While trawling stock-market metrics this past weekend looking for TGA-like gems, I noticed the absence of TGA on one short list, and I realised that it was because one criterion required five years of EPS growth, and TGA does not have sufficient history in the database to meet it – a matter that should be addressed when Morning Star populates its database with the YE 30/03/2012 metrics. Many value investors (Team Invest, for one) use 5-year metrics as part of their filtering system, so TGA does not make their short lists, and hence It receives no consideration from some large investors.
TGA's debt/equity ratio is incorrect because the metric provided relates to the situation as at 30/06/2011, and this could affect the perception of risk, and hence the rate of return used to calculate a fair SP. This should be corrected when the 30/06/2012 metric is used.
Unfortunately, the incorrect revenue figure of $123 million for YE 30/03/2011 will probably remain in the Morning Star database for years to come, which hides TGA's historical reality of continuous improvement since listing, and it will distort the year-on-year growth of 2012 relative to 2011. The actual revenue reported by TGA was $157.6 million.
The incorrect revenue may in part explain the decline in the Sales Per Share metric dropping in 2011, or it could be that the word “Sales” is misleading for TGA, which is shifting its bias in favour of operating leases (where ownership of the item remains with TGA). Operating lease transactions are not recorded as sales – the resultant revenue is recorded when rental payments dribble in over three years. TGA records goods sold for cash (usually returned goods) and goods sold subject to financial leases as sales at the time of the transaction. Consequently, TGA could have a bumper year with high rental revenue and interest payments filling its coffers, plus scats of new operational leases being signed, and Cash First and other profitable loans being made, and yet it can concurrently have a decline in reported sales dollars.
One must understand TGA's business and know the facts to put some of the performance metrics into perspective – for instance, low delinquencies is a good metric, but they reduce TGA's sale of returned equipment, which makes the sales metric worse.
The coming six months will be crucial for TGA's SP. The results should be at least as good as management suggested they would be, and hence better than many think will be the case. It will take about two months for the YE 30/03/2012 annual report to be published, and then a few months for the reality to intrude into the minds of investors and brokers.
TGA Price at posting:
$1.61 Sentiment: Buy Disclosure: Held
