Wednesday, December 4, 2013

Canada Bread Co.

On my other blog I am today writing about Buy and Sell Advisor's 6-Pak Approach for 2013...continue...

I do not own this stock Canada Bread Co. (TSX-CBY, OTC-CBDLF), but I used to in 2000. I started following this stock as I read a favorable review of this stock as a good dividend paying stock to invest in. This stock has come up a number of times in favorable reviews. It is a stock on the Investment Reporter list. One thing that has occurred since I owned this stock is that it merged with Maple Leaf's baking division and now Maple Leaf owns 90% of Canada Bread.

I held this stock 1999 to 2000 because it was on Investment Reporter list. I sold as I thought it was going nowhere. I lost around 30% per year on this stock. Part of the reason I sold was that I thought the stock was just masquerading as a dividend stock. They had not changed their dividend from 1992.

The first dividend change after 1992 was in 2011 when the dividend increase was over 200%. In 2012 they increased the dividend 150%. The dividend in 2013 has not changed.

In 2011 the company changed their dividend policy to give out quite good dividends. Dividend used to be around 0.5% and they were increased to around 4%. In 2013 this stock has taken off and the stock price is up almost 50% in 2013. Dividends are currently running at around 2.7%.

When I look for analysts' recommendations, I only find one analysts following this stock and it has a recommendation of Hold and a 12 month stock price of $67.00, which is lower than the current stock price.

Maple Leaf says that they reviewing options for Canada Bread that could result in the sale of its shares in this company. Since Maple Leaf owns 90% of this company and they sell it to an US Bakery company, I doubt if it will still be listed on the TSX. The rise in price is probably explained by the potential sale of this company.

The 5 year low, median and high median Price/Earnings Ratios are 14.73, 20.47 and 23.44. The current P/E Ratio is 20.85 based on a stock price of $75.05 and earnings estimates for 2013 of 3.60. Since the 12 month EPS to the end of the 3rd quarter is $2.90, close to last year earnings, I wonder if the estimate for 2013 will be met. Using the 12 month EPS, the P/E Ratio is 25.88, a stock price that is relatively high.

I get a Graham Price of $42.95. The 10 year low, median and high median Price/Graham Price Ratios are 1.02, 1.25 and 1.38. The current P/GP Ratio is 1.75. This stock price test suggests that the stock price is relatively high.

The 10 year Price/Book Value per Share Ratio is 2.03 and the current P/B Ratio is 2.65, a value 30% higher. This stock test suggests that the stock price is relatively high.

The 5 year median Price/Sales Ratio is 0.73 and the current P/S Ratio at 1.22 is some 67% higher. This test suggests that the stock price is relatively high.

The 5 year median Price/Cash Flow per Share is 9.38 and the current P/CF Ratio using the 12 month CFPS to the end of the 3rd quarter is 9.54, a value some 2% higher and this test suggests that the stock price is reasonable. However, CFPS has is up some 72% for the 12 month period ending in the 3rd Quarter of 2013 compared to the 12 months period ending in 4th Quarter of 2012.

Stock Price Tests answers are mixed, but I would guess price is relatively high because Maple Leaf wants to sell their 90% holding in this company. I do not see much enhancement to the price is the company is sold. If company is not sold, stock price will probably decline. See my spreadsheet at cby.htm.

Canada Bread is a leading manufacturer and marketer of value-added flour based products, including fresh bread, rolls, bagels and sweet goods, frozen partially baked or par-baked breads and bagels, and specialty pasta and sauces. The Company markets products under a number of leading brand names, including Dempster's, Olafson's, POM, Ben's and Olivieri. Canada Bread has operations in Canada, the United States and the United Kingdom. The Company is 90% owned by Maple Leaf Foods Inc. Its web site is here Canada Bread.

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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