Wednesday, November 27, 2013

Chesswood Group Ltd

On my other blog I am today writing about recent book reviews that I have done ...continue...

I do not own this stock Chesswood Group Ltd (TSX-CHW, OTC-CHWWF). A reader wrote me that he was doing research and found a company that he hoped I could give me a brief outlook on. He said that the company is Chesswood Group and they are basically a financial leasing company.

The information he gave about dividends was that in 2009 they increased dividends from 2.5 to 3.0 cents per month. In 2010 they increased dividends to 3.5 and to 4.0 and to 4.5. In 2011 they increased dividends to 5.0 and this year increased again to 5.5per month. He writes that he knows that I like that sort of a trend. They do not appear to have much long term debt but in 2011 seemed to really increase leasing obligations and in 2011 cash flow was negative. Currently they are yielding about 7.5%

So, let's first look at the dividends. The dividends were increased since 2009. However, what is not mentioned is that dividends were decreased by 74% over 2008 and 2009. The 5 year dividend growth rate is a negative 6.7% per year. This stock shows the problems of only looking at that last few years instead of looking only at the past few years. This company has only been public since 2006. I prefer companies that have at least been on the stock exchange for at least 10 years.

When I last reviewed this stock last year there was lots I did not like. The Dividend Payout Ratio for EPS was too high, the dividends increases were higher than EPS and CFPS increase and the Liquidity Ratio was too low. I thought it would be a plus if there was lots of insider ownership, which I did not find.

There was one analyst that thought Revenue would raise significantly and with it a good rise in EPS. I thought the rosy future was just speculation. There is nothing in the past that supports it as far as I can see. Well, the analyst turns out to have been right as far as the stock rising is concerned.

There has been a small rise in revenue in 2012 around 6%, but over the past 5 years revenue has fallen. However, was a strong rise in earnings, and EPS is some 37.5% from last year. Overall earnings are up only 3.68% per year over the past 6 years. I have no other growth figures as there are too many years of negative earnings.

I also had the wrong figures for revenue when I originally updated my spreadsheet and this has been corrected. I misread the statements. They do not make things easy. Also, they still are not stating what their current assets and current liabilities are. None of this is good.

One interesting point is that the company consolidated the shares 100 to 1 and then did a split of 100 to 1. They offered to repurchase shares for anyone after the split that hid less than 100 shares. This maneuver effectively got rid of shareholders with less than 10,000 shares. (At an average price of $7.73 in 2012, this means $77,000 of shares.) And, any small stockholder would have been shut out the recent stock rise.

In actual fact this company had been around prior to 2006 as G&M has financials on this company prior to 2006. I cannot find financial statements prior to 2006, even on Sedar. From the 2006 statements, I cannot figure out exactly how the company morphed into an income trust. I also do not want to spend much time trying to figure this out as I still do not much care for the company.

There seems to be only one analyst following this stock. He has high expectations of it. He still has a buy rating on this stock. His 12 months stock price is $17.00 which is just 2.84% higher than it is today. His price gives this stock a total return of 7.14% with 4.30% from dividends and 2.98% from capital gains.

Earnings and cash flow growth seems in 2013 to be at least matching growth in dividends. However, the revenue growth does not seem to be there. The DPR for earnings seems to be coming down and is expected to be around 70% in 2013. Certainly, current investors have been making money as the stock price went up some 83% so far this year.

As far as the current price goes, with a current P/E Ratio of 16.37 based on a stock price of $16.53 and a 2013 earnings estimate of $1.01, is higher than the 5 year median high P/E of 11.92. However, a P/E Ratio of 16.37 on an absolute basis is not that high. If you look at the Price/Book Value per Share Ratios, the 10 year median P/B Ratio is 0.75 (a very low ratio), the current one at 3.18 is some 312% higher and is quite high.

I get a Graham Price of $10.87 and the current P/GP Ratio is at 1.52. The P/GP Ratios on this stock have always been quite low with a median high P/GP at just 0.83. However, a P/GP Ratios of 1.52 is rather high on an absolute basis.

This is a rather small cap stock with only one analyst following it. It seems to me to be at a rather high current price. You got to wonder at the maneuver it did in 2011 to get rid of small shareholders. (I cannot find why it did this as the company just said that it was approved by the board.) Would not be a company I would consider buying, especially at this time. See my spreadsheet at chw.htm.

Chesswood Group Limited is a financial services company operating primarily in the specialty finance industry. Chesswood's approach is to acquire financial services businesses. It owns Pawnee Leasing Corporation, located in Fort Collins, Colorado, is Chesswood's largest operating company. Pawnee's assets comprise approximately 75% of Chesswood's consolidated assets. Chesswood recently added Case Funding Inc., a U.S. legal finance company, to its specialty finance portfolio. Chesswood owns of one of the larger Acura dealers in Canada, Acura Sherway, in addition to Canada's only eDealer, Its web site is here Chesswood Group.

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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