IBI Group Inc

On my other blog I am today writing about what to read for novice investors. I think that if you want to learn about investing today I would suggest reading some blogs rather than any particular book. The blogger I am talking about has a number of "How To" posts that will be helpful to Novice Investors. Today I am blogging about the Passive Income Earner Blog continue...

I do not own this stock IBI Group (TSX-IBG). This company used to be a partnership called IBI Income Fund (TSX-IBG.UN), but changed to a corporation structure in January 2011 and decreased the distributions or dividends by 30% at the same time. This company only went public in 2004 and had a history of making distribution increases. However, since the dividends were reset in early 2011 there has been no hint of an increase.

The 5 year median Dividend Payout Ratios are 144% for earnings and 66% for cash flow. (I am using Cash Flow excluding non-cash items because these items greatly affect cash flow for this company.) The DPRs for earnings in 2012 and 2013 is expected to be 113% and 91%. I think that for this company to raise dividends that the DPRs have to be more reasonable that the present ones.

Shareholders have done well over that past 5 and 7 years with the total return on this stock at 13.47% and 13.63% per year, respectively. Most of this return is in dividends as dividend income was at 11.72% and 11.32% per year, respectively. Capital gains are low at 1.76% and 2.31% per year, over past 5 and 7 years. Dividends made up 87% and 83% of the total return.

Shares outstanding have increased at the rate of 9% and 15% per year over the past 5 and 7 years. Some of this was for acquisitions and some to pay down debt. There is also a big increase for 2012 whereby shares are increasing by 27%. Most was used to pay off debt and has resulted in very good and high debt ratios.

Growth in Revenues looks good at 17% and 22.5% per year for the past 5 and 6 years. However, Revenue per share is a lot lower because of the issuance of new shares. The growth in Revenue per Share is 7.6% and 4.5% per year over the past 5 and 6 years.

Earnings per Share have not been great for this company since 2008. This is not surprising considering the business they are in. On G&M it is listed as business services, but they are in the infrastructure industry. EPS is down by 11.8% and 1% per year over the past 5 and 6 years. However, earnings have been positive every year since 2005 (2004 had negative earnings). Analysts are probably right that EPS is going up as net income for last 12 months is higher than that for 2011.

I am only going to talk about the cash flow excluding non-cash items. This is because non-cash items are generally large for this company. Some analysts feel it is best to us cash flow excluding non-cash items or working capital when using cash flow from operations. The cash flow has always been positive, but the cash flow hit a peak in 2008 and has not yet recovered. Cash Flow has declined by 9% and 7.4% per year over the past 5 and 6 years. However, cash flow per share for the last 12 months is down by 15% from that for 2011. This is not a good sign.

Book Value has also been declining with declines of 2.7% and 0.8% per year over the past 5 and 7 years. Book value at the end of the 2nd quarter is up 16% and this is good.

Return on Equity for the end of 2011 was in the good range of 10% to 15% at 12.2%. The 5 year median ROE is also 12.2%. ROE on comprehensive income for 2011 was 12.7 and has a 5 year median of 12.4%. The closeness of the ROE on net income and comprehensive income shows that quality of earnings is probably good.

The current LiquidityRatio is very high at 3.90 and quite a bit higher than the 5 year median of 1.82 (which is also good.) The current Debt Ratio has gone from good to very good because of recent debt repayments. The current Debt Ratio is 1.80. The one for 2010 was for 1.53. The money from recently issued shares were used to pay down debt.

A lot of outstanding shares are owned by insiders (more than 75%). There are also Class B partnership units than can be changed to shares on a 1 to 1 basis and if this was done it would increase shares by 23% (according to financial statements). However, the stock seems to be liquid enough for trading purposes.

Most of the total return has been in dividends and dividend yield is very high at 11.46%. However, Dividend Payout Ratios are too high. Company is making money and has high and very good debt ratios. You have to wonder if insiders are worried about the immediate future economy or are they saving collecting money for acquisitions?

The Company through IBI Group provides professional services, including planning, design, implementation, analysis of operations and other consulting services in relation to four main areas of development (urban land, building facilities, transportation networks and systems technology). IBI Group Inc. holds an indirect 77% interest in IBI Group, a partnership (of a subsidiary of IBI Group Inc. and IBI Group Management Partnership). Its web site is here IBI Group. See my spreadsheet at ibg.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.