Insomniac The estimates one sees in online sites like COMSEC and...

Insomniac

The estimates one sees in online sites like COMSEC and Westpac come from Morningstar, and their sorce is styled as “Morningstar Analyst Estimates”. The details are:
.......... 2016 .. 2017 .. 2018
EPS ... 17.5 ... 20.4 ... 21.5
DPS ... 11.5 ... 11.5 ... 12.0

It is difficult to mount a solid argument contrary to these estimates, but my instincts are that the EPS is a bit too low for both FY17 and FY18. Perhaps, 21c and 23c is a better estimate for EPS, and 12c and 13c for DPS. I would not be surprised if the facts transpire to be even better, but that's just gut feel. The facts that will be revealed in the H1 Interim Report, slated to be published on 15/11/16 should put us in a better position to recalibrate these estimates.

My investment style is to back my instincts, and buy before things become obvious. Sometimes I win on these punts, and sometimes not. Usually, the dividend yield on such punts suffices to allow me to wait a long time if the short-term outcome disappoints.

For the record, TGA's EPS and DPS history since 2008 has been:

. Y08 .. Y09 .. Y10 ... Y11 ... Y12 .. Y13 ... Y14 .. Y15 ... Y16
.. 8.3 ... 9.4 ... 14.9 .. 16.7 .. 19.0 .. 19.1 .. 18.9 .. 21.8 .. 17.5
.. 4.2 ... 4.7. .... 6.2 ... 8.4 ..... 9.5 .. 10.5 .. 11.0 .. 11.8 .. 11.5

There is an element of time-shifting in these numbers – poor decisions in early years have been accounted for in later years, with FY16 taking the biggest hit, pursuant to the new management team deciding to make a clean sweep, and exit the personal loans business, and NCML. Between FY11 and FY16, some $20m was written off to misadventures, mainly the decision to buy NCML. That $20m divided by 154.5m shares, is 13c a share. The opportunity cost of wasted managerial focus, and the use of funds while trying to rectify the problems is not reflected in that 13c.

Charlie Munger, Buffet's sidekick, is reputed to have said, “Invest in a business any fool can run, because someday a fool will. If it won't stand a little mismanagement, it's not much of a business. We're not looking for mismanagement, even if we can withstand it." TGA must be a superb business to have survived the poor decisions it has had to digest since it floated on the ASX in December 2006.