.
TGA,s CAPEX is not the same as that of most companies - it borders on being a cost of goods sold. If TGA sold an item via a 3-year finance lease, as opposed to a 3-year operating lease, the cost of the goods would not be capitalised, and yet the cashflow to service that lease and the profitability of the deal could be exactly the same as for an operating lease. If TGA operated in other jurisdictions, it would not be allowed to treat its rent-try-$1-buy deals as operating leases, because of the peppercorn price at the end of the 3-year term. Australian accounting rules allow TGA to handle these deals as operating leases.
As TGA drifts more towards operating leases, expect the CAPEX to rise a bit. It is when the CAPEX declines that we investors should be worried, because it could mean that TGA is running out of payment-stream investment options.
The rental assets in the balance sheet actually hide value that emerges as a profit over the terms (periods) of the operating leases. Generous provisioning and potentially the valuation of PDLs are other ways of hiding value that pops out later. There is a fair bit of elastic energy in that balance sheet.
I may not have covered your question well in my earlier answer. In essence, not having examined the figures, I do not know, but I'll put forward some considerations.
If TGA's investment spiked at the end of the year, it would explain the ratio of CAPEX and depreciation getting out of pattern. Ramping up Thorn Equipment Finance's business accounts for some of it, because this stock is treated as CAPEX, because it is "rented" via operating leases. The upward shift of the ratio of operating leases to finance leases would also have a similar impact (PCs and TVs tend to be sold via finance leases, and their sales are in decline, whereas furniture is booming, and it tends to be handled ("rented") by operating leases. There could also have been a minor surge in shop fit-outs.
Another thing that I do not know is the mechanics of the accounting treatment pertaining to buying items. TGA may presume that purchased items are going to be subject to operating leases, and hence it capitalises them initially, and if the items are later "sold" via finance leases, they reverse them out of CAPEX, which could happen in the following accounting year. TGA may not commence depreciation immediately - I think it commences depreciation when the rental stream commences, and this introduces a depreciation lag. In the case of directly imported Thorn-brand items, there is a tendency to procure them in volume, and if depreciation of these commences on delivery to customers, it will increase the length of the depreciation lag. Direct importation is a relatively new and growing initiative, so it hardly applied in earlier years.
I wish I knew all the facts, because a surge in CAPEX could indicate that the so-called rental business (the business handled via operating leases), which is the majority of TGA's business, could be surging. If one knew the details, which insiders know, one could guesstimate what the rental income is going to be, and as TGA only accounts for its profits as the "rentals" dribble in, one would be able to guesstimate EPS and other performance metrics.
Like an inch worm, the SP has continued moving up in 5-cent steps (roughly). I write this because to me there has been a tendency for sellers and buyers to bunch together with a 5-cent gap between them, and when the buyers catch up, the sellers move up another five cents. I think we can say we have reached $1.80 at about noon today, so the next plateau is $1.85. This is the price used in the capital raising in late June 2011.
It now gets more difficult to aver that the SP is a no-brainer, because it is only worth more from an FA perspective if the EPS is going to grow in future, and other metrics not deteriorate. And then there is the question - "Grow by how much?". For the immediate future, TA will tell us more than FA, unless you have a mistress or toyboy in Thorn's accounting department who is prepared to divulge the lease book metrics.
Interesting because I didnt know that they reversed them out, not sure how they would do this? (do they take it out of the cost of sales). I still question how honest they are with this, because if they rent something out they would then depreciate it to what value? it seems it would be very easy to play wit the numbers on there part.
Note on your comment that the spike could mean surging business. Another way to look at it would be to expect that there realistic % growth is directly relative to their increase in depreciation, with lag as you mentioned.
I appreciate your previous response, I will probably stay out of this stock for now and wish the current holders the best.
With TGA one does not have to worry about accounts “manipulation” to create an illusion of profitability or balance sheet strength, because the reverse is more likely to be true – management tends to down play performance and balance-sheet strength in the interest of so-called “accounting conservatism”. The reason why I think most procurements are deemed to be for so-called “rental stock”, and hence initially capitalised, is that each year some 40% of the rental asset acquisitions are transferred to finance leases, with very little going in the opposite direction – see below:
Rental Assets
In thousands of AUD - - - - - - - 2012 - - - - - 2011
Opening balance - - - - - - - - - 41,178 - - - - 35,211
Acquisitions - - - - - - - - - - - - 54,834 - - - - 52,646
Disposals - - - - - - - - - - - - - - -(2,442) - - - (2,070)
Depreciation - - - - - - - - - - - -(25,037) - - (22,048)
Transfers to finance leases - - (22,182) - - (24,990)
Transfers from finance leases - - 2,127 - - - - 2,429
Balance at 31 March - - - - - - - 48,478 - - - 41,178
Finance leases are declining relative to operating leases, so the ratio of "transfers to finance leases " was less in 2012 than it was in 2011. I have used the hyphenated adjective “so-called”, because philosophically these rental-asset items under operating leases are more “sold” than “rented”, but TGA prefers to recognise the revenue as it comes in fortnightly, rather than at the time of delivery to the customer. When I spoke to two outlets, it was obvious that they did not know the legal and accounting differences between finance leases and operating leases, so I presume the distinction is not understood by customers either, and in practice, they experience very little difference. If TGA were operating in a number of English speaking countries, many of its operating leases would be deemed to be finance leases, because more than 75% of the value is covered within the term of the contract, and because ownership passes to the customer at the end of the term for a token $1 payment.
What I do not know for sure is when depreciation of "rental assets" commences. I would say it is on delivery of the asset to a customer. In other words, TGA procures the stock, and seemingly debits the cost to CAPEX. If the items are sold via finance leases, or even for cash on rare occasions, the value is transferred out of CAPEX on delivery to customers as COGS (cost of goods sold). Items "rented" via so-called operating leases have their value depreciated in step with actual fortnightly customer payments. The time it takes to transfer the value to finance leases is one of the "lags" that I mentioned in an earlier post.
The message I would like to make is that TGA's CAPEX borders on being a cost, whereas investing in railway lines that last for a decades is a CAPEX of a very different type. If Australia had an accounting period of three years, rather than one, TGA would record very little CAPEX.
We have probably exhausted this matter - perhaps over killed it.
PS - The business now written by Thorn Equipment Finance is now running at $3 million a month, compared to about $300K twelve months ago, so this will push up CAPEX. This should be seen as a positive.
IOOF, via Perennial Investment Partners, became a substantial TGA shareholder on: 21/08/2012 by reaching 5.26% of the total shares. A few days later, on 27/08/2012, IOOF increased 7,699,828 to 9,229,135, or 6.305%. IOOF does not behave single-mindedly – it buys and sells concurrently, presumably at the behest of individual clients, but on the whole the trend has been up. The most recent 6-day spurt was all buying – to wit:
22/08/2012 Purchased 908,993 for $1,638,669.72 average SP $1.8027
23/08/2012 Purchased 104,067 for - $182,557.15 average SP $1.7542
24/08/2012 Purchased 142,656 for - $246,358.23 average SP $1.7269
27/08/2012 Purchased 373,591 for -- $653603.10 average SP $1.7495
- - - - - - - - - -Total - 1,529,307 - - $2,721,188.20 average SP $1.7794
What is TGA worth from a TA perspective? I am stuffed if I know – maybe $1.80, to take a stab in the dark.
What is TGA worth from an FA perspective? I am stuffed if I know. There are so many ways to derive a valuation, and all of them require assumptions, guesstimates, risk profiles, alternative options (to which required rates of return should be linked), margins of safety, et cetera, and all of these are subjective to each individual and likely to mismatch reality in the flow of time. I can easily arrive at sophisticated (with the meaning leaning towards sophistry) to pretend to justify valuations between $1.00 and $4.00, but the average of the two could be considered as a 12-month target if one were an optimist.
I am currently playing with a dividend NPV spreadsheet (riddled with assumtions) to arrive at target SPs, and the range I get is between $1.40 and $3.40, with both extremities on the silly side, but even these numbers' midpoint of $2.40 is not unrealistic from the historical perspective. The high COB SP of February and April 2011(adjusted to EPS changes) and the low COB SP of May 2012 gives an average of about $2.00. The adjusted last year's high SP compared to this year's low SP is about $2.60 compared to $1.40. There was a COB high of $2.27 x 19/16.7 = $2.58 on 17/02/2011 ($2.26 on 04/04/2011) and a COB low of $1.39 on 10/5/2012. The $2.00 average intuitively seems 10% to 15% too low to me, but I am very optimistic and comfortable about TGA, but I do not expect other investors to feel the same way.
There is a difference in one's selling SP and one's buying SP, which tends to have a margin of safety in it, so there is no contradiction in having two target SPs – one for buying and one for selling, and even these have quantity qualifications – e.g., at $1.40 one may consider desperate fund-raising measures to buy 100,000 TGAs, but at $1.80, one may buy 10,000 shares if one had the funds at hand, and similarly on the sales side, but at a higher SP scale. Consequently, at $2.00 I may do nothing – too high to buy, and too low to sell, and above $2.00 I would sell more or less, depending on the SP, amongst other things.
22/08/2012 Purchased 908,993 for $1,638,669.72 average SP $1.8027
23/08/2012 Purchased 104,067 for - $182,557.15 average SP $1.7542
24/08/2012 Purchased 142,656 for - $246,358.23 average SP $1.7269
27/08/2012 Purchased 373,591 for -- $653603.10 average SP $1.7495
- - - - - - - - - -Total - 1,529,307 - - $2,721,188.20 average SP $1.7794
What is TGA worth from a TA perspective? I am stuffed if I know – maybe $1.80, to take a stab in the dark.
What is TGA worth from an FA perspective? I am stuffed if I know. There are so many ways to derive a valuation, and all of them require assumptions, guesstimates, risk profiles, alternative options (to which required rates of return should be linked), margins of safety, et cetera, and all of these are subjective to each individual and likely to mismatch reality in the flow of time. I can easily arrive at sophisticated (with the meaning leaning towards sophistry) to pretend to justify valuations between $1.00 and $4.00, but the average of the two could be considered as a 12-month target if one were an optimist.
I am currently playing with a dividend NPV spreadsheet (riddled with assumtions) to arrive at target SPs, and the range I get is between $1.40 and $3.40, with both extremities on the silly side, but even these numbers' midpoint of $2.40 is not unrealistic from the historical perspective. The high COB SP of February and April 2011(adjusted to EPS changes) and the low COB SP of May 2012 gives an average of about $2.00. The adjusted last year's high SP compared to this year's low SP is about $2.60 compared to $1.40. There was a COB high of $2.27 x 19/16.7 = $2.58 on 17/02/2011 ($2.26 on 04/04/2011) and a COB low of $1.39 on 10/5/2012. The $2.00 average intuitively seems 10% to 15% too low to me, but I am very optimistic and comfortable about TGA, but I do not expect other investors to feel the same way.
There is a difference in one's selling SP and one's buying SP, which tends to have a margin of safety in it, so there is no contradiction in having two target SPs – one for buying and one for selling, and even these have quantity qualifications – e.g., at $1.40 one may consider desperate fund-raising measures to buy 100,000 TGAs, but at $1.80, one may buy 10,000 shares if one had the funds at hand, and similarly on the sales side, but at a higher SP scale. Consequently, at $2.00 I may do nothing – too high to buy, and too low to sell, and above $2.00 I would sell more or less, depending on the SP, amongst other things.
