TGA - Thorn Group
- Thread starter McCoy Pauley
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It's been lagging behind its peers like CCP and TSM so it's due for a catch up.
IT's broken out of a really tight range between $1.60 and $1.64, and arguably broken above the downward sloping trendline as well. First resistance at $1.80.
TGA is not a business that is much impacted by interest rate movements. It has virtually no debt, and its target demographic tend to have no mortgages. In my view TGA is such a bargain at the current SP, that the wonder is that the SP did not increase earlier, and why it is below $2.00 - read http://www.fool.com.au/2011/10/best-asx-shares-and-stocks/top-radar-stocks/no-thorn-in-my-side/ and at http://edgeseven.com.au/?p=172.
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I would have thought an interest rate hike would be good for TGA. A growing portion of their customers are first home owners who are in mortgage stress and can't afford to buy a flat panel TV.
A bit of a hard sell there, Pioupiou. That's twice in two days you've drawn our attention to those favourable reviews!
Not that I should complain - I'm a holder (modest number) too, but I don't think that the TGA story needs much boosting.
I was tempted to list all the TGA reviews that I have read and shared with forum members over the last year, but being lazy, I merely pasted the two recent ones, because I knew where I had stored them. I would quickly point readers to any negative review of TGA, except I have never found one, in spite of being always on the lookout. I have also on many occasions in this and other forums asked those selling reasonably-sized TGA holdings to put forward their reasons for selling, and thus far not one person has done so.
Actually, I am relatively indifferent to SP changes. I am a buy-and-hold investor, so even if TGA's SP jumps 30 cents this week, it will mean little to me, because I'll neither buy nor sell. If it jumps another 30 cents I might sell 5% to 10% of what I hold to settle a few debts. If it jumps yet another 30 cents, I'll be tempted to sell a fair swag of my TGA holdings, and use the money to have a safer investment spread.
On the matter of the rate of interest not impacting TGA's customers, because most of them have no mortgages - this is something I recall reading in one or more TGA announcements, or third-party reviews, but it would take too much effort to locate the source, so I'll not try. Obviously, there must be TGA customers who are mortgagors, and some of these may be tempted not to enter new rental commitments if their mortgage payments increase, and some will do the opposite because being more cash constrained than before, they cannot get items that they want via the usual retail market. Those already committed to TGA will substantially continue making their committed payments. On balance, TGA is fairly immune to the affects of interest rate movements, and other price movements that affect some companies, and this relative immunity to economic vicissitudes is one of the reasons that makes TGA such an attractive investment.
Actually, I am relatively indifferent to SP changes. I am a buy-and-hold investor, so even if TGA's SP jumps 30 cents this week, it will mean little to me, because I'll neither buy nor sell. If it jumps another 30 cents I might sell 5% to 10% of what I hold to settle a few debts. If it jumps yet another 30 cents, I'll be tempted to sell a fair swag of my TGA holdings, and use the money to have a safer investment spread.
On the matter of the rate of interest not impacting TGA's customers, because most of them have no mortgages - this is something I recall reading in one or more TGA announcements, or third-party reviews, but it would take too much effort to locate the source, so I'll not try. Obviously, there must be TGA customers who are mortgagors, and some of these may be tempted not to enter new rental commitments if their mortgage payments increase, and some will do the opposite because being more cash constrained than before, they cannot get items that they want via the usual retail market. Those already committed to TGA will substantially continue making their committed payments. On balance, TGA is fairly immune to the affects of interest rate movements, and other price movements that affect some companies, and this relative immunity to economic vicissitudes is one of the reasons that makes TGA such an attractive investment.
It was Perpetual who sold two million shares recently.
PMWSCS TGA - 1,682,023 - 2,909,900 $1.73 13/02/2012
PIMEDA - TGA - - 317,977 - - 550,100 $1.73 13/02/2012
The SP has wobbled upward since then. Today I read a 13/3/12 dated blurb by Dean Morel of Motley Fool wherein he restated his earlier support for TGA. There is nothing novel in the points that he made - good this, good that and a few more ticks in the right boxes. If any readers of this thread have a bearish view of TGA, it would make for interesting reading.
PMWSCS TGA - 1,682,023 - 2,909,900 $1.73 13/02/2012
PIMEDA - TGA - - 317,977 - - 550,100 $1.73 13/02/2012
The SP has wobbled upward since then. Today I read a 13/3/12 dated blurb by Dean Morel of Motley Fool wherein he restated his earlier support for TGA. There is nothing novel in the points that he made - good this, good that and a few more ticks in the right boxes. If any readers of this thread have a bearish view of TGA, it would make for interesting reading.
So TGA has taken a battering recently - looks like IFL are selling out.
I missed the boat last time squabbling over a few cents last time and would like to be in on this soon...all of course pending the rest of the world! Thanks ROE for the cents advice...
Growth in NPAT/Revenue and a cap raising of $30M so looks like bases are covered. Thoughts?
I missed the boat last time squabbling over a few cents last time and would like to be in on this soon...all of course pending the rest of the world! Thanks ROE for the cents advice...
Growth in NPAT/Revenue and a cap raising of $30M so looks like bases are covered. Thoughts?
I wrote a longish blurb in reply to JTLP, but it got lost in the ether. In a nutshell I wrote that instos like IOOF and Perpetual are not very good at investing, as their SPs of 1/3/2011 compared to today, 1/3/2012, will show, and that I generally ignore their buying and selling. However, as TGA typically turns over about $600K a day, the instos selling hundreds of thousands of shares will push the SP down.
Various valuations put TGA at between $1.90 and $2.50, so at today's price they are a steal. I so convinced myself of this that I have just bought 10,000 at $1.61. I now hold 420,000 of them. I will sell some this calendar year, but maybe only 10%, and then not below $2.00.
TGA's year ends 30/3/2012, so let us see what happens over the next three months - that is, between now and when the annual report should be available for scrutiny.
Various valuations put TGA at between $1.90 and $2.50, so at today's price they are a steal. I so convinced myself of this that I have just bought 10,000 at $1.61. I now hold 420,000 of them. I will sell some this calendar year, but maybe only 10%, and then not below $2.00.
TGA's year ends 30/3/2012, so let us see what happens over the next three months - that is, between now and when the annual report should be available for scrutiny.
Macquarie downgraded earnings forecasts in 2013 for Thorn during the week, which probably helps explain some of the negative price action.
They believe that the acceleration of disconnections will have more of an impact on earnings growth over this period due to the slowing growth of new connections in the Radio Rentals business.
This is probably to be expected after a period of enormous growth in new connections in the past few years (they usually have a 27-month period before they mature), and I believe the fact that they convert 40% of these into long-term recurring revenue streams positions the company well for growth in the next decade.
Link here:
http://www.macquarie.com.au/dafiles...retail-newsletter/docs/2012-03/TGA150312e.pdf
I hope it works.
They believe that the acceleration of disconnections will have more of an impact on earnings growth over this period due to the slowing growth of new connections in the Radio Rentals business.
This is probably to be expected after a period of enormous growth in new connections in the past few years (they usually have a 27-month period before they mature), and I believe the fact that they convert 40% of these into long-term recurring revenue streams positions the company well for growth in the next decade.
Link here:
http://www.macquarie.com.au/dafiles...retail-newsletter/docs/2012-03/TGA150312e.pdf
I hope it works.
Thanks for that link - I have been looking for a negative view on TGA for a long time to counter my bullish view on TGA. As we are about two months away from being able to read the annual report for YE 30/03/2012, I'll not now concur with Macquarrie, or attempt to postulate why things may turn out to be better than what Macquarrie moots. I plan to write a major review of TGA when the latest metrics and forward management views of TGA become known about two months hence.
I agree that buying NCML probably was a mistake.
On declining revenue/installations, I personally do not believe that TGA need rely on PCs and flat screens to make or break the company. An inventive management could come up with suitable product lines hitherto not offered. If management fail in this respect, then the Macquarrie prognosis could eventuate.
On the swing away from financial leases to operating leases - yes this will effect short-term profits because of revenue recognition principles, but over the medium term, operating leases are better for TGA. Although this shift to operating leases will negatively affect the SP, in an all-understanding world it should not.
If TGA supplies goods that cost $1500 to somebody for $2,500, plus $500 in interest payments over three years - that is, $3,000 spread over three years - then TGA would record a sale of $2,500 and a profit of $1,000 immediately, and the interest received of $500 would be recorded over the following 36 months. Under an operational lease using the same metrics, the $3,000 rental revenue would be recognised over 36 months, and hence the accounting treatment delays the revenue recognition and profit recognition, whereas in reality the same monthly cash dribbles into TGA each month for a common up-front cost. Operating leases at least mean that ownership of the goods has not left TGA, and hence it can repossess the goods on default. Accounting is a rubbery art, and we do not live in an all-understanding world.
I agree that buying NCML probably was a mistake.
On declining revenue/installations, I personally do not believe that TGA need rely on PCs and flat screens to make or break the company. An inventive management could come up with suitable product lines hitherto not offered. If management fail in this respect, then the Macquarrie prognosis could eventuate.
On the swing away from financial leases to operating leases - yes this will effect short-term profits because of revenue recognition principles, but over the medium term, operating leases are better for TGA. Although this shift to operating leases will negatively affect the SP, in an all-understanding world it should not.
If TGA supplies goods that cost $1500 to somebody for $2,500, plus $500 in interest payments over three years - that is, $3,000 spread over three years - then TGA would record a sale of $2,500 and a profit of $1,000 immediately, and the interest received of $500 would be recorded over the following 36 months. Under an operational lease using the same metrics, the $3,000 rental revenue would be recognised over 36 months, and hence the accounting treatment delays the revenue recognition and profit recognition, whereas in reality the same monthly cash dribbles into TGA each month for a common up-front cost. Operating leases at least mean that ownership of the goods has not left TGA, and hence it can repossess the goods on default. Accounting is a rubbery art, and we do not live in an all-understanding world.
I totally agree with you. Buffett has said somewhere: why invest in one's seventh or eighth most preferred investment candidate where one has the choice to invest in the most preferred. It makes no sense if you've done the research.
That depends entirely on the quality of the research and an assumption that all relevant information is available to the researcher! We don't all have the abilities or research resources of a Warren Buffett!
For the average investor, diversification across a modest number of stocks still makes a lot of sense, IMO.
Disc: Holding a few TGA.
For the average investor, diversification across a modest number of stocks still makes a lot of sense, IMO.
Disc: Holding a few TGA.
+1
Agree a portfolio of quality 15-20 stocks will do pretty good for most people
If I was to run the business I would put more money into my business
but you taking about stocks here and someone else is in control
you can not rule out fraud, mismanagement and various other issues that
a stock holder may face...it is extremely risky to put all your money into one
or two stocks...
Dont copy what other people do, do what is right for you and your risk..
do copy good principles
Sort of agree. I think the level of diversification in a stock portfolio is down to two factors:-
1. Percentage of total net worth invested in stocks
2. Valuation competence.
If 80% of your net worth is in your home and cash, then putting 20% of your net worth into a couple of stocks which you actively manage is probably not that risky.
Never really understood how people manage to juggle to having a job, family, investment property portfolio, hobbies and then manage of a portfolio of 20+stocks. A ball is going to be dropped somewhere. Where is the correct focus?
Back to TGA, I have greatly appreciated the detailed analysis by some of the posters on this thread and am looking forward to the results announcement.
Cheers
Oddson
Yep - I'll go along with the gist of that sentiment.
On the matter of too many eggs in one basket, TGA represents some 23% of my SMSF investments, and I would like to reduce that to no greater than 20%. There are 20 ASX-listed equities there, plus six managed funds. I have a smaller in value, 7-stock personal portfolio where I am more reckless, and TGA represents 62% of that portfolio. I'll reduce the latter percentage when TGA's SP gets closer to what I consider fair value. Today is TGA's EOY, and as soon as I get the Annual Report in late May, I'll revisit my analysis of it, which will include a target SP at which I would sell some TGA to de-risk my total portfolio. I suspect my fair-value SP will be something like $2.50 to $2.60, and my sell-a-few SP might be about $2.30. The sell-a-few SP is the price at which I may be tempted to part with 10% of my TGA holding to simplify my finances. My average buying-price is $1.17, with the highest price paid being $2.03 and the lowest being $0.55.
The Morning Star revenue and sales metrics for YE 30/03/2011 have been too low, and these seem to have been rectified in recent weeks. Many brokers and others who have opined a target SP for TGA have been working off these wrong metrics, and in some cases using metrics that although not wrong are misleading (mainly the 2007 EPS and the 30/03/2011 debt/equity ratio). The combination of these two sets of metrics has been to detract from the fair-value SPs that have been mooted. I will not delve into this now, because in less than two months we will have the YE 30/03/2012 numbers to analyse. I think the sub-$1.60 brigade have about exhausted themselves, so barring a black-swan event, I expect a more positive SP climb in coming months, and a fillip when the numbers for YE 30/03/2012 are announced
On the matter of management being less than honest, in about 2008, CXG (Coote Industrial Group – now EGN) announced a stellar profit rise, which was trumpeted in the press, and I patted myself on the back for buying in at about $1.16 as the SP shot north of that. CXG's balance sheet looked liquid, with a high current payables metric.
The annual report did not detail that the large sale of refurbished rolling stock to Greentrains occurred only days before the EOY, and that Greentrains was created two weeks earlier (in early June), and that it had near-zero cash to pay for the circa $75 million purchase, and there were also words to the effect that the rolling stock was leased back to CXG, which worried me. There was a cryptic note in the accounts to the effect that the MD, Michael Coote, had a nexus with Greentrains, because one of its shareholders, Orange Grove Brickworks, was a company owned by his parents.
I decided to check on Greentrans, and when I could not find it in the telephone directory, I telephoned the then CXG company secretary (a guy with an Indian name), but he refused to take my calls, or respond to requests that he ring me. I looked up the ACN registration, and learned that Greentrains had only been registered in early June, some three weeks before CXG's EOY
From memory, the SP dropped from about $1.50 to about 10 cents as this saga unwound in subsequent months and years, and the matter is still playing out under the aegis of Dale Elphinstone, who continues to buy EGN shares at peppercorn prices. If you google using words like Coote, Orange Grove and Greentrains, you can glean some of the sorry story. That nobody connected with CXG was jailed, or even gently pelted with marshmallows by whomever is the probity watchdog for shareholders in Australia amazes me. I might add that on-paper gains made on TGA have many times over eclipsed the $50K or so that I lost on CXG (now EGN).
TGA has been on my watchlist for a while. Despite that, I did not look at it for some time until yesterday when I could not believe how cheap it was. I have stayed in cash for months looking for value opportunities. The first came along in early March when JBH dropped below $10.50. While I don't doubt that retail is tough at the moment and the landscape is undergoing real structural change as a result of the internet, JBH has been very oversold in my view. TGA, which is not really a retailer, provided me with the second opportunity today and I bought in at $1.57. Because of its business, TGA actually offers the perfect hedge to a pure retailer like JBH. If TGA stays below $1.60 in the next few days, I think I'll load up on more.
An analyst friend of mine spotted the mistakes in the Morningstar accounting treatment of leases etc and emailed through his thoughts. Morningstar called him back and thanked him for the pick-up, the analyst agreed the treatment was incorrect and hence you see the changes today. I agree, if the FY results are solid, i can't see why this stock is not significantly undervalued at the moment. I drew a fair value SP around 2.30, but as we all know these days fundamentals are way down the considerations of many investors...
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Until they realise that they've been trading on emotions and things pick-up suddenly.
Just take a look at what happen with Breville [ASX:BRG]. Got that one at the $3.00 mark
Guesstimating a target SP can be done fairly effectively by selecting a PER by which one can multiply the EPS.
Deciding on a PER is best done by considering the stock one has in mind in the company of other listed stocks. Include amongst the list the option of putting your money in a bank, which helps to inject realism into the exercise, because if you required, say, 7% to be inclined to put money in a bank, that is effectively a PER of 1 divided by 7%, or 14.3, which happens to be a fairly typical PER in the ASX500. A quick look at the PERs of a few companies gives the following this weekend (Sunday, 1 April 2012):
- Woolworths (WOW) – 14.74
- Flight Centre (FLT) – 13.57
- Monadelphous (MND) – 19.56
- Fleetwood (FWD) – 13.70
- JB-HiFi (JBH) – 9.13
From memory the two rental companies I know in the USA, Aaron's and Rent-A-Car have PERs of about 18 and 13 respectively, and TGA beats them on all relevant metrics except size.
Anyhow, if you compare all you know about TGA with alternative investments, you should be able to settle on a reasonable PER, and if you multiply it by the expected EPS of about 20 cents for YE 30/03/2012, you would have a reasonable target SP. In my case it is about $.20 x13 = $2.60. Others could end up with $.19 x 10 = $1.90. Currently, the SP is about $1.60, so there are sellers out there using a PER of about 8. I doubt if anybody expects the EPS to be less than 19 cents.
Deciding on a PER is best done by considering the stock one has in mind in the company of other listed stocks. Include amongst the list the option of putting your money in a bank, which helps to inject realism into the exercise, because if you required, say, 7% to be inclined to put money in a bank, that is effectively a PER of 1 divided by 7%, or 14.3, which happens to be a fairly typical PER in the ASX500. A quick look at the PERs of a few companies gives the following this weekend (Sunday, 1 April 2012):
- Woolworths (WOW) – 14.74
- Flight Centre (FLT) – 13.57
- Monadelphous (MND) – 19.56
- Fleetwood (FWD) – 13.70
- JB-HiFi (JBH) – 9.13
From memory the two rental companies I know in the USA, Aaron's and Rent-A-Car have PERs of about 18 and 13 respectively, and TGA beats them on all relevant metrics except size.
Anyhow, if you compare all you know about TGA with alternative investments, you should be able to settle on a reasonable PER, and if you multiply it by the expected EPS of about 20 cents for YE 30/03/2012, you would have a reasonable target SP. In my case it is about $.20 x13 = $2.60. Others could end up with $.19 x 10 = $1.90. Currently, the SP is about $1.60, so there are sellers out there using a PER of about 8. I doubt if anybody expects the EPS to be less than 19 cents.
