Wednesday, June 20, 2012

Le Chateau Inc. 2

I do not own this stock (TSX-CTU.A). As I said yesterday, I picked up this stock from a column Jennifer Dowty wrote in 2010 on Dividend Paying stocks. The title of the article in Investor’s Digest was Dividend Stocks: Buy, Hold and Collect. It was about stocks that paid dividends and special Dividends.

When I look at insider trading, I find no trading at all. Barry Gruman became an insider and bought more shares of Le Chateau in May of 2012. See Press release. As far as I can see, Barry Gruman was an analyst at First Marathon Securities Ltd. This did not have much effect on the stock.

There are still outstanding options, but except for officers, insiders have more shares than options. Gruman and the two biggest insider share holdings account for some 48% of the outstanding shares. Also, there are two levels of shares with Class B shares having multiple votes.

There are some 8 institutions that own 37% of the outstanding shares. Over the past 3 months they have reduced their shares by almost 16%.

Before the earnings loss for the financial year ending January 2012, the 5 year low, median and high P/E Ratios were 8.83, 10.86 and 12.89. However, you cannot get a fix on the Price/Earnings Ratios because there are no earnings. The one analyst following this stock feels earnings will be negative for the next two years.

I also cannot get a fix on the Graham price as this is partially based on earnings and again, there are none and unlikely to be any soon. For Dividend yield comparison, since they have totally cut dividend, I cannot get any sort of fix on this either.

What sort of price comparisons can I do? I can still look at the Price/Book Value Ratio. First, the 10 year median P/B Ratio is 1.74. The current P/B Ratio at 0.21 is only about 12% of that so this shows a relatively very low stock price. One good thing is that the price is below the book value as the P/B Ratio is below 1.00. A piece of bad news is that the Book Value was decreased by 5.8% between the end of financial year and the end of the 1st quarter. This is not good.

One positive value is the cash flow, so we can look at Price/CFPS. Before the recent annual period, the 5 year median P/CFPS Ratio was running at 6.89. Using the last 12 month CFPS value of $0.66, I get a current P/CFPS Ratio of 1.75 and this is low. (Or, in other words, the stock price is good.) There are three problems that I see here. One is that the 12 month cash flow is less than the cash flow for the last financial year by 21%. The next one is that the CFPS has been dropping for the last 3 years. Over this period it has dropped by 71%.

The final problem is that the company has no cash at the end of the 1st quarter. Cash at the end of the financial period ending January 2012 was $7M and at the end of the 1st quarter it is a negative $14M. The company seems to be rapidly going through money. They have to raise money and they have. As at April 28, 2012, the Company had a 3-year committed asset based credit facility of $70.0 million as well as an import line of credit of $25.0 million.

So, the company has assets and they still have cash flow. They have been able to raise cash via debt for the next 3 years. Can they turn the company around in this period of time? The company feels that they can and insiders are motivated by the fact they own a lot of shares in this company.

I can only find one analysts that follows this stock. The recommendation was changed from a Hold to a Sell after the most recent quarterly report for April 2012. I see also a couple of analysts give this stock a “Don’t Buy”. The Hold rating had come with a 12 months stock price of $1.10, which is lower than the current price. The Sell recommendation comes with a 12 months stock price of $0.50.

This is a very risky stock. However, you could earn good capital gains if the stock is turned around.

Tomorrow, I will review another clothing stock of Reitmans Ltd.

Le Ch√Ęteau is a Canadian specialty retailer and manufacturer of contemporary fashion apparel, accessories, and footwear at value pricing for style-conscious women and men of all ages. The Company has 231 retail locations, of which 227 are located in Canada and 2 in the New York City area. They also have 7 stores under license in the Middle East. Its web site is here Le Chateau. See my spreadsheet at ctu.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.

2 comments:

  1. I wonder about looking at European dividend stocks as well? For example, Siemens pays a good dividend, and many of their businesses are in growing sectors. While the Eurozone is a risk, an increasingly large part of Siemens' business is done in emerging markets. Plus, if the Euro breaks up, the D-Mark would rise sharply. Some of the large telcos in Europe also offer substantial dividends as well, but there one has does have very high exposure to Euro risks.

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  2. Bamboo investments:
    Sorry, I review very few stocks that are not Canadian. For companies like Siemens there are lots of analysts’ reports available. I am not really interested in analyzing foreign companies.

    Besides, being in Canada, I would rather invest in Canada. I do get foreign exposure by buying into Canadian companies that do business outside Canada.

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