Turners Automotive Group delivers 24% increase in HY22 earnings

Turners Automotive Group (NZX/ASX: TRA) delivered strong earnings growth in HY22 despite COVID-19 lockdowns disrupting the second quarter, with the results demonstrating the improvement that has been made in the business over the last few years. The Group’s geographic and earnings diversification have underpinned a 24% increase in NPBT and contributed to a strong and sustainable yield.

Todd Hunter, CEO, said: “The start to our FY22 year could not have been any better. Our plans were well executed by the team and we experienced significant uplift in results up until August with record months for operating profit. We had serious momentum, which was obviously curtailed with the COVID-19 lockdowns. However, we have seen results steadily improve from the second half of August through to October and this gives us confidence that with further easing of restrictions we will see our business perform similar to pre-lockdowns. Despite these current disruptions, our conviction levels are very high to exceed our target of $45m of NPBT in FY24.”

Financial results

Reported NPBT, which is the basis for Turners’ full year guidance, increased 24% to $23.2m with net profit after tax (NPAT) of $16.9m, up 26% on the same period last year. Normalised NPBT was up 55% to $24.5m (refer to reconciliation of reported and normalised numbers on slide 13 of the investor presentation, also published today).

Earnings per share for HY22 were 19.6 cps, up 25% on the previous year. The Board declared a Q1 dividend of 5.0 cps in October and a further 5.0 cps has been declared for Q2, taking HY22 dividends to 10.0 cps. This reflects the dividend policy to pay-out 60-70% of net profit after tax (NPAT) and represents a 25% uplift on the same time last year.

Grant Baker, Chairman, commented: “We are really pleased with the first half results and that we continue to demonstrate our ability to deliver strong and sustainable improvements. Our strategy is working, we are growing our profits, delivering improved dividends to shareholders and growing a property portfolio at the same time. It is interesting to look around the world and see investors sitting up and taking notice of businesses that are operating in the used car market. It has reaffirmed what a great business Turners Automotive Group is and how undervalued it is.

Yet again, our geographic diversification and earnings diversification has come to the fore. We have stuck to our investment plans and I feel strongly that our competitive advantage is only increasing, which gives us real confidence about our ability to keep growing in the future. Obviously, market conditions remain somewhat uncertain, but as restrictions continue to ease we expect our business to perform better than before. Our team have done another great job of navigating our way through this latest set of challenges.”

Outlook and Guidance

October trading: We saw another step change in FY22 results from April through to July. Our momentum naturally stopped in mid-August due to the nationwide lockdown, and the extended regional lockdowns in Auckland, Waikato and Northland. We did expect trading results to improve over coming months in-line with the easing of restrictions and pleasingly October has already shown strong signs of early recovery. A similar trend has continued into November. October tracked ahead of October 2020, a period where Auckland was in Level 2 for only 7 days before joining the rest of NZ at Level 1:

– Auto retail: October vehicle unit sales ahead of Oct-20
– Finance: new lending materially ahead of Oct-20 levels and arrears at historic lows
– Insurance: new policy sales ahead of Oct-20 levels and claims below expectations.
– Credit: Debt load recovering but collections actions still impacted in lockdown regions

FY22 guidance $40m – $42m: Based on the particularly strong Q1, stronger trading following the L4 lockdown, and assuming L3/L2 restrictions ease over coming months, we expect FY22 NPBT to be between $40m and $42m. On that basis and with our dividend payout policy of 60-70% of NPAT we anticipate full year fully imputed dividends of a minimum of 22 cents per share.

High conviction on FY24 target: We continue to develop our competitive moat through this time, which is positioning us for an even stronger performance in FY23 and FY24. Our conviction levels for exceeding our medium-term term target for FY24 of $45m NPBT target are very high and we will revisit our FY24 target at year end.