Turners Automotive Group’s shares are under-valued as investors struggle with the complexity of the business and amid mounting concerns over the credit cycle, chair Grant Baker says. 

The stock recently traded at $2.88, down 0.7 percent on the day, and below the $3.32 mean target price from two analyst recommendations, who both rate the stock a ‘buy’. Baker owns about 6 million Turners shares, buying 50,075 on market in July at $3.19 a share. 

Investors have been reluctant to pay more for the stock for three reasons, according to presentation slides accompanying Baker’s speech to today’s annual meeting. The first is the complexity of the business, which has changed since financier and insurer Dorchester Pacific bought Turners Auctions in 2014. It now involves an integrated offering providing auto finance and insurance to prospective buyers with a debt collection arm if needed, plus avenues to service those vehicles and on-sell them. 

The second deterrent for investors has been concern about the tightening credit cycle. Turners’ loan book grew 40 percent to $240 million in the year ended March 31. The company’s impairment charges for bad debt jumped to $5.9 million from $1.7 million a year earlier. 

Reserve Bank data show personal consumer lending rose at an annual pace of 5.6 percent in July to $16.45 billion, the slowest annual increase since March 2017. 

Baker said the third element undermining the share price was disquiet from last year’s capital raise when Turners raised $25 million in a placement and $5 million through a share purchase plan. At the time of the transaction, the New Zealand Shareholders’ Association said the discounted placement was unfair to smaller shareholders and less preferable to a renounceable rights issue, while First NZ Capital questioned the need to dilute existing investors. 

Turners has no plans to raise more equity and is focused on organic growth, the slides show. The company affirmed annual pre-tax earnings guidance to be $34 million to $36 million in the year ending March 31, 2019, up from $31.1 million in 2018. 

Shareholders will vote on electing Martin Berry to the board and re-elect Anthony Vriens and Paul Byrne. They will also vote on whether to increase the directors’ fee pool to $665,000 from $440,000, to allow for an extra director and increase pay for the current board. 

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