The Keg Royalties Income Fund 2

First of all, I will be going to the Money Show next week on Thursday, Friday and Saturday. I will not be posting on stocks on all of these days. If I post, it will be on what I learn at this show. I will depend on what time I get home whether I post on Thursday or not.

On my other blog I am today writing about what is in my portfolio...continue...

I do not own this stock of The Keg Royalties Income Fund (TSX-KEG.UN, OHC-KRIUF). It was a stock suggested by one of my readers. I like dinning at The Keg. I fund the food very good. At stock forums I viewed, investors liked this company as it is guaranteed 4% of the sales at Keg restaurants as income to the fund. So I decided to take a look at it.

Looking at insider trading, there was no insider selling or insider buying. It would appear that KBL and insiders own exchangeable shares equal to 26% of the outstanding shares (or units) of this fund. The CFO and some directors hold some shares. There does not seem to be any options.

There seems to be 4 institutions that hold 24% of the outstanding shares. Over the past 3 months they have increased their shares by 14%. This is a positive, I guess. You have to assume that the analyzed this company before investing. (However, it was shocking how many institutions, including banks, which bought US pooled mortgage funds without understanding what it was that they bought. So, the moral of this story is that you cannot assume that institutions know what they are doing.)

I get 5 year low, median and high median Price/Earnings Ratios of 8.53, 9.30 and 10.07. Using the 12 months earnings to June 30, 2012, I get a P/E Ratio of 21.32. This high ratio suggests that this stock is high

I get a Graham Price of $11.78. The 10 year low, median and high median Price/Graham Price Ratios are 0.68, 0.75 and 0.82. The current P/GP Ratio is 1.25. This high ratio suggests that the stock price is high.

I get a 10 year Price/Book Value per Share ratio of 1.21. The current ratio is 35% higher at 1.64. This suggests that the stock price is high.

I get a 5 year median dividend yield of 11.08% and a current dividend yield of 6.53%. The current yield is some 40% lower than the 5 year median and this current yield suggests that the stock price is high. Of course this is an x-income trust company and it was expected that the stock price would rise and the yield would come down after new taxation rules on income trusts came in. Also the dividend was decreased by 24% in 2011.

As far as I can see there were at least some analysts following this stock as late as 2010. However, there are no analysts now following it. I think the stock is price very high. This stock has gained some 16% since the end of 2011. (Could it be because novice investors are going for juicy dividend yields?)

Another caution I would make. Currently, intangible assets make up 72% of this company's assets and 94% of this company's market cap. (This intangible asset is this company's rights to receive royalties from KRL.)

I see no reason to buy this stock and lots of reasons to sell it if I owned it. I think that this is a very risky stock to hold and I do not see they investors would get rewarded for the current risk level. That is, potential rewards do not match risk.

Vancouver-based Keg Restaurants Ltd. is the leading operator and franchisor of steakhouse restaurants in Canada and has a substantial presence in select regional markets in the United States. KRL continues to operate The Keg restaurant system and expand that system through the addition of both corporate and franchised Keg steakhouses. Its web site is here Keg. See my spreadsheet at keg.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 or StockTwits.