Friday, February 15, 2013

AGF Management Ltd

I do not own this stock (TSX-AGF.B, OTC-AGFMF), but I used to. I bought it in 2001 and sold stock in 2006 and 2008. I made a return of just over 2% per year. I sold it because the company was having problems and I could not see that they would get any better anytime soon. Still, I sold at a better price that I could get today.

It seems to me that this company did not recover well from the prior recession and then it got hit with the last one. Since it is a Mutual Fund company, you would expect a recession to hit it hard, but you also expect to see it recover when a recession is over.

I like looking at cash flow more than earnings. It is harder to fool around with cash flow than earnings and in any event EPS is rather a fake figure. It can be a useful way to compare companies in the same and different industry for example. This company had a negative cash flow in the financial year ending in November 2012 and this is not good.

Also, there is a big difference between the Return on Capital for comprehensive income and net income. This is another warning sign. The ROE on comprehensive income is just 4% and this is almost 60% lower than the ROE on net income, which is a good at 9.9%.

It is also not a good sign with the EPS is higher the CFPS. (Although generally for this stock the EPS/CF Ratio is fine and is between 0 and 0.99. The 10 year median is 0.46.)

Another thing that is not good is the increase in Dividend Payout Ratios. The 5 year median DPRs for earnings and cash flow are 89% and 41%. However, they are increasing and been increasing for sometime. The DPR for earnings was 196% in 2012 and is expected to be 180% and 162% in 2013 and 2012. The cash flow was negative for 2012. However, the lack of cash flow has to do with charges on discontinued operating activities. (In any event, it still negatively affected the cash flow.)

When I look at the analysts' recommendations I find Buy, Hold and Underperform. The consensus recommendation would be a Hold. It is obvious that others have a better opinion that I do of this stock. The 12 month stock price consensus is $11.50. This implies a total return of 6.78% with a capital loss of 2.38% and dividends of 9.17%.

I see a couple of interesting things. The CEO owns some $152M in shares and an officer (another Goldring) owns $141M in shares. (Could this be why there is still a dividend payment?) Reuters says that there are some 32 institutions that own 24% of the outstanding shares. However, over the past 3 months institutions have sold some 23% of their outstanding shares. Some people seem to be bailing out of this stock.

A number of analysts feel that the dividend is safe because if you ignore the cash flow used in discontinued operation activities, they have a positive cash flow. (This is true and shows in their cash flow statement.) Although other sites do not show any sell recommendations, there are sell recommendations on Stock Chase .

There is comments and a report on Q4 at Investment Executive . There is also a Jags Report about the National Bank raising the 12 month stock price from $9.50 to $11. TD Securities and CIBC have commented on their 12 month stock price of $10.50 and $12.50, respectively.

Personally, I would not buy this stock. They cannot cover their dividends with their earnings and probably will not be able to in the near future.

AGF Management Limited is an integrated, global wealth management company, whose principal subsidiaries provide investment management for mutual funds, institutions and corporations, as well as high-net-worth clients; and trust products and services. 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 or StockTwits.

1 comment:

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