Tuesday, August 27, 2013

Badger Daylighting Ltd 2

I do not own this stock Badger Daylighting Ltd (TSX-BAD, OTC-BADFF). ). I started to follow this stock after reading a couple of articles in February 2012 in the G&M that talked about the company. The first article looked at what the pros who manage small-cap funds are buying. Badger was one of 10 stocks mentioned and it looked like an interesting stock. It is a dividend paying small cap. The second article looked at what stocks might appeal to a conservative investor looking for income.

When I look at insider trading, I find no insider buying and no insider selling. Insiders do not have options per se, but have what they call deferred shares.

The CEO has shares worth $25.8M and has options worth $2.4M. The CFO has shares worth $3.7M and has options worth $1.3M. An officer has shares worth $0.9M and has options worth $0.9M. A director has shares worth $7.7M and has options worth $0.2M. This is just to give you an idea on insider share ownership and option values.

The 5 year low, median and high median Price/Earnings per Share Ratios are 7.60, 9.38 and 11.17. The current P/E Ratio is 18.78 based on a stock price of $55.60 and 2013 earnings of $2.96. This test implies that the stock price is relatively high. The 5 year median values are fairly low ones and 18.78 is not that high for an industrial stock, but the stock has recently had a very good run increasing some 30% last year and 80% so far this year.

I get a Graham Price of $28.76. The 10 year low, median and high median Price/Graham Price Ratios are 0.86, 1.12 and 1.32. These are reasonable ratios as it is basically felt that a P/GP Ratio of 1.00 or lower is pointing to a cheap stock price. The current P/GP Ratio is 1.93 and this test suggests that the stock price is both relatively high and absolutely high.

The 10 year Price/Book Value per Share is 2.72. The current P/B Ratio is 4.48, a value some 64% higher. This test suggests that the stock price is relatively high.

The dividend yield test will not provide any insight as dividends have been decreased on the company that used to be an Income Trust. It was felt that when Income Trusts turned into corporation that their dividends would decrease probably to the 4 to 5% range.

I looked at the Price/Cash Flow per Share Ratios. The 10 year P/CF Ratio is 5.60. The current P/CF Ratio is 10.45 based on a stock price of $55.60 and Cash Flow per Share for 2013 of $5.32. This test suggests that the stock price is relatively high. (What is considered to be a good P/CF Ratio is in the 5.00 range.)

There are only two analysts following this stock as far as I can see and their recommendations are Strong Buy and Buy. The consensus would be a Buy. The 12 month stock price is $63.00. This implies a total return of 15.25% with 13.31% from capital gains and 1.94% from dividends.

A Financial Post article talks about shareholders rejecting an buy offer just over two years ago. The company has done very well since then. Investment Diary gives clip of Jean-Francois Tardif talking about Badger Daylighting on BNN. The stuff on Badger Daylighting comes at the 4.30 mark in this video.

I think that this is a great company, but I feel that the stock price is just too high to buy at present. See my spreadsheet at bad.htm.

This is the second of two parts. The first part was posted on Monday, August 26th, 2013 and is available here.

Badger is North America's largest provider of non-destructive excavating services. Badger traditionally works for contractors and facility owners in the utility and petroleum industries. Badger's business model involves the provision of excavating services through two distinct entities: the Operating Partners (franchisees in the United States and agents in Canada), and Badger Corporate. Its web site is here Badger Daylighting.

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. Lately I've noticed a few posts elsewhere about PEG ratio. Above you wrote "The 10 year low, median and high median Price/Graham Price Ratios are 0.86, 1.12 and 1.32"

    Is that the PEG ratio?

    How much faith do you have in using that for buy decisions?

    I've read elsewhere below 1 is good, I realize that is probably oversimplifying things but how high would the PEG need to be to raise caution or a red flag? Are there any sectors where it wouldn't be useful?

    Here is an example for AMT which I already hold:
    share price 70.06
    EPS 5 year growth rate 48.96
    70.06/48.96= 1.44
    PEG would be 1.44?

    Then I tried FMX, which I am doing research on:
    share price 95.22
    EPS 5 year growth rate 19.33
    PEG of 4.92 ?

    I'm getting those numbers from Reuters, I checked there and Globeinvestor and TDW and they all show a PE of over 200 which doesn't seem right, yet all the other things I know how to look at ROE, dividend yield, dividend growth, payout ratio, look okay.

    If I could calculate PEG correctly, maybe that would help make sense of this.

  2. The simple short answer is PEG Ratio and P/GP Ratio is very different. I will get back to this next week.


  3. Looking forward to it, thank you!