TGA - Thorn Group

[Klogg]

I'm failing to understand one item in the cash flow statement and was hoping someone could help.

The "Equipment finance settlements" - can anyone tell me what these refer to?
I can only guess that this is to do with Thorn Equipment Finance and the purchase of the rental assets, but I'm not too sure...

Thanks in advance.

 

[Ves]

The Rentals business is pretty much at the peak of its earnings cycle now - so the softness is to be expected. Receivables deliquency and debtors ratios in general still look pretty solid, which is what I was really looking forward to seeing.

Cash flow looks pretty good to me actually. They seem to be spending a lot ramping up most of the new business segments and can afford to do this almost entirely from earnings. So far, so good in that respect.

Still holding. But would not buy at these prices.

 

[Pioupiou]

The Rentals business is pretty much at the peak of its earnings cycle now - so the softness is to be expected. Receivables deliquency and debtors ratios in general still look pretty solid, which is what I was really looking forward to seeing. . .

TGA is only into "rentals" in a very small way. What TGA calls rentals are lease payments, and what it calls operating leases would be determined to be finance leases in other accounting standards' jurisdictions, because of the low residual price at which ownership passes to the customer at the end of a fairly short lease (three years). In effect, TGA substantially sells items via leasing arrangements, and treating 36-month Rent-Try-$1-Buy leases as "rentals' is useful-to-TGA sophistry - by delaying revenue recognition it delays profit recognition, and hence taxation.

 

[McLovin]

Cash flow looks pretty good to me actually. They seem to be spending a lot ramping up most of the new business segments and can afford to do this almost entirely from earnings. So far, so good in that respect.

Agree on cash flow. And the originations in TEF have really taken off, from zero a couple of years ago to $18m for the half year. There's definitley some good shoots coming through which should help the RR business through it's cycle.

Klogg, check out note 3 it might help answer your question.

 

[Ves]

I'm not convinced that NCML was such a bad acquisition - it makes sense as a piece of their overall business model (think: credit management - which is very important to their operations and something that they have traditionally been very good at). So far, it has had teething problems, and is facing headwinds in its own industry. It won't shoot the lights out, but I expect it to be a modest contributer going forward. It's starting on a very low base at the moment.

I think they've done well if, as others have suggested elsewhere, they have held back on the PDLs market because it is hotly contested at the moment, and prices are overheated. Makes perfect sense to avoid this risk.

 

[Klogg]

Klogg, check out note 3 it might help answer your question.

That's exactly what I was looking for - Thanks!

@Ves - I agree with you about NCML. The idea of Credit Management within the company basically completes the loop so to speak. What I don't agree with it is the amount they paid for the company.

Nevertheless, in the scheme of things it is a small set-back, so long as management have learnt from the mistake.

And after listening to the Half Year presentation, this company is set for some pretty big things... Although the debt/equity structure will change, as they've announced that they'll fund the growth of the TEF book directly from debt.
I guess that just puts it in line with FXL and SIV.

 

[Ves]

What I don't agree with it is the amount they paid for the company.

Too hard to comment on this with any great accuracy at this point of the cycle IMO.

 

[Pioupiou]

Too hard to comment on this with any great accuracy at this point of the cycle IMO.

The only thing TGA obtained of value from NCML were customers for collections as a service. There was, as far as I can see, no unique know-how, software or procedures that TGA did not already have. Also, there did not appear to be the usual short-term financial performance provisions in the contract to acquire NCML, which would have allowed TGA some redress for the loss of the ATO business, and other below-expectation outcomes. I wonder why TGA did not simply branch into this business organically, as is its wont (witness Cashfirst; Thorn Equipment Finance; the new baby, Rent-Drive-Buy; and the aborted Big Brown Box, an on-line retail business that was sold to the Winn family).

There is not much point discussing the acquisition of NCML further - it's spilled milk, and management admit that it has performed poorly relative to their expectations.

The BRR presentation of the half-year results is well worth listening to.

 

[oldblue]

Someone please correct me if I have this wrong but I see a major difference between TGA's expertise in credit assessment and subsequent management/collection of their own accounts on the one hand and the NCML business, which is purely management and collection of someone else's credit decisions, on the other. There are certainly synergies and expertise overlaps but to expect to be able to replicate outcomes is being rather optimistic, IMO.

 

[Pioupiou]

Buying PDLs probably involves a skill new to TGA - namely, how to value them. However, PDLs is a minor part of NCML's business (25% was bandied around in earlier presentations). I understand that TGA had already adjusted software and processes for Cashfirst, and it extended these to handle NMCL.

 

[McLovin]

Too hard to comment on this with any great accuracy at this point of the cycle IMO.

Except...You have to assume given the way things have panned out that the previous owners had some idea that they were maximising their sale price as the cycle peaked and with the potential loss of the ATO contract. This was an area (PDL market) that TGA had zero experience in, so the sellers clearly had an advantage, and in hindsight they used it.

 

[Pioupiou]

. . . . Nevertheless, in the scheme of things it is a small set-back, so long as management have learnt from the mistake. . . .

Too true - if TGA paid twice as much as it should have for NCML, in loose terms that would be about $15M or $16M too much, or about 10c or 11c a share. The market has long ago adjusted for that.

As a matter of interest, rather than significance, according to the recent presentation, TGA itself is parceling its debt and selling it for a few cents in the dollar to firms who specialise in collecting subprime debt. I cannot imagine who would buy those PDLs, other than bikie gangs who would not be too troubled about the niceties of the law favouring welchers. TGA are now going to sell such debts regularly (four times a year). This could bring in a few hundred thousand dollars a year that TGA may have abandoned in the past. Anyhow, it's small beer - just interesting.

 

[oldblue]

If there's any significance it would be that TGA are needing to adopt this new tactic, possibly signalling that the debt portfolio wasn't as clean as thought to be at the time of purchase. Not a good reflection on a company whose business largely rests on its expertise in assessing credit risk.

 

[Not Rene]

Starting to trade north of $2 with a bit more confidence now, it is certainly making me happy

 

[GG999]

Yikes!, I'd have nothing to say.

LOL

 

[GG999]

Its quite interesting snip

This is an extract from an article by Radge...
Consider, though, the average fund manager lost between 40 to 50 per cent during 2008. A 50 per cent decline in capital requires a 100 per cent gain just to recover.
Over the (very) long term the stock market has an annual return of about 8.5 per cent which means it will take 3100 days, or over eight years, to get back to where you started.

Does this mislead the reader - because the quoted 8.5% would include the times that the market crashes. Surely what would be relevant is the return to an investor in the next few years after a market crash of 50%. I would guess that the return is far higher than 8.5% if you invested after a 50% crash.

And as for the 50% decline needs a 100% gain to get equal and so this is a terrible thing - is it just me but - is there any sense in using percentages in this way? If the market drops by 1000 you need 1000 to get back to the same point. Isn't it just a lack of understanding about how percentages should be used? Yes 100% is more than 50% but it's just that the percentage is being calculated on a lower number, so of course it will be higher. But every time the market drops by a certain number of points, you always need to gain exactly the same number of points to get back to where you were.

But I see this quoted everywhere - it's harder to get back to where you were "because you need a higher percentage change"

 

[galumay]

But I see this quoted everywhere - it's harder to get back to where you were "because you need a higher percentage change"

I think you are right, it seems to me to be a lack of basic high school maths. Percentages cant be directly compared when the numbers they are calculated on are different.

 

[VSntchr]

Sold half my TGA holding today.
If the MD thinks its a good time to sell, then why not for me too

I still like TGA (hence still holding), but I have it at around its fair value...and I have other opportunities for the funds.
Still has a good yield so even if it stays at current levels I am happy to continue holding my other half....

 

[tinhat]

Sold half my TGA holding today.
If the MD thinks its a good time to sell, then why not for me too

I still like TGA (hence still holding), but I have it at around its fair value...and I have other opportunities for the funds.
Still has a good yield so even if it stays at current levels I am happy to continue holding my other half....

I'm holding for yield. I'm finding it hard to justify a case to set trailing stop-losses on a lot of stocks because of the risk of losing a darned good (and needed) income stream. I like btw, how in the statement to ASX, the MD said that he had sold around $1M of shares to cover tax and other expenses. It's a tough life. We live in times of substantial cost of living pressures

 

[oldblue]

Yes, we all have " tax and other expenses", don't we?

But seriously, that's the usual reason given for such disclosures. Very rare to see " to settle my gambling debts" or, " to pay my alimony settlement".



In fact, given the size of this particular holding, a million dollars worth probably isn't that significant.