I bought this stock (TSX-PPL) in December 2001 for my Trading Account and for my RRSP Account. I have made a return of 17.4% per year on this stock. Pembina used to be an Income Trust (TSX PIF.UN), but changed to a corporation in mid-2010. They did not change their dividend at conversion, but this is a possibility in 2014 if they do not have sufficient earnings and cash flows. It is in 2014 that they will run out of the tax pool, and will have to start paying taxes.
When I look at the Insider Trading report, I find $1.5M net insider buying. There is a very small amount of insider selling by CEO. Insiders do not have a substantial percentage of shares in this, however, a number of insider do own shares worth in the $1M range. For example, the CEO owns shares worth $8.5M. Pembina does have a company share buying plan and a number of insiders are using this to buy shares. Insiders also hold convertible debentures. All this shows that insiders do have confidence in this company.
There are 74 institutions that hold just over 15% of the shares of this company. Over the past 3 months, there have been 13 net institutional buyers for a net increase in shares of 1.6M. This also shows confidence in this stock. However, you cannot assume that institutional buyers make better choices than individual buyers do.
When I look at 5 year median Price/Earnings Ratios, I find a low of 12.6 and a high of 16.9. The current P/E of 28 would appear to be high. The main reason for this high P/E is that earnings are expected drop almost 30% in 2011. When I look at Trailing 5 year median P/E Ratios, I get a low of 15.6 and a high of 20.9. The current Trailing P/E is 20.3. So, this is also towards the high side. (Trailing P/E is using last year’s earnings and this year’s price.)
I get a 10 year median Price/Book Value Ratio of 2.23 and a current one of 3.27. The current one is some 40% above the 10 year median. The reason for this is Pembina’s Book Value has not grown over the years.
I get a current Graham Price of $11.42. The Current stock price of $23.14 is some 104% higher than the Graham price. The stock price has often been above the Graham Price, but the 10 year median high difference is 45%. Even if you use the higher Graham Price of 2010 of $13.47, the current stock price is still about 72% higher than the Graham Price.
The current yield is 6.7% and the 5 year median yield is 8.8%. The main reason for this is that the dividend has not increased since 2009. However, all these ratios do point to a rather high current stock price. The reason for the lower estimate earnings for 2011 and 2012 seems to be because of the company’s gas servicing business unit where marketing margins are expected to decline because of increased competition.
When I look at analyst’s recommendations, they are all over the place. I find recommendations of Strong Buy, Buy, Hold, Underperform (or reduce) and Sell. The consensus recommendation would be a Hold. There are far more Hold recommendations than all the others combined. (See my site for information on analyst ratings.)
It would seem that some think it is wise to reduce your investment in this firm or sell outright. The reason seems to be that the stock is thought to be overpriced. That is the stock price is too high and that they give a 12 month stock price lower than the current stock price. A number also expect that this should be only bought for income and it will have low growth going forward. One analyst calls this stock, boring but steady and gives it a Strong Buy.
I like utility stock for income and I will continue to hold the shares that I have in this company. I will not be buying any more because I have enough. However, I may change my mind on this stock if they cannot grow their dividends beyond 2013 or 2014.
Pembina transports crude oil and natural gas liquids produced in Western Canada. It owns and operates oil sands pipelines and has a growing presence in midstream and natural gas services sectors. Pembina holds a 50% interest in the Fort Saskatchewan Ethylene Storage Facility. Its web site is here Pembina. See my spreadsheet at ppl.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.
No comments:
Post a Comment