Saturday, December 03, 2005

Richard Inder: Who's driving at Turners?

Guinness Peat Group executive director Tony Gibbs affects an innocent tone as he explains his decision to splash out $11 million, or $2.10 a share, for a cornerstone 19.4 per cent stake in car auctioneer Turners Auctions.

The shares are oversold, he sees value in the business. He made his decision only recently after he was told growth investor Fisher Funds wanted to sell its stake. He has no immediate plans.

"This is a company in which GPG has a history. It is a solid company," Gibbs said as he disclosed the acquisition last Friday.

However, it's hard to believe GPG, a corporate raider with a reputation for taking an active role in its investments, only sees Turners as a passive play.

And that begs the question: What are his intentions?

Fisher Funds baled out amid concerns the company was not quickly advancing key initiatives such as a finance operation and an online strategy to compete with the rapidly growing online auction site, Trade Me.

Before the deal Turners shares had fallen to about $1.80, reflecting these worries as well as a warning last month that higher petrol prices and a softer used-car market would knock full-year profits from $7 million to $5.4 million.

The shares closed yesterday down 5c at $2.10, well off the $4.30 a share that Fisher paid to top up its stake, but still well above the 2002 float price of $1.50.

The threat of Trade Me is perhaps the easiest to discount.

It will be relatively easy for Turners to replicate the Trade Me internet proposition. Moreover, the technology is a long way away from supplanting the necessary tyre-kicking before a purchase.

Turners can also offer services not easily replicated by Trade Me and the legions of dealers and private sellers advertising cars on the auction site. These include vehicle finance, guarantees of title, warranties, on-site expertise to assess the health of vehicles and - perhaps most importantly - stock.

Turners has about 20 per cent of the imported used-car market. Instead of multiple visits to disparate locations, buyers can see a representative range in one place and take advantage of these extras.

It is true there is some way to go in realising this vision and this is perhaps where Gibbs comes in. He spun the auction arm out of the fresh produce agent Turners & Growers. He also served as chairman and has an intimate knowledge of the operation.

However, it is not clear that giving the company a rev up will, by itself, give a meaningful lift to the share price, especially as the economy now appears headed for a slowdown, or perhaps worse, a hard landing. In such a climate, the decision to trade up to a better car is sure to be a lower priority for many.

GPG may see an opportunity for a quick flick, perhaps to a large Japanese vehicle exporter or a used car importer.

The stake is a starting block for such a move as it is just shy of the 20 per cent threshold where he must make a full takeover offer.

Meanwhile, New Zealand's car market looks set to be dominated by used-car imports for some time to come and scale matters. Apart from choice, large vehicle distributors can offer value by sharing with customers some of the gains they achieve from enhanced buying power.

Finally, the other major shareholder Bartel - owned by the Alvaro Noboa family of Ecuador who export the Bonita brand of bananas - is not a natural holder of the shares.

The family inherited the shares as part of the demerger. Bartel's man in New Zealand and Turners chairman Michael Dossor says the family is happy with its investment. But since he has a good relationship with Gibbs, some sort of co-ordinated action is not out of the question.

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