Independent expert Grant Thornton ( "GT" ) reaffirms provisions for credit losses are EXCESSIVE. Consumer finance credit loss provisions as a % of gross receivables at 31/5/2021 are 42.4% compared to 15% historically ( pre Covid ) Actual losses as a % of book value for last 4 years FY18 to FY21 are 13.4%, 17.2%,18.6%, 18.7% . Business Finance credit loss provisions as a % of gross receivables at 31/5/21 25.6% compared to 6.1% historically ( lifetime ) Actual losses as a % of book value for last 4 years FY18 to FY21 are 1.8%, 2.1%, 6.9%, 4.8% .
GT admits its asset valuation of 28c to 31c is conservative. p7 of GT report "it is not unreasonable to foresee a potential scenario where thecontrol value of Thorn is materially in excess of our valuation assessment if the Company is able torecover some or all of the invested value of the Thorn Subordinated Notes and if the credit losses realisedare closer to historical levels rather than the current provisioning." 28c is based on credit loss provisions as a % of gross receivables 42.4% for Consumer finance and 25.6% for Business Finance. 31c reduces credit loss provisions by $8.6M . Neither includes franking credits or tax losses.
Looking at the sensitivity analysis: GT valuation before adjustments 28c Business finance provisions at historical 6.0% +10c Consumer finance provisions at historical 15% +5c Tax losses ( 2c to 4c aver=) +3c Credit losses eg future Covid Lockdowns ( -2 to -4 aver=) -3c Setup costs new strategies (-3 to -6 aver=) -4.5c Total 38.5c ( I think GT adjustment for subordinated notes is double counting as it is dealt with in the adjustment for business finance provisions)
Adding in franking credits ( 8.0c at 31/5/2021) gives 46.5c .
Somers in their bidders statements intend to undertake a strategic review if they get control ( >50%). ( Leaves the door open for a windup of Thorn if no progress on new strategies ?) Somers undecided on which directors will be replaced in this scenario. I'd be nervous if I'm Director Oneile or a employee of Thorn on what Somers real intention is.
It looks like around $25M cashflow in 2mths from 31/3/2021 to 31/5/2021. See reduction in receivables ( $196.6M to $171.4M ) and similar reduction Warehouse liability (166.3M to 142.0M ) As I stated in a previous post a big cash flow from current receivables is expected in FY22 . It looks like there isn't much progress on new strategies to eat into this cashflow.
I'm NOT a sellor a 21c .
For the AGM I intend to vote AGAINST the re-election of Director Sullivan ( = Somers man )
TGA Price at posting:
21.5¢ Sentiment: Hold Disclosure: Held
