Wednesday, February 1, 2012

Newfoundland Capital Corp

I do not own this stock (TSX-NCC.A). I started to follow this stock as it was suggested as a decent dividend paying stock for investment purposes. It is not only any dividend lists that I follow. The dividends have been a bit erratic. It started to pay dividends in 1997and stopping them in 2000. They also paid a special dividend in 1998. They paid no dividends from 2000 to 2002 and then restarted them in 2003.

The company increased the dividends by 200% in 2005 and then there was no increase until 2010. In 2010 there was a 20% dividend increase in and 2011 there was a 50% dividend increase. The company is clearly paying only dividends that they feel that they can afford. So if you invest in this company, you will have to be able to manage such inconsistencies. The company is clearly hit by recessions as they had negative profits in 2001 and in 2008.

The current dividend yield of 2.25% is higher than the company’s historical norm, which seems to be closer to 1.5%. However, they have made money for their shareholders as the total return over the past 5 and 10 years is at 8.2% and 12.5% per year, respectively. The portion of the total return attributable to dividends would be around 1.6% and 1.7% per year, respectively.

This company has solid growth in revenues, earnings, book value and cash flow. There is nothing spectacular about this company’s growth, but it is solid.

A weakness would be in debt ratios. They are fine, but usually when an individual or family has majority voting rights debt ratios are very good.

The current Liquidity Ratio is 0.90 with a 5 year median ratio of 1.18. (A prudent ratio is 1.50 or better and if less than 1.00, it means that current assets cannot cover current liabilities. The current Asset/Liability Ratio is much better at 1.91 with a 5 year median of 1.78. The current Leverage Ratio is 2.09 with a 5 year median of 2.22 and the current Debt/Equity Ratio is 1.09 with a 5 year median ratio of 1.22.

Compare the above debt ratios with Lassonde which I reviewed lately and that has the same company structure. The 5 year median ratios are 2.05 for Liquidity, 2.22 for Asset/Liability, 1.84 for Leverage and 0.84 for Debt/Equity.

When I look at insider trading, I find only insider buying of $1.7M and no insider selling. Insider buying was at $7.25 and $8.00. There are 2 institutional holders of these shares with only just 1% of outstanding shares owned. There was no buying or selling of shares within the last 3 months.

When I look at analysts’ recommendations, I find few followers (only 2) of these shares and their recommendation is a Hold. Basically, it is felt that the share price is too high and that there is a lack of liquidity for the shares. (Liquidity has to do with the number of shares traded daily.) Analysts seem to feel that the share price on this stock has always been too high. The 12 months stock price given for Hold recommendations are $9.00 and $9.50.

I get a 5 year median low and high Price/Earnings Ratios of 10.43 and 14.65. (This range is not low, but it is not particularly high either as a low P/E ratio is consider below 10.) The current P/E Ratio for this company at 12.12 shows a relatively reasonable stock price. The 10 year Price/Book Value Ratio is 1.93. The current P/B Ratio at 2.29 is 18% higher therefore shows a higher than median stock price.

I get a Graham Price of $7.20 and the current stock price of $8.00 is some 11% higher. The median and low difference between the Graham Price and the stock price is the stock price being 24% and 7% higher than the Graham Price. This puts the current price between a relatively median and relatively low price, so makes it a relative reasonable stock price.

Lastly, the current dividend yield at 2.25% is some 44% above the 5 year median dividend yield of 1.56%. So this shows a relatively good stock price. So, my stock price tests show a mixed bag, but generally show a reasonable relative stock price.

This is a consumer discretionary stock. I am not in the market for any stock at this time, but I find this stock interesting and will continue to follow it. Insiders have bought this stock at $8.00, so it would seem that they do not feel that the stock price is too high.

Newfoundland Capital Corporation Limited also owns and operates Newcap Radio. Newcap Radio is one of Canada's leading radio broadcasters with 79 licenses across Canada. The Company reaches millions of listeners each week through a variety of formats and is a recognized industry leader in radio programming, sales and networking. The Company has 58 FM and 21 AM licenses spanning the country employing over 800 radio professionals in Canada. Newfoundland Capital Corporation Limited also owns and operates the Glynmill Inn, Corner Brook, Newfoundland and Labrador. Its web site is here Newfoundland Capital. See my spreadsheet at ncc.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:

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