Thursday, December 2, 2010

Valener Inc 2

This stock (TSX-VNR) used to be called Gaz Metro (TSX-GXM.UN), but it is now Valener Inc. The company has also changed to a corporation. This occurred on 1st October 2010. However, the switch to a corporation was done differently than most. The only part that becomes Valener Inc is that portion of Gaz Metro that was publically owned. The other holders of Gaz Metro were, basically, Enbridge Inc. (TSX-ENB); French utility GDF Suez; Caisse de depot pension fund; and SNC-Lavalin (TSX-SNC). On November 2nd, 2010, SNC-Lavalin agreed to sell their 10% interest to a group of Financial Institutions, and so they no longer own any share in this company.

There is no action on the Insider Trading report, no Insider Buying and no Insider Selling, mainly because this report just starts in October 2010 and does not run for a full year. Caisse de depot is known more for their political rather than financial investments. However, SNC-Lavalin and Enbridge are more astute buyers, and SNC-Lavalin just sold their shares. I own shares in Enbridge, so Valener would not be a good purchase for me.

Gaz Metro was paying out a very high percentage of the companies earnings in distributions. This is common for an income trust, but not wise for a corporation. They also have a history of paying out a high percentage of cash flow. Again this is common for an income trust, but not for a corporation. I noticed that they have lowered their distributions (or dividend) payouts, but have they lowered them enough. I also wonder about the estimates that I have picked up.

When I look at the P/E Ratios, I get a 5 year median low of 10.8 and a 5 year median high of 12.8. On sites that use last 12 months earnings to calculate the current P/E, they show a P/E of 13.5. Using the estimates I got I get a current P/E even higher at 20.3. So, the P/E is probably a bit on the high side for this stock. I get a current Graham Price of $16.52 and one for September 2010 of $16.06. The current price of $17.07 is just 3% above the current Graham Price and about 6% above the September one. Except for the last few years, this stock’s price has always been higher than the Graham price.

For the Price/Book Value Ratio, if we use the Book Value of September 2010, this ratio is 2.20, which is about 95% of the 10 year average of 2.32. This stock currently has a dividend yield of 5.9%, which is quite good. The 5 year average is 7.8%. However, this stock just reduced their dividend on change to a corporation. A lot of income trusts are doing the same. So basically, it appears that the price is neither high nor low.

When I look at analysts’ recommendations, what I find is lots and lots of Hold recommendations. There are also some Underperform and Sell recommendations. The consensus would be a Hold. (See my site for information on analyst ratings.) Mostly it seems that analysts think the price is too high as they give stock price over the next 12 months from around $15.50 to just under $17.00. Obviously, they think the stock is over priced. One analyst thought this company suitable for investors looking for long term stable income.

I will continue to follow this stock, but will not buy, as I already own Enbridge.

Valener is a company whose core business is the distribution of Natural Gas in Quebec. It is also, indirectly, the sole shareholder of the Vermont Gas System (VGS), and the Green Mountain Power Corp (GMP), the second largest electricity supplier in Vermont. Its web site is here Valener. See my spreadsheet at vnr.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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