Thursday, August 23, 2012

AGF Management Ltd 2

I do not own this stock of AGF Management Ltd. (TSX-AGF.B), but I used to. I bought this stock in 2001 and sold it off in 2006 and 2008. I made over this period of 7 years some 2.08% per year return. All the return was dividends. I made nothing in capital gains. I sold the stock because I did not think that the stock was going anywhere.

The insider trading report says that there was $0.57M in insider buying and $0.78M in insider selling with net insider selling of $0.2M. There are insiders who have a lot invested in this firm. For example the CEO owns stock worth $148M. However, insiders have not only stock options, but Performance Share Units and Restricted Share Units. (There are lots of firms transitioning away from options to other option like vehicles.) They also have an Employees Share Ownership Plan (ESOP).

There are some 42 institutions that own some 28% of the outstanding shares of this firm. Over the past 3 months they have decreased their outstanding shares by 7.5%. This is a negative.

I get 5 year low, median and high median Price/Earnings Ratios of 10.45, 13.94 and 17.22. The current P/E Ratio is 13.02 which show that the stock price of $11.59 is reasonable. (Note that yesterday, the ROE on the comprehensive income was considerable below the ROE on the net income. This makes you question the quality of the company's earnings.)

I get a Graham Price of $15.78. The 10 year low, median and high median Price/Graham Price Ratios are 0.88, 1.23 and 1.50. The current P/GP Ratio of 0.73 shows a rather low current stock price of $11.59.

I get a 10 year median Price/Book Value Ratio of 1.58. The current P/B Ratio is just 0.93. This current ratio is just 58% of the 10 year median ratio. It is also below 1.00, which means that the stock is selling below the book value. (Generally, when a stock is selling below its book value, it is considered to be cheap.)

The 5 year median dividend yield is 6.19% and the current yield of 9.15% is some 48% higher. This would imply that the current price was a good one. However, one has to be cautious when the dividend yield is so high. This stock started out with low dividends and the 10 year median dividend yield is just 2.97%. It is only since 2008 that the yield has been climbing rather high.

Using my stock price tests it would seem like the current stock price of $11.59 is a good to reasonable price. However, the dividend yield is just too high and I am also worried about the quality of the earnings. What I am suggesting is that we should proceed with caution on this stock.

When I look at analysts' recommendations, I find Strong Buy, Buy, Hold, Underperform and Sell. The consensus recommendation would be a Hold. Most the recommendations are a Hold. The consensus 12 months stock price is $12.70. That implies a 12 months total return of 18.73%, with 9.58% from capital gains and 9.15% from dividend income.

The first quarterly EPS came in within analysts' estimates. However, the second quarterly EPS was way below analysts' estimates. Here is an article on this subject from Reuters. Article said that lower earnings were due to declining financial markets.

A couple of analysts with a Buy recommendation liked the yield and thought it was safe. One noted that this company is one of the last independent mutual fund companies. Analysts that do not like this stock feel that all mutual fund companies in Canada are in problems. One analyst thinks that Canadians are waking up to the fact that they are paying way too much money to have their investments managed.

There is an article about AGF suing an ex-employee Patricia Perez-Coutts who was a fund manager at AGF. Westwood Holdings Group Inc. has hired not only Ms. Perez-Coutts, but also other members of her former team at AGF. See the G&M article. There is also a G&M article on a big outflow of assets that occurred for this company in July 2012. See the G&M article. Also one other blogger Happy Capitalism wrote about this company in May of this year. He thinks that the stock has been oversold for a while and he sees this as a sign of weakness in the stock.

I like strong stable dividend growth type companies. This company is none of those things, really. It is not a company I would buy at this time. They used to be a good company. Maybe they will be again in the future. So, I will continue to follow it, but I am certainly not interested at this point in buying it.

AGF is a Mutual Fund company. It owns AGF Trust Company. The company has a diversified group of products designed to meet a variety of investment objectives including GICs, term deposits, real estate secured loans, investment loans and home equity lines of credits. They sell their products in Canada. Its web site is here AGF. See my spreadsheet at agf.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. It is nice to see an article dedicated to this important topic. Thank you for sharing.
    agf management

    ReplyDelete