Thursday, May 5, 2011

Leon's Furniture Ltd

This is a company (TSX-LNF) that I own. I first bought Leon’s in 2006 and have bought more in 2008, 2009 and 2010. My total return is 7.7% to April 30, 2011. The portion of my return from dividends is probably around 3%. Therefore, the portion from capital gains would be around 4.7%. This is not a great performance, but the 5 year performance of the TSX over the 5 years to the end of April 30, 2011 is just 2.7%.

This is a small, family owned company with little debt and a reasonable dividend. The current dividend yeidl is 2.64% and the 5 year average yeild is 2.53%. The company also gives out special dividends as they can afford to. The 5 and 10 year growth in dividends is 9.8% and 12% per year, respectively. They have a fairly good record of raising their dividend. The last time they did not raise the dividend was 2009, but instead they gave out a special dividend that year.

I noticed on the chart for Leon’s that the stock price fell just after the annual report came out. This is probably because revenues fell for the second year in a row. Leon’s had already said that they expected head winds in the later part of 2010 because of the HST. They also did not make the earnings estimate of $.90 and EPS came in at $.87. Companies tend to be punished for missing estimates.

However, estimates can be a real crap shoot. Estimates are future predictions and humans are really bad at predicting the future. I know I use estimates, but you have to use something. People tend to think that what when on in the past will continue. Not a particularly bad idea, and there is a certainly amount of inertia occurring. Things tend to go on as they have until things change. The stock market seems to punish companies that do not meet the estimates or do not surprise on this upside. This is just the way things are.

For this company, growth is mainly good but not great. Earnings growth over the past 5 and 10 year was 6% and 7% per year, respectively. Cash Flow growth over the past 5 and 10 year was 6% and 8% per year, respectively. The best growth was for the Book Value over the past 5 and 10 years at 9.75% and 8.9% per year, respectively. The Return on Equity has also been good, with ROE at the end of 2010 at 15.4% and the 5 year median at 17.9%.

We should also talk about debt ratios. The best are the Liquidity Ratio and Asset/Liability Ratio currently at 2.62 and 3.62. It is good if these ratios are at 1.50 and above. For other two ratios of Leverage and Debt/Equity lower is better; and it is best to compare with companies in the same business. However, they are both low at 1.38 and 0.38, respectively. The last one of Debt/Equity is especially low and being below 0.50 is very good.

I am pleased with my investment and I will continue to have an investment in this company. I believe Leon’s has been a good investment for me.

This company sells home furnishings, appliances and electronics through a chain of retail facilities and franchises located in Canada. Leon family owns 68% of this company. Its web site is here Leons. See my spreadsheet at lnf.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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