TGA - Thorn Group

[Klogg]

When is that never true of any financial business?

I look at TGA's historical cash flow. It is a cleaner measure than EPS. On a per share basis, operating cash flow has been between 0.65 cents and 0.85 cents and has been on a steady upward trend for 10 years and more.

That suggest that historically TGA's customers pay. But maybe the business finance division will deviate from historical precedent. Then maybe it won't. I don't know. If forced to make a call, I'd think that small and medium business owners would be better credits than those in the consumer division.

All you can do is to make allowance for the risk that they won't be in your valuation. That is the point of having a margin of safety: to make room for adverse developments and still buy at a discount.

"When is that never true of any financial business?"

Good point. But if you look into the levers they're pulling, you get a feeling for future profits and perhaps cash flows. If you look at the recent accounts, you'll find an increase of $0.7m in provisions for bad credit, whilst the loan books grew in size by 26% (Consumer Leasing) and 76% (TEF).
Had they provisioned at the rates they normally use, I would suggest the P/E would be much higher than 7...

 

[Rainman]

... If you look at the recent accounts, you'll find an increase of $0.7m in provisions for bad credit, whilst the loan books grew in size by 26% (Consumer Leasing) and 76% (TEF)...

Personally, I am comfortable with this provisioning for both the consumer leasing and the TEF line. It might be a little worse but probably not by much.

I reckon TGA is a good turnaround candidate at $1.20 a share. Plenty of negativity surrounding the stock. Technically, it is also at a good level at which to start building a position.

I am making it my long call for the rest of the year.

 

[zac]

Whats the latest with TGA. I noticed the share price got smashed this week.
Anyone have any commentary?

 

[Boggo]

Follow up from here...
https://www.aussiestockforums.com/threads/tga-thorn-group.18617/page-60#post-948833

Looked like it had finished the run down but it took a dive to the next level.
Bit of a gap there now up to around 1.10 that needs to be treated with caution.

Just my

 

[Value Hunter]

I do not follow the company closely and at this stage I am undecided if its a falling knife or a genuine turnaround candidate.

 

[VSntchr]

The chartists might be pondering whether TGA poses as a good reversal candidate.
A nice consolidation and break over 80c. The candle today wasn't overly convincing but it's certainly doing well in a downwards market this week.

 

[galumay]

It would need to recover a lot more before I was in the money again!

 

[peter2]

There's lots of technical damage on the TGA chart. A was going to describe it as the "walking wounded" but that might be too kind. This is still horizontal and on life support for me. There's IV lines in every orifice. The daily chart does look good, but that's because it's the only skin that's not heavily bandaged.

 

[oldblue]

Very true, peter. My own damage on this one is far from recovering! But today's market appears to be encouraged by recent announcement. Hopefully?

 

[VSntchr]

With some uncertainty regarding the ASIC settlement removed price continued to move higher this week. Volume hasn't risen significantly and this rally could be killed quickly with some "give me my damn money back" traders who have been bagholding since the rude October gapdown.

 

[McLovin]

I've been wondering where KGN is getting their revenue growth from, and I think RR is part of the answer.

I haven't paid much attention to TGA in the last while, but this morning's announcement got me interested as to why a relatively stable business like RR is getting hammered and expects it to not let up for the medium term.

As a single data point. KGN will sell me a 49' LED TV for $479 with 0% interest for 6 months. That works out, assuming I pay it off in the interest free period (and they can get finance), at $20/week. RR will rent/try/buy me a 49' LED TV for $15/week on a 48 month contract. So the difference in contract price is $479 v $3,120.

KGN don't compete in whitegoods and I don't know what sort of product mix RR have, but as that single data point, it doesn't look too good for RR. There are so many finance (Z1P, AFT etc) companies popping up at the moment and that's being coupled with price deflation at the bottom of the market that's making it easier to forgo expensive finance options and just buy outright.

 

[tinhat]

I've been wondering where KGN is getting their revenue growth from, and I think RR is part of the answer.

I haven't paid much attention to TGA in the last while, but this morning's announcement got me interested as to why a relatively stable business like RR is getting hammered and expects it to not let up for the medium term.

As a single data point. KGN will sell me a 49' LED TV for $479 with 0% interest for 6 months. That works out, assuming I pay it off in the interest free period (and they can get finance), at $20/week. RR will rent/try/buy me a 49' LED TV for $15/week on a 48 month contract. So the difference in contract price is $479 v $3,120.

KGN don't compete in whitegoods and I don't know what sort of product mix RR have, but as that single data point, it doesn't look too good for RR. There are so many finance (Z1P, AFT etc) companies popping up at the moment and that's being coupled with price deflation at the bottom of the market that's making it easier to forgo expensive finance options and just buy outright.

I haven't looked at TGA and the RR business for quite a while, but it was flagged in this thread a few years ago that what used to be termed "brown goods" (home entertainment electronics) are now a low margin commodity. I recall that you were active in discussing this stock back then. This is why I have always steered away from JB HiFi (to my loss) which has continued to be a category slayer year after year.

While I appreciate that a large part of the consumer demand that RR caters for is the conspicuous consumption aspirations of people who may not be able to afford the "luxuries" of having a large flat screen TV, etc, so choose to hire purchase; another factor might be, that for those that are genuinely hard up and looking for a fridge, washing machine, lounge, bunk beds, TV, whatever, is that social media has, in my experience, promulgated the confluence of the sharing economy with the throw away society. If I go onto the various facebook groups that cater for buy/sell/swap/freebies in my local community I recon at any one time I could furnish a house and fit out a kitchen with appliances for free sourced on what people are giving away second hand for free.

That said, I would imagine the long period of zero interest finance of the post GFC monetary cycle, combined with the mass-availability and commoditization of consumer electronics and appliances retail distribution channels (including the disruption of online retail) has been the major factor.

The last time I looked at TGA they were looking to get into vehicle finance. Did anything come of that strategy?

 

[Huskar]

I've been wondering where KGN is getting their revenue growth from, and I think RR is part of the answer.

I haven't paid much attention to TGA in the last while, but this morning's announcement got me interested as to why a relatively stable business like RR is getting hammered and expects it to not let up for the medium term.

As a single data point. KGN will sell me a 49' LED TV for $479 with 0% interest for 6 months. That works out, assuming I pay it off in the interest free period (and they can get finance), at $20/week. RR will rent/try/buy me a 49' LED TV for $15/week on a 48 month contract. So the difference in contract price is $479 v $3,120.

KGN don't compete in whitegoods and I don't know what sort of product mix RR have, but as that single data point, it doesn't look too good for RR. There are so many finance (Z1P, AFT etc) companies popping up at the moment and that's being coupled with price deflation at the bottom of the market that's making it easier to forgo expensive finance options and just buy outright.

Mclovin has hit the nail on the head for me - there are so many alternative financing options now, why would you go for RR? I only wish I had realised this sooner: short TGA, long APT....

 

[Miner]

I haven't looked at TGA and the RR business for quite a while, but it was flagged in this thread a few years ago that what used to be termed "brown goods" (home entertainment electronics) are now a low margin commodity. I recall that you were active in discussing this stock back then. This is why I have always steered away from JB HiFi (to my loss) which has continued to be a category slayer year after year.

While I appreciate that a large part of the consumer demand that RR caters for is the conspicuous consumption aspirations of people who may not be able to afford the "luxuries" of having a large flat screen TV, etc, so choose to hire purchase; another factor might be, that for those that are genuinely hard up and looking for a fridge, washing machine, lounge, bunk beds, TV, whatever, is that social media has, in my experience, promulgated the confluence of the sharing economy with the throw away society. If I go onto the various facebook groups that cater for buy/sell/swap/freebies in my local community I recon at any one time I could furnish a house and fit out a kitchen with appliances for free sourced on what people are giving away second hand for free.

That said, I would imagine the long period of zero interest finance of the post GFC monetary cycle, combined with the mass-availability and commoditization of consumer electronics and appliances retail distribution channels (including the disruption of online retail) has been the major factor.

The last time I looked at TGA they were looking to get into vehicle finance. Did anything come of that strategy?

It may be strange when we talk of debts and glamour.
Taking debts through after pay could be perceived not only economically better than radio rentals, but more glamarous and perceived less dodgy . End of the day, it is loan when buyer can not have cash.
That sums up the gradual demise of RR and a need a better business plan from TGA to be seen as investor's choice.
DNH.

 

[booky]

Any comments on this company? A write off or some light at end of tunnel?. I brought on advice from MF. Another fu! I thought shares were long term investment.

 

[galumay]

Sadly, buying on advice from MF is little different to buying on advice from HC. Personally I would consider TGA an investible business. (I am honest enough to admit I held them in the past, bought before I had developed my research and analysis skillset.)

 

[Huskar]

What a fall from grace. Was $3 at one stage now down to 5.5c.

Forager Funds had bought in last year around 50c thinking there was value but it has just kept going lower and they now looked to have sold before the end.

Can it survive with Corona likely impact on brown goods? I'm not sure it can with $300m in debt vs now $16m market cap and annualised revenue around $200m. Loss-making, and cash flows look woeful at the best of times (like many of these buy now pay later companies).

Even if they don't lose their funding lines, losses keep mounting and I can't see them digging out of this hole. I won't be buying even at these very low prices. I think medium-term outlook is even worse.

Of course, if I'm wrong there could be an incredible rally from here...

 

[Huskar]

What a fall from grace. Was $3 at one stage now down to 5.5c.

Forager Funds had bought in last year around 50c thinking there was value but it has just kept going lower and they now looked to have sold before the end.

Can it survive with Corona likely impact on brown goods? I'm not sure it can with $300m in debt vs now $16m market cap and annualised revenue around $200m. Loss-making, and cash flows look woeful at the best of times (like many of these buy now pay later companies).

Even if they don't lose their funding lines, losses keep mounting and I can't see them digging out of this hole. I won't be buying even at these very low prices. I think medium-term outlook is even worse.

Of course, if I'm wrong there could be an incredible rally from here...

I couldn't have timed the bottom better... Now up to 17c. That's because it is worth more dead than alive, as mgmt announce they are closing business and running off the loan book.

Some interesting opportunity here now with $150m equity book value vs $50m market cap. If more than 30% of book value can be realised, then there is money to be made in this special situation. But a lot of costs still are to be incurred and loan writedowns are likely to be not insignificant given corona.

Reminds me of Rams Home Loans 10 years ago, which ran off its loan book and was a big winner for those who stayed along for the ride.

 

[greggles]

Somers Limited - an investment holding company specialising in the financial services sector - has made a cash offer bid for TGA at 21c a share. The Thorn Group Board has advised shareholders to take NO ACTION until they have reviewed the offer and made a formal statement in response.

A very opportunistic bid by Somers Limited and one that undervalues the company, in the eyes of the market at least. TGA is currently trading at 22c, one cent above the 21c bid price.

I think the Board is going to recommend shareholders reject the Somers offer. TGA looks to be on the road back operationally and I think shareholders are better off hanging on and hopefully riding the recovery up.

 

[Miner]

It may be strange when we talk of debts and glamour.
Taking debts through after pay could be perceived not only economically better than radio rentals, but more glamarous and perceived less dodgy . End of the day, it is loan when buyer can not have cash.
That sums up the gradual demise of RR and a need a better business plan from TGA to be seen as investor's choice.
DNH.

Some people like me could be talking the talk and not walking the talk when financial investment is concerned.
Looking back if I would have invested on APT in 2019, my retirement would have well timed.