Thursday, February 2, 2012

Onex Corp

I do not own this stock (TSX-OCX), but I used to. I had mistaken this stock for a dividend paying stock. I bought the company in 2001 and sold it in 2008. I made a return of 5.9% per year, of which only .4% could be attributed to dividends. The portion that is dividends would be 7.4% of the total return. This is a lousy return considering the risk attached to this stock.

If you owned this stock over the past 5 and 10 years, you would have made 3.5% and 4.4% per year, respectively. The portion that could be attributed to dividends would be .4% per year. Why I say I mistook this stock for a dividend paying stock, is that it really is not a dividend paying stock. They have not changed the dividends paid for over 10 years. The current yield is a measly .3%.

The thing is you are not always rewarded for taking more risks. The Newfound Capital Corp (TSX-NCC.A) reviewed yesterday was a solid performer. There is nothing specular about the results, but they are solid. This company, with its high risk has not produced results. That is why I got out of it when I did. I did not see that it would be a good long term investment. In fact, I did not see it producing good results for me anytime in the near future.

Because this company is buying back shares, the per share values look better than the total values. Over the past 10 years, shares are down just over 27% (just over 2% per year). For example, the revenue over the past 5 and 10 years has grown at the rate of 8% and 1% per year. The revenue per share over the past 5 and 10 years has grown at the rate of 11.4% and 4.4%.

I cannot calculate growth in earnings as they had negative earnings in 2011. Earnings have been erratic with some years with high earnings and 3 other years within the past 10 years with negative earnings. If I look at what earnings are expected this year, then growth in earnings is negative over the past 5 and 10 years at -15% and -4% per year, respectively. However, it would appear that the company has money coming into earnings from discontinued operations and that might shove up earnings for 2011 (only) to higher than it has ever been. The thing with such earnings is that they are not reproducible in other years.

The best growth is in cash flow and over the past 5 and 10 years, it is up 20% and 10% per year, respectively. Book value growth is mediocre and is up 8.5% and 3.6% per year over the past 5 and 10 years. However, with the new accounting rules it would appear that book value is going to go up a lot. It also appears that the value attributed to Non-controlling interest will go down.

Return on Equity is also erratic, with the 5 year median ROE at 12.3%, but the ROE at the end of 2010 at -3.4%. There were no earnings in 2010. With this sort of business, the erratic changes in returns or earnings each year might be acceptable if the total return was very good. But it is not.

The debt ratios are mixed. The Liquidity Ratio is the best with a very good current value of 2.05. The Asset/Liability Ratio is a bit low at 1.26. The current Leverage and current Debt/Equity Ratio are high at 13.03 and 10.35, respectively.

When I look at insider trading, I find $6.4M buying and minimal insider selling. They have paid between, approximately, $31.75 and $37.75 for these shares. There are 109 institutions that own some 39% of this company. They have bought and sold this stock over the past 3 months and have increased their shares by a minimal amount (1%).

The analysts’ recommendation on this stock covers Strong Buy, Buy and Hold. The consensus recommendation would be a Buy. (There is nothing surprising here as this is the recommendation I most often see on any stock.) One analyst says that the stock is undervalued. They point out that the company has almost $2.2B in cash.

A number of analysts like this company. They think it is trading at a discount to its NAV (Net Asset Value). A few mention that they would like it to raise the dividend. One suggested it should not be buying back so much stock. Another says that it rebuys shares at $32 to $33 as the company sees value in their shares at that that price.

I get 5 year median low and high Price/Earnings Ratios of 9.18 and 11.49. These are quite low. Problem is the number of negative earnings years which will push down median values. The current P/E ratio of 33.31 is much higher. It is quite high as P/E Ratios go.

I get a Graham price of $20.47 and the current stock price of $35.31 is some 73% higher. The high and median difference between the Graham Price and stock price is the stock price being 83% and 50% higher. So the current difference is near the high difference.

I get a 10 year median Price/Book Value Ratio of 3.61 (which is quite high). The current P/B Ratio is 1.89 which is some 52% of the 10 year value. Even the one for 2011 at 2.42 is some 67% of the 10 year value. This would point to a very good current stock price. Since they do not raise dividends, looking at dividend yield has no value.

I personally would not buy this stock again. I do not think you get rewarded for the risk taken. This stock is really a private equity fund. (Or, something like a Hedge fund.)

Onex is one of North America's oldest investment firm committed to acquiring and building high-quality businesses in partnership with talented management teams. Onex manages investment platforms focused on private equity, real estate and credit securities. Gerald Schwartz is a major owner. Its web site is here Onex. See my spreadsheet at ocx.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. I go through your website it is very good and we are also having similar website you can visit us.