Wednesday, September 8, 2010

Canada Bread Co. 2

I do not currently own this stock (TSX-CBY). It is not on the dividend lists that I follow, but it is recommended as a conservative investment by some newsletters than I look at occasionally. They feel it is a good buy for long term capital gains. Perhaps so, but I have no interest in it as it is not dividend paying. However, the newsletter does mention that they have not raised their meager dividend for years. There is also the possibility the parent company, Maple Leaf Foods will buy out the 10.2 per cent of Canada Bread that it doesn't already own.

How good is the current price for this stock? First, this is considered to be a growth company, so it should tend to have a higher P/E ratio. The median 5 year low is 13.7 and the median 5 year high is 20.9. On a relative basis, the current P/E at 12.9 therefore shows a good price. The next thing is the Price/Book Value Ratio and at 1.47, it is about 75% of the 10 year average of 1.95. There is no point in talking about relative yield, because the dividend does not change.

I am changing some “average” calculations to “median” calculations as I have notice some analysts are switching from average figures to median figures. I talked to a friend of mine that knows math (an actuary) and he suggested that there might be some very good reasons for the change. However, I must admit, that the change does not make a lot of difference most of the time.

I get a Graham Price of $48.73 and the current price of $44.89 is some 7.9% lower. This shows a good current stock price also. I should mention that with the Graham Price, I simply use in my formula, the estimate earnings for the current year and the current book value (all from my spreadsheet). The formula I use is the square root of (22.5 X EPS X BVPS), where EPS is earnings per share and BVPS is Book Value per share.

For other Graham Prices on my spreadsheet I use the diluted reported earnings per share. There is some controversy about what you should use. Some think that you should use net earnings divided by the outstanding shares. I find mostly that there is not much difference and I want a quick and easy way to get a value to match against the current price. Some site talks about the NCAV (or net current asset value) and have a formula for that, but I do not use this figure. If you Google Graham Number or Graham Price, you get a lot of sites, which talk a lot about Graham, but I think the formula I use is a common one.

So, on to what the analysts say about this stock. There are few analysts following this stock. I would think the reason for this is that there is not a lot of stock available. What I find is one Strong Buy and one Buy, so probably this is a Buy. (See my site for information on analyst ratings.) And, I guess the last thing to mention is that there is some (minimal) Insider Buying. There is no Insider Selling as far as Insider Trading over the past year is concerned.

Canada Bread is a leading manufacturer and marketer of value-added flour based products, including fresh bread, rolls, bagels and sweet goods, frozen partially baked or par-baked breads and bagels, and specialty pasta and sauces. The Company markets products under a number of leading brand names, including Dempster’s, Olafson’s, POM, Ben’s and Olivieri. Canada Bread has operations in Canada, the United States and the United Kingdom. The Company is 89.8% owned by Maple Leaf Foods Inc. Its web site is here Canada Bread. See my spreadsheet at cby.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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