Thursday, February 24, 2011

K-Bro Linen Inc

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. Also, this company has only been around since 2005, so I have only 5 years of figures for it.

This company is giving out a very good dividend yield as it is still at 5.5%. However, they have never increased the dividend payment. They were not doing badly in the Payout Ratio under this Distributable Cash basis, however, the Payout Ratio as far as earnings and cash flow goes is high. They have been lowering it as far as these ratios goes, but not yet far enough to consider rising the dividend. Of course, since this is now a corporation, the Payout Ratios as far as earnings and cash flow goes, is now what counts.

When you look at total returns, investors have done very well with this stock. Over the past 5 years, investors could have made around 15% total return, with around 7.5% from dividends. To me, it will be a more interesting stock if they start to raise the dividend payouts. They have done moderately well in increasing the value of this stock over the past 5 years at 7.5%. They did very well during the last recession and this is a very nice thing to have in a stock over the long term. There is always going to be recessions.

The Revenue has grown at the rate of 16% per year over the past 5 years. However, the revenue per shares has not done as well, rising only 3.5% per year over the past 5 years. This is because this company did two public offerings in 2006 and 2008 after the initial public offering of shares in 2005. Earnings per share have done well as it has grown at the rate of 10.7% per year over the past 5 years.

Cash Flow growth is rather low at 2% per year over the past 5 years. However, Cash Flow excluding working capital changes, which many analysts think we should look at, is healthier at 7.7% growth over the past 5 years. The last growth figures to look at is growth in Book Value and this has not been great at 1.7% per year over the past 5 years. This is rather typical of income trust companies that based their payouts on distributable cash.

The debt ratios on this company are good. The Liquidity Ratio is currently at 1.54 with a lower 5 year average of 1.48. An average of 1.48 is a little low. The Asset/Liability Ratio currently at 3.19 with an average of 3.29 is very good. The Leverage Ratio at 1.48 and the Debt Equity Ratio at 0.46 is also good. You want to keep an eye on debt ratios as they talk to how safe it is to invest in a company.

The last thing to look at is Return on Equity. The ROE for the financial year ending in December 2009 was 12.2% with a 5 year average of 9.1%. The ROE for the 3rd quarter ending September 2010 was 13%. All this ROE figures are good.

Tomorrow I will look at my spreadsheet with a view to the current stock price and also look to see what analysts are saying about 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.

I recently bought some TECSYS Inc stock as a filler stock. It is selling at $1.91 a share and has a 2.5% dividend. This is another dividend paying small cap. I will review this stock shortly.

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.

1 comment:

  1. Thanks for sharing! I could see myself holding 100 stocks of this one without any problem. Seem like a nice fit and I like it! Awesome review :)