Hi FBIn the immediate term TGA may go back a bit, but for 2014...

Hi FB

In the immediate term TGA may go back a bit, but for 2014 calendar year I would rather go long than short.

You mentioned SIV. I have in the past considered SIV's SP to be toppy with a PER in the high teens while it had mountains of debt. Additionally, SIV is tightly held by the founder and charitable foundations close to him, which makes it a much more illiquid stock than TGA. SIV's SP was for some time relatively recently above $8, and recently above $7. In crude terms, if its PER is now 12.2 at an SP of $5.12 then at $8 the PER must have been in the order of 12.2 x $8/$5.12 = 19. SIV's debt/equity is reported to be 158.8%. TGA's PER is now about 10.5 and its debt/equity is reported to be 18.6%. There are important other differences, but this is not a SIV thread, so I'll not elaborate. We are talking chalk and cheese when we compare the two stocks.

Why has TGA's SP dropped? I am stuffed if I know, because the Thomson Consensus Estimates (TCEs) look fairly good for 2015 and 2016, and if one knows TGA's transformation story, and something about its accounting (revenue recognition, provisioning, amortisation, use of debt and the like), the TCEs are perfectly reasonable. John Hughes mentioned in the BRR presentation that growth investors were exiting the share register, and value investors were entering, so I half expect the decline may be occasioned by one or two instos wanting out now – shades of the PPT sell off in early to mid calendar year 2012. This may be part of the reason for SIV's decline too, because a large turnover on 13/12/2013 accompanied the SP drop in the table below (the volumes on the subsequent two days are also large for SIV):

- - - - - - - - - Open - Close - - Volume
17/12/2013 - 5.060 - 4.900 - - 651,034
16/12/2013 - 5.280 - 4.960 - - 384,680
13/12/2013 - 5.550 - 5.240 - 1,079,202
12/12/2013 - 7.480 - 7.420 - - - 25,630

For me, the option is to buy/sell TGA in my personal portfolio, or deposit/withdraw funds from my mortgage account at 5.4%. To recognise an equity premium, I multiply 5.4% by a rule-of-thumb 1.8 to get an RRR of 9.72%. To work out DPS, I have simply accepted the Thomson Consensus EPS for FY2014, FY2015 and FY2016, then presumed EPS would grow by 7%, 8% and 9% for the three subsequent years to recognise certain TGA initiatives gaining traction, and thereafter the growth decays to stabilise at 4.24 some twenty years later. Working backward using the Gordon-style formula, growth of 5.7% gives approximately the same result. This approach is very sensitive to the DPS growth presumptions. 5% growth would suggest an SP of $2.30 for me, using the RRR mentioned and assuming dividends are taxed at 32.5%. Within my non-taxed SMSF, TGA is worth more (at 5% growth, $3.25 compared to $2.30). These are simply highly subjective numbers, but to me they suggest that the SP is unlikely to go much lower than today's $2.07, and in another run-up comparable to similar runs in the past, $3.00 is not out of the question. A punter, in my opinion, is more likely to make 93¢ in calendar 2014 than lose 93¢ if he bought at $2.07.