little concerned... , page-38

Let us accept that TGA paid too much for NCML. From memory TGA paid a bit over $30 million for NCML, so to be conservative let us assume it over paid $15 million. There are 146.4 million shares roughly, so in loose terms that is about 10 cents a share. The market has long ago recognised this, so it should not today be treated as a new factor.

The real loss from my perspective is what economists call opportunity cost - that is, the loss of the benefits that could have accrued to TGA had it devoted that $30 million and managerial focus that went into NCML to other initiatives that it has taken over recent years (network enhancement, promoting the furniture line, Casfirst, Thorn Equipment Finance and Rent-Try-Buy). But this is easy to say with the benefit of hindsight, and hindsight also allows us to say much the same thing about the Big Brown Box initiative - it too had an opportunity cost. The advantage of pursuing initiatives organically is that failures cost less.

NCML will be a positive profit contributor going forward - it is just that acquiring it was too expensive. The recent win of getting onto the 4-supplier panel contract of the NSW State Debt Recovery Office, and the trial panel of the Queensland equivalent entity bode well for TGA. There are many similar opportunities in other private and government bureaucracies. This collections-as-a-service business requires very little capital, so it can help keep ROCE high.

TGA now for the first time has more operating leases than finance leases. The 12% growth in operating lease revenue is significant, because it is business that from an accounting perspective has a delayed revenue and profit recognition relative to finance leases. The nature of Cashfirst's and TEF's business is similar - the results manifest themselves some time after the deals are written. This, plus the long-term growth of NCML's collections-as-a-service business should allow TGA to perform well in coming years. To this one can add that as Cashfirst and TEF are yet to reach critical mass to optimise what I'll call base cost, their revenue expansion will not require costs to move in equal relative steps.

In summary then:

* TGA paid too much for NCML to the tune of say 10 cents a share (and this is conservative), but this is history.
* All the established businesses are doing well, ignoring the new-born Rent-Drive-Buy initiative.
* The nature of TGA's business is that revenue and profits lag behind the deal writing, and recent deal writing has been very good.

John Hughes said in the recent presentation that one of the reasons for increasing the dividend was to send a message that all was well in spite of the flatness of the reported accounting results for H1. As I have often written, revenue lag that is germane to the nature of TGA's business tends to mask how well, or badly, its underlying business is performing.

My initial reaction to the results was one of disappointment, but on examining the reports I am happy to hold and enjoy the dividend. I do not have the funds or income to buy more TGA, and anyhow, I am massively over weight in TGA, so buying would not be on my radar even if I had the funds.