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TGA - Thorn Group

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I'm guessing that you never watch the weatherman use TA on TV then

The reality regardless of but possibly influenced by the theory...
 

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Boggo said:
I'm guessing that you never watch the weatherman use TA on TV then

The reality regardless of but possibly influenced by the theory...
Click to expand...

As I said not going to derail the thread, but the weatherman doesnt use TA, he uses physics.
 
Looked at this one today after taking profits not to long ago at $2.40 plus, just had to fill my boots again at $1.80 Got to love the stock market.
 
robusta said:
Looked at this one today after taking profits not to long ago at $2.40 plus, just had to fill my boots again at $1.80 Got to love the stock market.
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Whats your opinion on the current senate inquiry? Reckon they'll come out OK? If they come out in good stead, then you've picked them up at a nice time I would think.
 
This years accounts are going to be pretty ugly. The one-offs are quite large at around $9.5m or close to 30% of earnings.
Also of concern is the sector report which came out last week recommending caps for the leasing segment - so core business faces headwinds too IMO.
Lot's of uncertainty and to me it really looks like a good business has had the sh** hit the fan quickly!
 

I’ve been buying too.

Had misgivings about the ROE target in their remuneration report and sold most of my holding following a bit of correspondence with the company where they at the time rationalised the hurdle as a result of perusing diversification.

They have now basically done what I would have done if I was the new CEO (maybe they listened after all) The traditional core consumer and commercial leasing businesses still look O.K on rough calculations based on the information in the guidance.

The balance sheet is still good and the funding in place for a while now to grow the traditional businesses from the run off of the TFS book.

There is some legislative risk but I think it is slight and the quantum small. TGA’s modest returns are the ultimate argument against the perception of needing to protect a market segment from gouging that is not going away even If I don’t understand why they acquire good in this fashion. Would the policy makers really crimp down on the largest, cleanest “fair go” provider to make them unprofitable? Chances are the legislation will actually aid by eliminating dodgy competition.

Biggest risk for TGA is credit management competency and I still rate them on this aspect. No Idea what the near term price action will be but long term risk / return is adequate for me to wade back in.
 
craft said:
Would the policy makers really crimp down on the largest, cleanest “fair go” provider to make them unprofitable? Chances are the legislation will actually aid by eliminating dodgy competition.
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I read somewhere recently (re: the Big4 banks) that increased regulation has always historically helped the bigger players.
This reads through with what you are saying above, and also correlates with TGA running off the loan-book after conceding to other players like CCV, MNY (and even CCP now) which have more scale in this area.
 
I'm a little surprised at the selloff. NCML was basically a write off about six months after it was bought, so it's hardly news. The lending always seemed a bit non-core and the traditional business lines are so profitable the diversification "strategy" never made much sense, to me at least. I lost interest with TGA about 18 months ago. Might have to sharpen the pencil and do some numbers.
 

Quick & Dirty

Underlying ongoing NPAT 30M = 20C per share @ $1.40 = 14%pa return on no 'valuable' growth prospects.

Organic growth prospects in traditional business probably add some value (potentially significant if they stick to their knitting) so you have 14%+ pa potential before any possible longer term earnings multiple adjustment when/if the nerves settle.

So the long term shareholders question becomes is this fair compensation in current interest environment for the inherent credit risk in TGA which if it goes bad will spank you.
 
Also did some buying yesterday as well as a couple of purchases in the last few months. I sold a lot of my holdings above 3 dollars. In hindsight I should have sold them all and waited until today to rebuy but what can you do.

I'm quite glad they are giving up on the consumer lending business. It takes a lot to get yourself established in that industry. CCP are spending a lot of advertising of their wallet wizard brand with CCV and nimble being the other major competitors. Overall the foray into lending wasn't a great financial cost, more the opportunity cost over the past few years.

NCML has been a big cost but that was lost years ago and was responsible for the previous big drop in the share price. While they are impairing the goodwill, they did not say they were going to discontinue the NCML business. Recent commentary from CLH and PNC is that the PDL market has been improving so that should help a bit. The last time I looked at the PDL numbers, their accounting for it seemed very conservative, more so than CCP.

What's important though is how well the core leasing businesses are doing. There's a lot of noise this year so any commentary at the full year results will be important. The commercial leasing business looked like it was just starting to produce some meaningful profits and I think there's lots of room for growth there if things keep progressing well.

The consumer leasing business might have been impacted by all this negative publicity but it'll still remain a very profitable source of recurring revenues. We'll have to wait and see what the final outcomes of the regulatory review are. I agree that there is both positive and negatives in it but it might take a couple of years to play out.

The price to book ratio is down to about 1.1 and I think they'll be able to achieve ROE of 18% going forward so the numbers look good to me.
 
craft said:
Quick & Dirty

Underlying ongoing NPAT 30M = 20C per share @ $1.40 = 14%pa return on no 'valuable' growth prospects.
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$19-21 NPAT (reported).

Below the line, one-off costs $11.8m ($2.8m customer credit refunds, $2.3m asset adjustments and closure costs, $6.7m goodwill write down).

Not sure what the tax treatment of these items is.

But the NPAT impact is in the range of $8.26m (if there's 30% tax benefit) to $11.8m (no tax effect).

I can't remember off the top of my head, but I think TFS Loan business did around $1m NPAT (it's probably still including in the reported NPAT). So I think going forward it needs to be reduced by this amount.

Brings the range of the adjustments to $7.26m to $10.8m.

So continuing underlying NPAT, in my opinion, would be in the range of $26.26m to $31.8m, depending on which interpretation you go with.

Depending on how you read the announcement / interpret the figures, it's possible to suggest that the underlying business is going backwards and this is really a sleight of hand profit downgrade and the 14% pa return is more like 12%.
 

Goodwill writeoff will not have any tax effect, the $2.8 refunds do I think, not sure about the $2.3 writeoff from TFS closure. I doubt the reported will include $1 mil of profits from TFS given that they're going to close it and will have to write off $2.3 mil. There's also the legal costs of responding to the regulatory review so it's all a bit unclear.
Also there is $1.7 mil or so of amortisation that ends this year.
We will have to see the full year figures and all the adjustments.
 
craft said:
I guess it takes a lot of money to make the lamest TV ad I have ever seen.
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Yeah, I'm not sure those ads are money well spent...
They'll be spending a lot on google ads to generate the customers. There's analytic tools out there one can use too see the web data. CCP will probably be hoping that they get repeat customers in the future so won't have to keep paying google for them. Also important to note, CCP are the only ones who charge less than the legislated maximum cap as far as I'm aware.

TGA have also been running ads lately, I think they are pretty decent.
 

You have pretty much made the response to Ves that I would have.

I too suspect the 19-21 doesn't include a contribution from TFS. I read the 2.3 as the net loss from that division and I suspect a fair bit of it is provisioning the crap out of the loan book (self interest of new CEO cleaning out this division sort of dictates that) Some of this may be clawed back in run off if the bad debts are not as bad as provisioned for. The 2.3 would have a tax effect.

The regulatory review costs were 0.9 in the first half and probably some more in the second half.

Best Guess at normalising earnings (including Tax effect)

20M Statutory Guidance
6.7 Goodwill Impairment
1.7 Customer Contract Amort
1.0 Regulatory Review
2.0 Customer Refunds
1.6 Consumer Finance closure

I make that about 33M.

Best guess is core business is probably flatish. Comercial Finance probably still doing O.K but NCML under pressure. Consumer Leasing possibly down but cleaned up - the panel report really didn't look to scary to me, there's obviously an intention to keep consumer leasing viable but to flush out the rouges. That's puts TGA in a good spot - they just have to make sure they are squeaky clean. So if I was a new CEO like Marshall I would be cleaning that deck with a tooth brush at the moment - lending/serviceability criteria, getting pricing under the proposed caps and shining sunlight on any legacy issues (which they did with the customer overpayments)

Flattish but decks cleared would be my guess.
 
Thanks gents, I was really just pointing out that there is a number of ways different people may read the announcement (which like a lot of such announcements isn't as straight forward as it should be). Actually it's a pet hate of mine when companies talk about underlying EBITA and offer a statement like "slightly higher" then give actual numbers for another line item like NPAT on a different basis (ie reported). The line items of I, D, A, T often fluctuate from year to year in these kinds of companies and are always subject to accounting intricacies (which is a euphemism ), especially when there is restructuring or divisional closures.

I guess we will find out when they report next month.

I still hold it, other than the DRP, I haven't done anything with my holding since the last time it was at the current price.
 
TGA reported last week with nothing too unexpected: Slight revenue gain to $300m and $32m EBIT. 13c EPS.

I wonder about the high debt levels of nearly $200m now on a $220m market cap (so EV of $420m).

As to the BV figure of about $200m, if you apply a 85% recovery to the $380m receivables figure then you pretty quickly get a more conservative BV of $150m (again, compare that to the $220m market cap).

EV/EBIT of 13x which seems a little on the high side though current P/E at 11x makes it look cheap.

As to regulatory risk, the government sought public submissions by 17 May and therefore you would suspect a response by late June on what changes the government will implement. Does anyone know if the election having been called changes whether or not a response is likely in that time frame?

One thing that I would very much like your folks' knowledgeable help with is: how long term does this business make money without the continual equity or debt raisings? Sure the OPCF figure is nice at $128m (6x $20m NPAT figure) but of course -ve investing cash flows of $170m more than offset this. (As an aside, interesting to note that MNY reports customer loan advances in OPCF while TGA reports in Investing CF.)

Therefore over $50m of debt needed to fund the business. How is this sustainable longer term?

Thanks in advance!

I don't see the screaming value here (apart from on the P/E figure which, as I say above, I am not fully convinced of the "E" part)
 
Ves said:
Thanks gents, ....... price.
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Hi Guys TGA is still a BUY by Motley Fools. But the current performance does not give the warm and fuzzy feeling to me. Still following for an opportunity if comes.
On a non TGA front. it is interesting to see Ves' comments "thanks gents".
Are we a male only forum now ? I knew Julia (God bless her soul) used to be an avid contributor.
Grace has been as well (now not seen her posting for a while).
But surely there are other Julie Bishop, Carmen Lawrence, Julia Gillard, Maggie Thatcher, alike are hidden on ASF forum. If not Joe, wake up and encourage the President of IFC, Fed Treasurer, Chancellor of Germany alike to come to this forum breaking the male monopoly .

 
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