Superior Plus Corp

I do not own this stock (TSX-SPB). When you have a stock that cuts its dividends, you should look at it to determine if you should buy more, sell, or keep what you have. The stock seemed to be paying too much out. If you look at the 5 year median Dividend Payout Ratios they are 210% for earnings and 85% for Cash Flow. There are lots of times when the DPR for either earnings or cash flow was over 100%.

Theoretically, income trusts can pay out more than earnings and cash flow, and this stock used to be an income trust. However, it is no longer an income trust. They at first kept the high distributions mainly because it had a tax pool (that allowed it pay no taxes). When income trust had high distributions, they also had negative growth in book value. Sometimes, a “return of capital” is really a “return of capital”.

Last year the distributions were decreased some 63%. This year, the DPR for earnings is still expected to be high at 109%. The DPR for cash flow is much better at 40%. Also, 2011 is not the only year that dividends have been decreased on this stock, there were decreases in 2000 and 2006. They also had some years of very good increases. So you could characterize this stock’s dividends as being inconsistent.

The only growth is in revenue, and over the past 5 and 10 years revenue per share is up 6.4% and 8.4% per year, respectively. Both cash flow and book value is decreasing rapidly, with cash flow down over the past 5 years by11% per year and book value down over the past 5 years by 14% per year. These values are also down over the past 10 years, but not by quite as much. Earnings are down also by a similar amount. They have no positive earnings for the last 12 months, but are expected to finish 2012 with positive earnings.

Another complaint people have about this stock is the high debt. The only good debt ratio is the current Liquidity Ratio at 1.52. The 5 year median ratio of 1.43 is less good. The current Asset/Liability ratio is low currently at 1.33 with an only slightly better 5 year median ratio of 1.40.

The current Leverage and Debt/Equity Ratios peaked in 2010 at 5.44 and 4.44. They are currently at 4.01 and 3.01. They are still higher than the 5 year median ratios which are more reasonable at 2.72 and 1.72. So these ratios are improving and hopefully this will continue to improve.

When I look at insider trading, I find some $1M of insider buying and a bit of insider selling for a net of buying of $.89M. There are a lot of insiders with common shares. There is a lot also with Convertible Debentures. The options issued are rights of Deferred Share Units or Restricted Share Units. There are lots of these too. There are some 26 institutions that hold 6.7% of the shares of this company. They have bought and sold shares over the past 3 months and their holdings have been reduced by 4.8% over this time period.

When I look for analysts’ recommendations, I find Strong Buy, Buy and Hold. There are lots of Hold recommendations and the consensus recommendation would be a Hold. (Interestingly, there were some sell recommendations a year ago, but none today.) A Buy recommendation comes with a 12 months stock price of $8.00.

This company got a new CEO last year and some analysts believe that Superior Plus will perform reasonable well in 2012 under this new CEO. They believe that the tax pool will last another 5 to 7 years. (This means that the company will not be paying Canadian tax during this period.)

One of the recent criticisms has been the unsustainable distributions. They have now lowered them. However, distributions are still quite high at 10.4%.

As far as stock price goes, I have 5 year median low and high Price/Earnings Ratios of 10.72 and 18.18. The current P/E ratio of 11.04 is therefore relatively very good. I get a Graham Price of 8.39, so the stock price of $6.07 is almost 28% lower. The 10 median low difference between the Graham Price and Stock Price is the Stock Price being some 15% higher. By the measure, the current stock price is good.

Even though the Price/Book Value ratio has been going up and book value has been coming down, the 10 year median P/B Ratio is not unreasonable at 2.32. The current P/B Ratio is 1.07 is only 46% of the 10 year median value. Also, the stock price is just above the book value. No sense in comparing dividend yield as the dividend has just been decreased.

Basically people have only made money on this over the past 5 and 10 years because of the distributions. The stock over both time periods has Total Returns around 6% per year. However, distributions were around 17% per year. If you own this stock, a gutsy move would be to buy more. A lot of analysts believe that the company will be just fine going forward. However, the risk level on this stock would be quite high.

The Divestor site says some interesting things about this company. See the site for some more information on Superior Plus. The Dividend Ninja also brings up debt levels on this stock. See Superior Plus.

Superior Plus Corp. is a group of diversified businesses that operate within three primary divisions. Superior’s Energy Services division provides distribution, wholesale procurement and related services in relation to propane, heating oil and other refined fuels throughout Canada and the North Eastern United States. Superior’s Specialty Chemicals division is a leading supplier of sodium chlorate and related technology to the pulp and paper sector and a regional Midwest supplier of chloralkali and potassium based products. Superior’s Construction Products Distribution division is a leading distributor of walls, ceilings and insulation products to the Canadian and United States construction industry. Its web site is here Superior Plus. See my spreadsheet at spb.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.