Wednesday, September 4, 2013

Canexus Corporation

I do not own this stock Canexus Corporation (TSX-CUS, OTC-CXUSF). I started to follow this stock last year after reading that it was part of Sentry Small/Mid Cap Income Fund. It is a small cap that pays good dividends. See stocks in this fund on G&M. Sentry home site is here. This stock was also mentioned by Michael Decter in May of 2012. Michael Decter is president and CEO of LDIC Inc.

This is another x-Income Trust company. The dividend yield is good and is currently at 7.67%. The 5 year median dividend yield is 8.61%. The company has only been around since 2005 and dividends have both increased and decreased over this period. Dividends are down by 8.96% over the past 5 years, but are up by 11.69% over the past 10 years. The company has also changed from monthly to quarterly payments of dividends.

The problem, of course, as with other x-income trust companies is that the Dividend Payout Ratios are too high. The 5 year median DPR for earnings is at 127% and for cash flow is at 102%. For the financial ending in 2012 the DPR for earnings was still over 100% at 194%, but the cash flow was a lot better at 67%. The company is not expected to earning much this year so DPR for earnings will not improve. Analysts do expect the DPR to be much better in 2015 at around 98%.

Shares have been rapidly increasing by 33% and 21% per year over the past 5 and 8 year. Increasing shares is neither good nor bad, particularly, but rapidly increasing share makes the values per share quite important. For example, Revenue has increased by 7% and 5.6% per year over the past 5 and 7 years, but Revenue per Share is down by 20% and 14% per year over the past 5 and 7 years. This is not a good showing.

Both Earnings per Share and Cash Flow per Share have fluctuated but have not made much progress. Book Value per Share decreased between 2005 and 2012 with 2012 being the first year of an increase. The Book Value has decreased by 28% and 22% per year over the past 5 and 7 years. Declining Book Value is quite common for Income Trust companies as they often payout a high percentage of earnings in distributions.

The other thing that makes this stock quite risky is the debt ratios. The current Liquidity Ratio is 1.04 and even with cash flow less dividends it is still low at 1.16. The current Debt Ratio is also low at 1.49 (where I would like to see it is at least at 1.50, so it is just below what I like.) The Debt Ratio used to be much better and has a 5 year median ratio of 3.52. The Leverage and Debt/Equity Ratios have varied a lot, but they are currently a bit high at 3.02 and 2.02 respectively.

Another problem is that the Return on Equity on Net Income for 2012 was some 14% higher than the ROE on Comprehensive Income. The difference is even higher for the last 12 months ending in June 2012. The difference is here is 33%. The problem this points out is that there might be some question about the quality of the earnings.

Analysts' recommendations are Strong Buy, Buy and Hold. The consensus recommendation is a Buy. The 12 month stock price consensus is $9.33. This implies a 12 month total return of 38.53% with 7.67% from dividends and 30.86% from capital gains.

From what I can see the high DPRs and low Debt Ratios makes this stock quite risky. The dividend yield is very good. See my spreadsheet at cus.htm.

Canexus Corporation is engaged in the production of sodium chlorate and chlor-alkali products, and operates a hydrocarbon terminal. They have four plants in Canada and two at one site in Brazil. Its web site is here Canexus.

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.

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