Friday, February 25, 2011

K-Bro Linen Inc 2

I started to follow this stock (TSX-KBL) because it was mentioned as one to watch at the Money Show I attended last November. This is another income trust company that has changed to a corporation and it has changed it symbol from KBL.UN to just KBL.

The unfortunate thing when a company converts to a corporation is that Insider Trading reports, after the conversion only cover from the conversion date. So the insider trading report for this company starts at January 1, 2011. So the report only covers 2 months, not the normal 12 months. For this company there has been no insider selling or insider buying since the first of the year. This does not tell you much.

For this company, the 5 year median low Price/Earnings Ratio is 12 and the 5 year median high P/E Ratio is 18.8. The current P/E Ratio of 17.4 is close, but under the 5 year median high. I get a current Graham Price of $15.42 and the current stock price is some 31% higher at $20.15.

This is the highest the stock price has ever been above the Graham Price. The average difference between the Graham Price and the average high price is 12%. Do not forget that the P/E Ratio and Graham Prices I am using include estimates for earnings for 2011. The earnings estimates may or may not be correct. These calculations are done to give you an idea of where the current stock price stands on a relative basis. The other thing to note is that the Graham Price uses the book value and this has not been growing while the stock was an income trust.

I get a 5 year average Price/Book Value Ratio of 1.36. I am using a 5 year average here because that is all I have since this company only started in 2005. The current P/B Ratio is 2.21 and this is over 60% above the 5 year average. The P/B Ratio is also the highest it has ever been. One explanation is that book value has not increase much over the past 5 years. However, I do not think this explains all of the 60% difference. A P/B Ratio of 2.21 is not particularly high, but it is not low.

The current yield is 5.5% and the 5 year average is 8.44%. This can be explained because the dividends have never been increased and the stock price has over the past 5 years. A yield of 5.5% is a good yield in itself. But you just have to wonder after this comparison of the current stock price ratios that the current price is not a little too high currently for this stock?

Well, when I look at what analysts recommend for this stock, they do not seem to think that the current price is too high. There are not many analysts following this stock, but the only recommendations are Strong Buy and Buy. (See my site for information on analyst ratings.) The consensus recommendations would be a Strong Buy. One analyst says this is a defensive small cap with growth potential. (The Debt Ratios are good, so I can see why it might be a defensive stock.) However, I cannot find much in the way of comments on this stock.

K-Bro is the largest owner and operator of laundry and linen processing facilities in Canada. K-Bro provides a comprehensive range of general linen and operating room linen processing, management and distribution services to healthcare institutions, hotels and other commercial accounts. K-Bro currently has seven processing plants in six Canadian cities: Quebec City, Toronto, Edmonton, Calgary, Vancouver and Victoria. Its web site is here K-Bro. See my spreadsheet at kbl.htm.

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. See my website for stocks followed and investment notes. Follow me on twitter.

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