I do not own this stock (TSX-CTU.A). 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. Jennifer is a Portfolio Manager at Manulife Asset Management Limited. See her Bio on Manulife’s site.
This stock did pay some good dividends and the 5 year median dividend yield, before 2011 was 5.32%. In the not too distant past, it had paid special dividends in 2006 and 2008. Before dividends were totally cut in 2012, the increases to dividends were running around 19% per year.
As far as total return goes, it was 24% per year over the past 10 years. However, over the past 5 years, the total returns are a negative 24% per year. Over the past 10 years, 22.85% of the returns were due to dividends, which is some 94% of the total. Capital gain over the past 10 years is really, really low at just 1.45%. Over the past 5 years, the decline in stock value was moderated by an 11.17% dividend return.
The company’s earnings have been declining after reaching a peak in 2008. They hit a negative EPS in 2011 as well as in 2012. They had quite a bit loss in the 1st Quarter of 2012 at $.26 loss per share. After this quarterly report, the analyst following this stock changed his EPS estimates for this year from $.18 loss to a $.52 loss.
The Revenue growth is 0% and 4.9% per year over the past 5 and 10 years. However, the Revenue growth per share is even lower at 0% and 2.56% per year. Cash flow growth is a negative 13% for the last 5 years and a positive 6.8% over the past 10 years.
Book value has grown over both periods at the rate of 5.8% and 9.6% per year over the past 5 and 10 years. However, the book value can only go down if there is going to be multiple years of negative earnings. (It went down about 11% in 2011.)
There also seems to be a steady share increase of around 1% per year for the issuing of stock options each year. Although to the company’s credit, there was no such increase of 2011.
This company does currently have a strong balance sheet. However, strong balance sheets can erode quickly when earnings and cash flow tank. The current Liquidity Ratio is 2.40 and is lower than the one for last year which was 3.13. However, this ratio has fluctuated in the past.
The current Debt Ratio 2.32, while a very good ratio, is lower than for last year which was 2.58. I have records going back to 1997 and this is the lowest value it has hit in that time by a good margin. The current Leverage and Debt/Equity Ratios are still quite good at 1.76 and 0.76.
There was no Return on Equity for 2011 because there was an earnings loss. The 5 year median ROE is good at 19%. The 5 year median ROE based on comprehensive income at 18.3% confirms the good ROE based on net income.
The above does not paint a good picture of the current status of this stock. The stock is obviously in trouble. I will look at the price and what analysts say tomorrow. However, if the stock price crash has made your investment very small as far as you are concerned, you might want to hold it. On the other hand, the economic situation is not great and is likely to worsen before it gets better.
If the company can pull back from the brink and keep its balance sheet in relatively good shape, it could survive. The real question however, is not just can it survive. The real questions is “can it move past current problems and in the end thrive once more?”
My last comment is that Le Chateau Inc. is one company that does not make it very easy to find investor information. I had a hard time finding this, and in the end Goggled Le Chateau and Investor Relations to get it. Often, this is included under such titles as “About Us”. This is true of Le Chateau. If you go to the bottom of their web page you will find a clickable “About Us” that will lead to investor information. One thing that gets me about their annual report is that generally they have a handsome and believable man. However, the women are generally just pathetic.
Le Château 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.
I haven't looked at the share price for a few months as it was just too depressing and I'd lost so much there was no point in selling but nevertheless, I'm shocked to see it's 1.15
ReplyDeleteLe Chateau clothes are hyper expensive and clothes are not especially gorgeous. On top of it, its Quebec based company...
ReplyDeleteA big no-no for me.
They also recently did some heavy duty borrowing from GE Capital (70M), I believe this deal was motivated not just because they need some backup cash moving forward, but part if THIS money and NOT revenue from company performance is how Mr. Segal GUARANTEES paying himself back his own recent 10M loan to the firm. He himself is not betting on a turnaround and this is the proof. While employees and shareholders lose their jobs and investment, he walks away with his capital and interest. Absolutely no risk for him, WHATEVER the future brings.
ReplyDeleteMontreal, January 2, 2012 – Le Château Inc. (TSX: CTU.A) has entered into an agreement with a
Corporation controlled by Herschel Segal, the founder of Le Château and a Director and majority
shareholder of the Company, for long-term financing of $10 million. The financing is in the form of a four year, unsecured loan which bears interest at a rate of 7.5%, is repayable by way of equal monthly instalments of principal and interest, commencing in February 2013, and may be prepaid without penalty. The purpose of the loan is for the financing of ongoing capital expenditures and other investment purposes.
Effective April 25, 2012, the Company entered into a Credit Agreement with GE Capital Canada as the lead lender for an asset based credit facility of up to $70.0 million, replacing its previous credit facility of $22.0 million.
Am I missing something here or are my assumptions valid?
Pattirose:
ReplyDeleteSorry about your investment in this company. It is really hard to say if it will recover, but with the new loans they have about 3 years breathing space to do something.
Sunny:
I must admit that Le Chateau was never I shop I would go to, but they did seem to get a lot of customers.
I would not exclude Quebec companies from investing in as there are a number of good ones like Richelieu Hardware Ltd.
Anonymous:
In the second part of my review I mention the company getting loans, including the $70M loan. I still think that Mr. Segal would be better off if the company revives and therefore would be motivated to try. It is a tough industry and the global economic situation is lousy.
I still think their window of opportunity is about 3 years for them to turn the company around.
Retail is not a great area for investment as it is risky, but it does provides some diversification.
I looked at both Le Chateau and Reitmans some years ago and I have always like Reitmans better for a number of reason. I will start a review of Reitmans today. I own neither, but my son owns some Reitmans stock.