Turners full-year earnings likely to exceed $20m, to consolidate shares, issue new bonds

Turners [NZX: TNR] reiterated that full-year pretax earnings are likely to exceed its guidance of $20 million while setting a timetable for a share consolidation that will push the stock out of the "penny dreadful" category and moving to quarterly dividend payments.

The one-for-10 consolidation, with a record date of March 22, will shrink shares on issue to about 63.5 million from 635 million and push up the stock price in theory to $2.80 from 28c  currently, close to the $3 median for companies on the NZX. It comes after Auckland-based Turners cleaned up its share register, with the compulsory sale of holdings below 1000 shares and a brokerage-free buyback offer at 30c  apiece for holdings under 5000.

Chief executive Paul Byrnes said small movements in the current stock price often put Turners in the top or bottom 10 movers on the exchange and the company had been advised that a price closer to the NZX median would remove some of that "volatility."

"It takes us out of that penny dreadful bracket and away from the impact of half cent price movements," he said.

Turners lifted its first-half dividend by 50% to 6c  a share in November, under a policy of paying out 50-55% of underlying profit and plans to move to quarterly dividend payments for the 2017 year. Mr Byrnes says the change reflects confidence that the current dividend yield is sustainable, although it may lose "a bit of flexibility" as it strives to even out its payments each quarter.

"There's not huge seasonality in our earnings from insurance, finance and debt recovery" and only a modest seasonal drop off for Turners post-Christmas, he said.

The share consolidation means the company will have to amend the conversion formula for its $23 million of NZX-traded bonds, which have a coupon of 9%  and mature on September 30. The bonds give the holder the option of converting to ordinary shares at a fixed price of 30c.

Ahead of the maturity, Turners expects to announce a new issue of two-year debt, timed so holders of the existing securities can effectively roll over their investment, although the coupon on the new bonds is likely to be 6.5-7% and the total to be slightly bigger at $25-27 million, Mr Byrnes said.

Turners became the name for the group after Dorchester Pacific acquired Turners Auctions in 2014. It survived the collapse of many finance companies in the wake of the global financial crisis with a complex debt-for-equity swap in 2010, where 7,200 debenture holders owed $84 million agreed to convert their investment into four different types of security to keep the firm afloat, attracting shareholders including the Business Bakery. Since then it has added businesses including car loans and debt collection.

"We wanted to distance ourselves from the whole failed finance company/GFC tag," Byrnes said of the name change. "When it's raised we say, yes we were caught. We had a flawed funding model based on debenture holders, which will never happen again. We had a large property portfolio with capitalised interest. We're a different company now."

Turners was also a good choice of name because market research showed it was a very strong, long-lived brand, he said.

"We're not hiding. We're proud of where we came from," he said. Unlike some other finance companies, "we never had any related party loans or directors under investigation."

(BusinessDesk)