Wednesday, September 26, 2012

Gluskin Sheff & Associates Inc 2

On my other blog I am today writing about The Dividend Guy's new ebook....continue....

I do not own shares in this company (TSX-GS). I started to follow this company after I read an article by Jennifer Dowty in 2010 about stocks that pay not only dividends, but special dividends too.

There is two classes of shares, Multiple Voting shares and Subordinate voting shares. The ones sold on the TSX, are, of course, the subordinate voting shares. Insiders have a mix of both, but they do have the multi-voting shares. So insiders have control of this company. Interestingly, there is insider buying and no insider selling on the insider trading report. Insider buying is at $0.3M.

The company has options as well as Restricted Share Units and Restricted Share Units, which are option like vehicles. It is only the CEO and officers who have multi-voting shares. If the multi-voting shares are valued at the TSX stock price, then they are worth $186M. Insiders have a lot invested in this company.

There are some 30 institutions holding some 27% of the outstanding stock. Over the past 3 months they have decreased their shares by less than 1%, so this does not tell us much.

The 5 year low, median and high median Price/Earnings Ratios are 11.35, 17.27 and 22.76. The current P/E Ratio is 12.72. This low P/E Ratio would suggest a relatively low current stock price, based on a stock price of $14.75 and a June 2013 EPS of $1.16. A P/E Ratio of 12.72 is a reasonable one on an absolute basis.

I get a Graham Number of $8.16. The 10 year low, median and high median Price/GP Ratios are 1.57, 2.12 and 3.23. The current P/GP Ratio is 1.80 based on a stock price of $14.75. This relatively low P/GP Ratio would suggest a relatively low stock price.

The 10 year Price/Book Value Ratio is 8.50. The current P/B Ratio is 5.79 a ratio that is only 68% of the 10 year median ratio. This relatively low P/B Ratio suggests a relatively low stock price. (However, a P/B Ratio of 5.79 is not a low ratio on an absolute basis.

The current dividend yield is 4.75% and the 5 year median dividend yield is just 2.74%. The current dividend yield is some 73% higher than the 5 year dividend yield and suggests a relatively low stock price. Also, a dividend yield of 4.75% is a good dividend yield.

When I look at the analysts' recommendations, I find Strong Buy, Buy, Hold and Underperform recommendations. The consensus recommendation would be a Buy. The 12 month consensus stock price is $17.60. This implies a total return of 24.07% with 19.32% coming from capital gain and 4.75% coming from dividends.

One analyst with a Buy recommendation felt that this company has a solid balance sheet and an attractive dividend policy. I agree that it does have a solid balance sheet and dividends are good. However, earnings will have to pick up for this dividend policy to continue and the company has not yet proven that it can do that. The analysts I looked at certainly feel that earnings will pick up.

One analyst with a strong buy recommendation says he still believes in this company. However, he did mention that Assets under Management has been falling. (There was a 6% decrease in AUM in the financial year ending in June 2012. However, AUM has been basically flat over the past 5 years.)

A couple of analysts have mentioned that you paid around a 5% dividend to wait for better times. (If you include the special dividend for 2012, the dividend yield is just over 5%.) And an interesting article by David Rosenberg of Gluskin Sheff says that he thinks analyst estimates of earnings this year are too optimistic. See article in the Pragmatic Capitalist blog.

There is no doubt that there are a number of very smart people running this company. I think that money can usually be made from investment companies. However, these are tough times for investment companies and I would like to see some improvement in both earnings and assets under management before I would be interested.

The Globe & Mail has an interesting article about this company called Gluskin Sheff can't break out of industry rut. They cannot grow their Assets under Management. This paper also has another interesting article talking about insider trading . It said some insiders were selling, but the Chief investment officer William Webb was buying.

Gluskin Sheff is an independent investment firm that manages portfolios for high net-worth individuals and institutional clients. Its web site is here Gluskin Sheff. See my spreadsheet at gs.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.

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