Wednesday, June 15, 2011

K-Bro Linen Inc

When I reviewed this stock (TSX-KBL) in February 2011, the December 2010 annual statements had not yet been published. Also, I was asked to review this stock again. My February reviews are here and here.

The dividend yield in February was 5.5% and it is now lower at 5.3%, and stock price has gone up from $20.15 to $20.84. The Earnings Payout Ratio is still quite high at 96.5%. The Payout Ratio re cash flow is much better at 43%.

Earnings and cash flow growth are still quite good. Revenues per share and Distributable Cash growth are just ok. Book Value growth is still non-existent. The 1st quarterly EPS of $.22 did not cover the dividends paid of $.28 and so the Book Value went down. However, cash flow per share at $.57 does cover dividends, and this is probably more important. Debt ratios are still all very good and the ROE for the 12 months ending March 2011 is good at 12.7%.

When I look at insider trading, I find no insider buying and no insider selling. The CEO and one of the officers of this company each hold just over $1M of shares in the company. There are 8 institutions that own some 48% of this company. Over the past 3 months, institutions have sold some 8% of their shares. Two Institutions have sold all their shares. However, selling tells you little, because you do not know why they sold, we just know that they did.

When I look at analysts’ recommendations, I find a number of Hold recommendations and one Strong Buy. The consensus recommendation would be a Hold. (See my site for information on analyst ratings.) Although the stock price has not go up much and estimates for 2011 have been increased, analysts with Hold recommendations seem to feel stock price is too high. Hold recommendations come with a 12 month stock price of around $22.00.

In February, analysts did not seem worried about the stock price. Now analysts seem to think that the stock price is too high. I thought it was relatively too high in February and this has not changed. Although, I must admit that the reason the stock price seems relatively too high is because dividends have not been increasing and book value has been decreasing.

This company seemed to have missed the 4th quarter of 2010 earnings estimate, but hit the 1st quarterly earnings estimate right on. Analysts seemed to have changed their minds about this stock when the Annual report hit the news in Mid-March. We know that analysts get a bit twitchy when estimates are missed.

The other thing is that Unit Trust companies are expected to have dividend yields in the 4.5% to 5.5% range due to dividend decreases and or stock price increases. This could very well be the reason for the current stock price. Probably, it is only time that will tell us whether or not the current price is too high. Hind sight is everything.

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.

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 this review update. I had invested in KBL and I had been satisfied with it. I made a 7% gain on it for the time I had been holding so pretty impressive. The stock value is stable, the dividend great. I discovered the stock on your blog and was happy to add in my portfolio.

    Another of yours performing well, ATP.

    I understand you don't do stock recommendation in here, but I like to pick in your stuff!

    So many thanks and continue to write your reviews. Much appreciate!