Tuesday, November 24, 2009

North West Company 2

I want to review all the income trust stocks touted in the Money Show. There was a lot of talk at this show about some of the Unit Trust being currently good buys with very good yield. This is one of the stocks (TSX- NWF.UN) that was mentioned. This stock currently has a yield just over 7%.

When I look at Insider Selling and Insider Buying reports, what I notice is sales equal to $1.2M over the past year. All this selling seems to have been done by one director. This director still has $16.8M invested in this company, directly and indirectly at current prices. This is a widely held company.

When you look at spreadsheet ratios, I find that the P/E is reasonably low. Anything at 10 or lower is low. The current P/E is just over 11 and the forward P/E just over 10.5. The 5 year low is just under 10. If you look at sites that use the last 12 months earnings the P/E is still just over 11. (I use earnings estimates.)

The yield on this stock is 7.7% based on new distribution of $.34 per quarter or $1.36 per year. This is higher than the 5 year average of 6.6%, but under the 5 year high of 8.2%. When you look at the Price/Book Value, the current ratio of 3.02 is higher than both the 5 and 10 year average, however, it is not far off the 5 year average of 2.81. When you look at the Graham Price, I find that the current stock price is some 27% above the Graham Price.

None of the above ratios shows that the current price is low, but they do show that it might be a reasonable price. One thing to like is the Return on Equity, which has been very good lately. For example, the ROC for the financial year ending January 2009 was over 27% and it will probably be over 25% this financial year. This is something to like about this stock. The other thing to like is the good dividend yield and the fact that they give out special dividends when they can. People who invested in this stock over the last 5 and 10 years have made a good return on this stock.

What I do not like is the recent increase in the Accrual Ratio, which can point to the earnings not being as solid as they seem. This might be supported by the decrease in Cash Flow for Financial year of January 2009. For that financial year end, the earnings went up. A high Accrual Ratio is a sign to be cautious. The other thing I do not like is the lack of decent growth in Book Value.

Globe investor gives this stock a 4 star rating. When I look at analysts recommendations, I find only Buy and Hold recommendations. The consensus recommendation will be a Hold. (See my site for information on analyst ratings.) There are more Hold recommendations than Buy recommendations. Analysts seem to like to this company for being a stable earner. However, there is a feeling that times might be tough for this company over the next little while.
The company plans to change to a corporation after 2011 and they expect that the distributions, which will be in the form of dividends rather than interest will decrease at that time. However, the distributions were increased this year and it is expected they will be increased next year. It is also expected that more special distribution payments will made this year and next.

The North West Company is a leading retailer of food and everyday products and services to rural communities and urban neighborhoods in Canada, Alaska, the South Pacific and the Caribbean. North West operates 225 stores under the trading names Northern, NorthMart, Giant Tiger, AC Value Center, and Cost-U-Less. Its web site is www.northwest.ca. See my spreadsheet at www.spbrunner.com/stocks/nwf.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 at www.spbrunner.com/stocks.html for a list of the stocks for which I have put up spreadsheets. Also, look at other investing notes on my website at www.spbrunner.com/investing.html

1 comment:

  1. Do you have a reason why the accruals has gone up?

    Book value growth bothers me little as its mostly explained by keeping a high payout of earnings.

    I was wondering what anomalies in these earnings contribute to accruals increase/decrease?