Tuesday, January 31, 2012

Loblaw Companies

Currently, I am trying to review all the stocks I follow that I did not review in 2011. I will only be putting out one entry per stock until I finish this list off.

I do not own Loblaw Companies (TSX-L) but I used to. This is an interest stock to look at. It got into trouble back in 2005 and it has yet to recover. I bought this company in 1996 and 1998 and then sold in 2007. I made 10.14% per year on this stock. The portion of my return attributable to dividends would be 1.92% per year or 18.8% of my return. I sold because I did not see the company improving any time soon.

This company used to have a very good record of increasing their dividends. The model was low dividend yield (1% or lower), low Dividend Payout Ratios (20% for earnings, 10% for cash flow), and high dividend increases (20%). Model values are to give you an idea of what they would be aiming for, they are not meant to be exact figures.

They got into difficulties and the dividends have not changed from 2005. The 5 year median DPRs are 35% for earnings and 15% for Cash Flow. The DPRs for 2011 is expected to be some 29.5% for earnings and 14.4% for Cash Flow. DPRs are certainly improving recently, but I doubt if they have come down far enough for any dividend increases.

If you had held this stock over the past 5 and 10 years, you would not have made any money. The portion of the total return from dividends is around 1.8%, but they do not cover the capital loses. The stock has been improving since 2005, but the current stock price is still around 50% less than the high made in 2005.

Generally speaking with growth rates, the 10 year growth rate is better than the 5 year one. For example, for earnings, the 5 year growth rate is a negative 2% per year. The 10 year growth rate is 3.6% per year. The thing is the 10 year growth rate starts before 2005 (that is in 2001) when the company still had growth. There really has been not much growth over the past 5 years, which starts in 2006.

The company still has earnings and cash flow. They only had one year, in 2006 with negative earnings and no years of negative cash flow. However earnings are not what they used to be and they are not increasing like they used to.

As far debt ratios, they are fine and have generally been fine. The current Liquidity Ratio is 1.45, the current Asset/Liability Ratio is 1.54, the current Leverage Ratio is 2.84 and the current Debt/Equity Ratio is 1.84.

The return on equity ratios since 2005 is not like those prior to that year. The one ROE for the financial year ending in 2010 is 9.9%, on the edge of being good. The one for 2011 is expect to be good at 12.5%.

When looking at insider trading, I find insider selling of $2.3M and minimal insider buying. All insiders, but directors have more stock options than shares. Some 126 institutions hold around 11% of the outstanding shares. Over the past 3 months there has been lots of buying and selling and they have marginally decreases their shares.

When I look at analysts’ recommendations, I find Strong Buy, Buy and Hold recommendations. The consensus is a Buy. The reason for Loblaws problems was their IT spending on a new supply chain. I had given up in 2007 that it would be finished anytime soon. Now the analysts with Buys recommendations feel that IT expenses will start to decline in 2013and that the new supply chain system will be finished at the end of 2011. (I have heard this before.) The Buy recommendation comes with a 12 months stock price of $42.90 and a Strong Buy comes with a 12 months stock price of $50.

I get a 5 year median low and high Price/Earnings Ratio of 13.20 and 17.79. The current P/E ratio of 12.2 is therefore low on a stock price of $36.45. I get a 10 year median Price/Book Value Ratio of 2.54 and a current one of 1.73. This is some 67% of the 10 year median ratio and points to a low stock price.

I get a Graham Price of $37.75 and the stock price of $36.45 is some 3.4% lower. Over median difference between the Graham Price and the stock price over the past 10 years shows the stock price way above the Graham Price. (This is typical of growth stocks, which Loblaws was.) This has changed over the past 5 years. The median difference between the stock price and Graham Price over the past 5 years is the stock price being 4% higher than the Graham Price. The low difference between the stock price and Graham Price is the stock price being 8.8% lower. This shows a better than reasonable stock price.

The last thing to look at is the Dividend yield. The current yield of 2.3% is some 5.4% higher than the 5 year median dividend yield of 2.19%. This shows a reasonable stock price. So my stock price tests shows the stock price ranging from low to reasonable.

I have other stocks in Consumer Staples, including Metro and Alimentation Couche-Tard Inc., so I do not need any stock in this area. I am not considering Loblaws at the time as an investment. I might look again when it restarts raising their dividends again.

Loblaw Companies Limited, a subsidiary of George Weston Limited, is Canada's largest food retailer and a leading provider of drugstore, general merchandise and financial products and services. Loblaw offers Canada's strongest control (private) label program, including the unique President's Choice, no name and Joe Fresh brands. In addition, the Company makes available to consumers President's Choice financial services and offers the PC point loyalty program. W. Galen Weston and George Weston Ltd own 63% of this company. Its web site is here Loblaw. See my spreadsheet at lob.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.

Monday, January 30, 2012

Lassonde Industries

I do not own this stock (TSX-LAS.A). I started to follow this stock in 2010 because of a favorable report I read on this stock. The dividends are low, with a current dividend yield of just 1.7%. However, they have a fairly good record of dividend increases with dividend growth over the past 5 and 10 years at 15% and 14% per year, respectively.

With such a low dividend yield, you have to hold this stock for at least 10 years to get a decent return on your original investment. In the past, after 10 years you got a return on original investment of between 4% and 8.7%, but with a median return of just 4.28%. After 15 years, the median return on your original investment moves up to 9.45%.

As far as total return is concerned, the 5 and 10 year return is at 14.6% and 16.6% per year respectively. The portion of the total return that would be attributable to dividends is just over 2% per year. This stock would be considered to be a dividend growth stock. It is not on the dividend lists I follow, and this is probably because they cut the dividend in 2007 by 10%. It quickly recovered and the dividend increase in 2008 was 45%. However, investors do not generally like to see dividend cuts.

Since the annual statement is not out on this stock for the year ending in 2011, my other growth figures are to the latest annual statement of December 2010. For this company, the per share values are better than the total values. This is because they have been buying back shares, not a lot, but some most years. The number of shares outstanding has been decreasing by around 1.8% per year.

So revenues are up over the past 5 and 10 years at the rate of 10.6% and 8.5% per year, respectively. Revenue per share is up over the past 5 and 10 years at the rate of 11.5% and 8.7% per year, respectively. The earnings per share are also up nicely over the past 5 and 10 years, with growth at 14% per year over these two periods.

Cash Flow is up by 15% and 10% per year over the past 5 and 10 years. Book Value is up12.5% and 10% per year over the past 5 and 10 years. As you can see, growth in this stock is very good, no matter what you are looking at.

You have two classes of shares for this company. The Category B shares, not sold on the TSX are multiple voting shares. The Category A shares, on the TSX, are subordinate voting shares. As is common with owner controlled companies, the debt ratios are quite good. All the debt ratios are good, but the current ones for the 9 months period ending in September 2011 are not as good as usual.

The current Liquidity Ratio at 2.01 is lower than the 5 year median of 2.05. The Asset/Liability Ratio at 1.55 is lower than the 5 year median of 2.22. Also the current Leverage and Debt/Equity Ratios at 2.82 and 1.82 are higher than the 5 year median of 1.84 and 0.82. The reason is an increase in long term debt to financial a recent acquisition (Clement Papas). See news story at G&M.

The return on equity has always been good on this stock, with a ROE at the end of 2010 of 15.9% and a 5 year median ROE at the end of 2010 of 16.4%. It would appear that the ROE will be in the same neighborhood in 2011. The ROE on comprehensive income is also good with a 5 year median ROE of 16%.

When I look at insider trading, I find minimal insider buying by a director. There is no insider selling. There are 8 institutions that own some 34% of the outstanding stock of this company. Over the past 3 months there have been no sells and no buys by institutions.

When I look at analysts’ recommendations, I find a couple of Buy and one Hold recommendation. The consensus would be a Buy. The analyst with the Hold recommendation just says the company is a long term hold. The ones with Buy recommendations really like the recent US acquisitions. Feel that it has a good clean balance sheet and the current increase in debt is only temporary. This stock is a buy for long term gains and rising income.

I get 5 year median low and high Price/Earnings ratios of 9.66 and 11.88. The current P/E ratio of 10.61 would place the stock price of $68.99 at a reasonable level. I get a Graham Price of $78.68 and the current price is some 12% lower. The median difference between the Graham Price and stock price is the stock price some 7% lower. This also shows a reasonable current stock price.

I get a 10 year median Price/Book Value Ratio of 1.71 and a current one of 1.51. This current one at 88% of the 10 year ratio shows a reasonable to good stock price. The only test not to show a good current price is the dividend yield which at 1.71 is some 10% below the 5 year median dividend yield of 1.95%. The reason for this is that the most recent dividend increase is just 4.3%, one that is lower than usual for this company.

I am not in the market for a consumer staples type stock, but if I was I would certainly consider this stock. It has done well over the years. I will continue to follow this stock.

Lassonde Industries Inc. is a leading manufacturer of pure fruit juices and fruit drinks in Canada, and the largest manufacturer and distributor of apple juice in Eastern Canada. Through its subsidiaries, Lassonde is active in the processing, packaging and marketing of food products such as pure fruit juices, fruit and citrus drinks, the canning of corn on the cob for foreign markets as well as dipping sauces, fondue bouillon, meat marinades, barbecue sauces and baked beans. The Company also markets its know-how in Canada and abroad. Its web site is here Lassonde. See my spreadsheet at las.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.

Saturday, January 28, 2012

TRANSFORMATIONS 2012


Artists are:

Ethel Christensen
Kathleen Gabriel
Stephanie Ledger
Cathy McPherson
Malgorzata Pienkowski
Show runs:
January 30 – February 12

Opening Reception:
Please join us for the opening reception with jazz guitarist Lawrence Papoff and violinist Molefe Mohamid-Mitchell: Friday, February 3rd, 6-10 p.m.

 
ART SQUARE GALLERY
334 Dundas Street West, Toronto
(Located across from the Art Gallery of Ontario)
Gallery hours: Monday to Sunday 10am – 11pm

Friday, January 27, 2012

Just Energy Group

I do not own this stock (TSX-JE). They used to be an Income Trust company called Just Energy Income Trust (TSX.JE.UN), and before that they were Energy Savings Income Fund (TSX-SIF.UN). They have a Wikipedia entry.

I must admit, I wonder at the viability of their business model. Just Energy's business involves the sale of natural gas and/or electricity supply to residential and commercial customers under long term fixed price. The company derives its profit from the difference between the price at which it is able to sell the commodities to its customers and the price at which it purchases them from its suppliers.

For its customers, it seems the choice is lower, but variability rate or a fixed and higher rate. Sometimes the fixed rate is much higher. Why would anyone go the fixed rate when it is a higher rate. It has to be higher rate because if it is not, Just Energy could not make any money. Personally, I would never go for a higher fixed rate.

It would seem that to get people to sign up, the company sales men have been less than honest. The complaints seemed to have slowed down, but maybe they have just switched media. See article in the Toronto Star dated May of 2010. I cannot find print online complains later than May of 2010. However, there are more recent ones on YouTube dated January 15, 2011.

So, what are they doing for their shareholders? Well, they have not raised the dividend since 2009. However, I must admit that most companies that went from Income Trusts to corporations haven’t either and a lot have lowered their distributions. And, the dividend yield is very good at 10.5%. That is higher than a lot of converted income trust companies.

On the down side, the Dividend Payout Ratios are very high. The 5 year median DPRs for earnings is 81% and for cash flow is 110%. The DPR for the financial year ending in March 2011 were lower for earnings at 33%, but not for cash flow at 110%. The DPR for Cash Flow minus the working capital is still high at 88%. For the financial year ending in March 2012, the corresponding DPRs are expected to be 167% for earnings and 88% for cash flow.

Their paying out too much in dividends is showing up in the Book Value. The Book Value turned negative in 2009 and has been negative ever since, although it is improving, if you can say that about a negative Book Value. In 2009 the book value was a negative $6.38 and it is currently a negative $1.58.

There are some bright spots. The revenues have been increasing nicely, with revenue per share up 14% and 29% per year over the past 5 and 10 years. The EPS is showing growth of 50% per year over the past 5 and 10 years, however, it would appear that earnings for the last financial year of March 2011 was usually high, so growth might be really be in the range of 9% and 33% per year over the past 5 and 10 years. This is still good. Cash flow has also been increasing nicely at the rate of 8% and 20% per year over the past 5 and10 years.

However, there are other negatives. Take debt Ratios. The current Liquidity Ratios is 0.67. This means that current assets cannot cover current debts. If a company has a good cash flow, this is not so problematic. The usual thing to look at is Cash Flow after dividends. However, this Ratio is also extremely low at 0.68. Not much improvement. The current Asset/Liability Ratio is also very low at 0.88. (Assets cannot cover liabilities.)

I cannot do any book value/debt type ratios as the company has a negative book value. So I looked at Debt and Cash Flow. The current Debt/Cash Flow Ratio is 9.39. You do not really like to see this over 2.00.

When I look at insider trading, I find insider selling at $4.2M and minimal insider buying. The selling all occurred at a relatively high point early in 2011 and the buying at a relatively low point in October 2010. There are 60 institutions that own 23% of the shares of this company. There has been buying and selling over the past 3 months and they have increased their holdings by 2.5%.

What do the analysts say? Well plainly they do not have the reservations about this company that I do. I can only find Strong Buy, Buy and Hold recommendations. They like the fact that the company has been expanding into long term variable –priced contracts and green energy products. They admit that the company has some challenges, but like the great dividend yield and feel the current stock price is attractive.

There may not be any sell recommendations, but there are some Don’t Buy recommendations. These analysts are worried about the dividend sustainability, about the weak balance sheet and business plan sustainability. (I pointed out the weak balance sheet when talking about debt ratios above.)

However, analysts giving buy recommendations like the dividend and feel it is sustainable. One buy recommendation came with a 12 months stock price of $14. The consensus recommendation is a Hold with a 12 month stock price of $13.17.

Personally, I like long term investing and why buy a company that has lots of problems when there are other great companies to buy. I would not buy this. I do not like the weak balance sheet. I do not like the negative book value. I do not like all the complaints about their selling tactics. I do not like to buy companies that people have complained about how they operate.

Just Energy’s business involves the sale of natural gas and/or electricity to residential and commercial customers under long-term fixed-price and price-protected contracts. Just Energy derives its margin or gross profit from the difference between the fixed price at which it is able to sell the commodities to its customers and the fixed price at which it purchases the associated volumes from its suppliers. The company also offers “green” products through its Just Green program. Through its subsidiary Terra Grain Fuels, the company produces and sells wheat-based ethanol. Its web site is here Just Energy. See my spreadsheet at je.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.

Thursday, January 26, 2012

Jean Coutu Group

I do not own this stock (TSX-PJC.A), but I used to. I bought this stock in 2000 and 2004 and sold in 2007. I made 7.4% per year. The dividend portion of this return would be 1.1% per year. The thing was that they had bought some drug stores in the US and they were not doing well. This was the Eckerd drug stores they bought in 2004. In June of 2007 they sold these stores of Rite Aid in return for a share in Rite Aid.

When I sold in 2007, I felt that the company would not be doing anything for a while. They hit their peak in 2006 and have never recovered. Stock price is back to where it was in 2001 and that was a down year for the company and for the market. When I bought the stock, I bought it was a dividend paying growth stock. The dividend yield was below 1%, but it was increasing fast.

If you had held this stock over the past 5 and 10 years, you would have lost money. It is down about 2% per year including the dividend which was running around 1.5% per year. Since median price in 2005, this stock has lost 26% of its value over these 7 years.

They had stopped dividend increases in 2005 and 2006, but then started to raise the dividends again and have a good record of dividend increases with the 5 and 10 year growth in dividends at 14% and 11% per year, respectively. This is a consumer stock and lots of them have very low dividend yields, very low Dividend Payout Ratios and high dividend increase rates.

When I first bought this stock in 2000, the DPRs were 14% for earnings and 9% for cash flow. These DPRs were in the 30% range for earnings and 25% for range for cash flow for the 2011 financial year ending in February 2011. They are expected to retreat a bit in 2012 financial year to around 27% for earnings and 21% for cash flow. But as you can see, the increases come with higher DPRs. Not what you want to see.

Book Value has suffered greatly in recent years with Book Value being down by 18% and 4% per year over the past 5 and 10 years. One seemly bright point is the increase in earnings of 12% and 5% over the past 5 and 10 years. However, the 5 years measure is from an earnings low point, so is not as great as it initially appear s to be. Earnings are back to where they were in 2004.

Revenue has changed form from sales to Franchise revenue, so by this later measure it is up by around 6% per year over the past 5 years. Revenue is shown as being down on my spreadsheet, because you cannot compare sales figures to franchise figures as they are very different sorts of revenue.

When I look at the insider trading report, I find minimal insider buying and minimal insider selling, with a net of insider selling. Lots of insiders have options of different sorts. Jean Coutu pretty much owns all the B shares which are multiple voting shares. He has a lot of money invested in the company, around $1.5B.

When you look at analysts’ recommendations, there are Strong Buy, Buy and Hold ones. There are a lot of Hold recommendations and the consensus would be a Hold. There are no sell recommendations, but there are some Don’t Buy recommendations, which really do not fit into the current analysts’ recommendation format.

No one expects significant gains in stock price within the next 12 months and dividend is still low at 1.8%. A number of analysts do not like the fact that they still have an interest in Rite Aid. The buy recommendations tend to say how good consumer stable stocks are going to do over the next while and therefore company is a buy. (However, they do not say anything positive about this particular company.)

The 5 year median low and high Price/Earnings Ratios are 10.62 and 13.16, so the current P/E of 15.1 looks high. Since Book Value has been going down, this current Price/Book Value Ratio is way about the 10 year median P/B Ratio. The dividend yield at 1.81 is below the 5 year median dividend yield of 1.88. These tests point to rather high current stock price.

The only test to point to a reasonable price is the Graham Price. I get a Graham Price of $7.44 and the current stock price of $13.27 is some 43% higher. The median difference between the Graham price and stock price is the stock price being some 87% higher.

Personally, I do think that consumer stable stocks should start of do better, but I also think that there are better ones to invest in. They really haven’t recovered from their Eckerd adventure in the US.

The Jean Coutu Group operates a network of 343 franchised drugstores in Canada located in the provinces of Québec, New Brunswick and Ontario (under the banners of PJC Jean Coutu, PJC Clinique and PJC Santé Beauté). The Company also holds a significant interest in Rite Aid Corporation (‘‘Rite Aid’’), one of the United States’ leading drugstore chains with approximately 5,000 drugstores in 31 states and the District of Columbia. Controlling shareholder is Jean Coutu. He has 55%, but has 92.5% voting control.
Its web site is here Jean Coutu. See my spreadsheet at pjc.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.

Wednesday, January 25, 2012

Home Capital Group

I do not own this stock (TSX-HCG). This stock falls into the financial category and it is one financial that has done well though our recent problems. This company has a rather low dividend, but it increases at a very fast clip. The 5 year median dividend yield is 1.51, however, the 5 and 10 year growth in dividends is 23% and 31%. However, the dividend increases have been falling lately, with the last one in 2011 at just 11%.

The Dividend Payout Ratios are correspondingly low at a 5 year median rate of 14% for both earnings and cash flow. Total returns over the past 5 and 10 years have been at around 9% and 26% per year. The portion attributable to dividends would be around 1.5% to 1.8% over the past 5 and 10 years. The 10 year figure is higher for dividend, because the growth in dividend over the past 10 years was much faster than over the past 5 years.

Outside of known dividend and stock price for 2011, I am using the last annual statements of Dec 2010 to commend on other growth. For this company it has been increasing its revenues quite fast also, with revenue per share up 16.6% and 20.5% per year over the past 5 and 10 years. Their revenues so far this year have beaten last year’s revenue.

Cash Flow growth is also good, with the 5 and 10 years at 20% and 22% per year. Book Value has also grown well at 27% and 29% per year over the past 5 and 10 years. With the change in accounting rules to IFRS, book value has come down, but less than 2%.

Current Asset/Liability Ratios at 1.04 is rather typical of financial companies, as is the current Leverage and Debt/Equity Ratios of 10.39 and 9.39. These last two ratios have been coming down recently as their 5 year median values are 14.52 and 13.52 which is good. However, the Asset/Liability Ratio has recently gone down from a 5 year median value of 1.08 and this is not so good.


Over the past year there has been $6.5M of insider selling and a minimal amount of insider buying. Selling has been by CEO, officers and directors (not CFO). Both the CEO and directors have more shares than options. It is only the CFO and officers that have more options and both also have little in the way of shares.

Some 59 institutions own some 27% of the outstanding shares. Over the past 3 months they have marginally increased their holdings (by less than 2%).

When I look at analysts’ recommendations, I find Strong Buy, Buy and Hold. The overwhelming recommendation is a Buy and that is the consensus. This buy comes with a 12 months stock price of $63.89. Many analysts feel that this is a well-run company. However, please note that they do have some uninsured mortgages (sub-prime mortgages).

This stock has always had rather low Price/Earnings Ratios. The 5 year median low and high P/E ratios are 7.44 and 10.78. The current P/E of 8.3 is between the median P/E and low P/E ratios. I get a Graham Price of 54.91 and the current stock price of $52.77 is some 4% lower. The median difference between the Graham Price and stock price is the stock price being some 23% higher.

I get a 10 year median Price/Book Value Ratio of 3.44 and a current one of 2.33, which is some 68% lower. The current dividend yield of 1.52 is just above the 5 year median of 1.51. However, this dividend yield has been lower in the past with a 10 year median dividend yield of just 1.05%. All of these tests except the last one point to a very good price. The last one points to a reasonable price.

To me this looks like a good stock to hold. The reason I do not is because I already have too much invested in financials at the present time. I will not be selling most of my financial, especially my life insurance ones as I expect them to recover very well over the longer term. At some point I will have too much in banks and life insurance companies when these areas recover. So, I might consider selling some other financials in the future and maybe take another look at this one.

Home Capital Group Inc. operates through one subsidiary, Home Trust Company, to provide mortgage lending, deposit, retail credit and credit card issuing services. They have subprime mortgages. Its stock is widely held. Its web site is here Metro. See my spreadsheet at hcg.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.