23-Apr-2020:  COVID-19 Update

TGA is up +48% to 12c (from yesterday's 8.1 cps close) - at 1pm Sydney time - on the back of this update.  I don't hold TGA shares, but I hold FOR shares and FOR (the Forager Australian Shares Fund) holds TGA as a top 10 holding, so I do have exposure to TGA indirectly.  

It's an indication of just how much money they were losing that they have risen so much on the back of announcing that they are going to close ALL of their Radio Rentals stores permanently and that Radio Rentals will continue into the future as an online retailer.

Excerpts:

THORN ANNOUNCES EXPANSION OF DIGITAL PRESENCE  AFTER PERMANENT CLOSURE OF RADIO RENTALS STORES  
 
Closure of Radio Rentals Stores  
 
Thorn Group Limited (ASX:TGA) (“Thorn”) announces today the expansion of its online presence and the permanent closure of the 62 Radio Rentals stores and selected warehouses, amid the coronavirus-driven downturn in the retail sector. 
 
The closures and the resultant redundancies of approximately 300 casual and full-time staff at the outlets and head office will be undertaken over the next three months. 

Thorn will undertake the run-down of Radio Rentals’ loan book, worth approximately $123 million as at 31 March 2020, which will be value creating and not draw down capital. The run-down is expected to immediately generate significant cash, above the redundancy and other costs.  

Strategy Update  
 
The core of the Radio Rentals’ business will continue to operate and will be leveraged to develop a new, digital business model.  Radio Rentals’ online store (www.radio-rentals.com.au) will be enhanced with a relevant product range to more closely match the needs of our customer base. 
 
Thorn has also introduced new credit policies and collection processes, as well as cutting head office costs, to ensure our business model remains sustainable in the face of these adverse business conditions. 
 
Chief Executive Officer, Mr Peter Lirantzis, said “I am disappointed that we have been forced to make hard decisions regarding our staff and store network, however they have had to be made to ensure Thorn Group continues to operate and thrive in the future. We intend to re-develop both the Radio Rentals’ digital business model and Thorn Business Finance once the COVID-19 crisis has passed.  
 
“The group presently has circa $40 million cash at bank and is actively pursuing a range of cost-cutting initiatives and recoveries, through which we expect to generate increased cash flow over the next year”, he concluded. 
 
The adverse business conditions created by the COVID-19 crisis are causing increased arrears in both Radio Rentals and Thorn Business Finance and will result in corresponding write-offs. 
 
These conditions are expected to continue to create a range of challenges and complex conditions for the Thorn business over coming months. 

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This business still has significant debt and plenty of headwinds as well, as they have outlined above.  While a +48% SP rise in a single day is welcome, it always pays to put that into some perspective.  At 12c (i.e. even after today's +48% rise), they're still -73.8% down from their $0.458 (45.8c) 12-month high (back in May last year) and -96% down from their $2.94 peak in early December 2014.  TGA has been an absolute disaster for shareholders - unless you purchased them in the last 7 weeks.

Update:  5:30pm, 24-Apr-2020:  TGA ended up +60.49% yesterday (at 13c) and rose another +19.23% today to finish the day at 15.5 cps.  Still -66% down from their 12-month high of 45.8 cps, and still -95% down from their $2.94 high in early December 2014.  It just goes to show how much of a gain you need in percentage terms to recoup losses of this magnitude.  It seems to me that they were priced earlier this week as though there was a 95% chance they would go broke, and now they've been repriced as though there is "only" an 80% chance they'll go broke.  I would think that the chances are still probably closer to 90%, but time will tell.

28-Aug-2020:  Forager's Australian Shares Fund (FOR) have released their 2020 Full Year Statutory Accounts (& Appendix 4E) after the market closed today.  Here's what they had to say about TGA this time:

Poor Performers Again This Year

Some of this year’s poor performers were also there last year. Thorn Group (TGA) alone cost investors 5.4% of the portfolio as its share price fell 71% over the year. Its small business equipment financing division has likely been wiped out by COVID-19, making the decision not to sell it last year a sub-optimal decision. Procrastination over the future of Radio Rentals has eroded the value of that division. The entire board and Thorn's CEO has been replaced and the new board has moved quickly to cut costs and finally decided Radio Rentals is worth more by being wound up, than continuing in its previous format. With a growing cash balance much larger than the current market capitalisation, it is time for shareholders to see some return.

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There seems there's always a reason to hold on to TGA, but they still keep heading south.  It's Steve Johnson's decisions to invest in these sub-optimal companies and then to make sub-optimal decisions about not selling them when they should - that has caused FOR to now have underperformed their benchmark (the All Ordinaries Accumulation Index) over every period up to 8 years.  FOR have only outperformed that index by 0.78%pa over 9 years, by 0% over 10 years (same returns over 10 years), and by only 0.02%pa since inception.  That's a mighty fall for a fund that was a great outperformer in their first few years and were trading at a persistent premium of over 20% above their NAV.  How those times have changed!!

FOR still hold TGA shares, and I still hold FOR shares.  I think we both need to wake up and smell the manure!