FirstService Corp

On my other blog I am today writing about Reitmans' dividend cut...continue...

I do not own this stock of FirstService Corp (TSX-FSV, NASDAQ-FSRV), but I used to. I bought FirstService Corp in 2002 as it a good solid company that knows how to make money. At that time I was still buying companies to earn capital gains. This one replaces Inco (which I had brought for CG and sold when I made them.) I bought more of this company in 2007 from my profit from RIM. FSV was a non-dividend paying stock, but it had issued preferred shares to shareholders.

By 2010 the company was underperforming so I sold the stock and kept the preferred shares until the end of the year before selling them too. Preferred shares are not by favorite why of getting dividends. Their way of paying dividends by issuing preferred shares was interesting. However, only if you held shares at the time of the special dividend of preferred shares would you get any dividends.

The first thing to say about this company is that they do not make it easy to analyses their financials. First they produce their financials in US$. In 2007, instead of issuing dividends, they issued to their shareholders preferred shares with dividends. So if you had shares when these preferreds were issued, your returns would be very different that of shareholders that did not receive these preferred shares.

In 2013 they cancelled the preferred shares and started issuing dividends on the stock. Dividends are issued in US$, so if you are Canadian, the dividends would fluctuate with the currency exchange rate. The last thing is that they talked about EPS and Adjusted EPS. Most analysts seem to give estimates based on Adjusted EPS, but not all so you left to guess what the estimates are for. All this stuff makes for a very long and complicated spreadsheet.

And, if that was not enough, they do not put quarterly reports on their site, only annual reports. Even when you find the quarterly report, it does not give any Adjusted EPS information. You have to find a copy of the news release for the quarterly report to get this.

With the issuance of dividends the company may become more interesting. The dividends are rather low and the current yield is only 1%. The Dividend Payout Ratios are low also. The DPR for cash flow is around 9.5%. Since earnings was negative in 2012 and are expected to be negative in 2013, there is no DPR for earnings. However, if you look at Adjusted EPS, the DPR is 22%. With a 1% dividend, if it is to be a dividend growth company, you would want dividend growth to be at 20% plus per year.

The outstanding shares have really not changed over the past 5 and 10 years. Shares have increased due to stock options and Share Issues and decreased due to Buy Backs. Revenue is up by 8% and 16% per year over the past 5 and 10 years. If you look at Adjusted EPS, this is up by 3.5% and 10% per year over the past 5 and 10 years.

The problem is growth in cash flow. Cash flow is up 0% and 2% per year over the past 5 and 10 years. Looking at 5 year running averages, cash flow has declined by 4% per year over the past 5 years and is up by 2.4% per year over the past 10 years.

Stock prices have really climbed this year and the stock is up some 52% this year. The 5 and 10 year total return is at 22% per year and 11% per year over the past 5 and 10 years.

I cannot judge the stock price based on P/E Ratios as there were negative earnings in 2012 and negative earnings are expected also in 2013. However, if I use Price/Adjusted EPS Ratios, I find the 5 year low, median and high median P/AE Ratios to be 12.43, 15.58 and 18.72. The current P/AE Ratio is 21.38 based on Adj. EPS of $2.00 and stock price of $42.76. (These are in CDN$.)

If I use the Adj. EPS in calculating the Graham Price, I get one of $11.72. The 10 year low, median and high median AE/GP Ratios are 1.40, 1.69 and 2.10. Using the current stock price of $42.76, the current AE/GP Ratios would be 3.65.

The 10 Year median Price/Book Value per Share Ratio is 3.69 and the current ratio is 6.01 a value some 63% higher. The 5 year low, median and high median Price/Cash Flow per Share Ratios are 6.66, 8.34 and 10.02. The current P/CF Ratio is 9.53 based on a stock price of $42.76 and CFPS for 2013 of $4.49. (This is in CDN$.)

When I look at analysts' recommendations, I Buy and Hold recommendations. The consensus recommendation would be a Buy. The 12 month consensus target stock price would $47.48. This implies a total return of 12.04% with 1% from dividends and 11.04% from capital gains.

On all the things I have tested the current stock price it would seem that it is relatively high. This is probably not surprising after the 53% run up in stock price this year. So this is a current negative. Also, there has been quite a bit of insider selling over the past month. This is another negative. See my spreadsheet at fsv.htm.

I have to blog only one entry on a stock each week in order to go through the list of stocks I want to cover in a year. This week, I am only doing one entry on this stock.

This company is a global diversified leader in the rapidly growing real estate services sector, providing services in the following three areas: commercial real estate, residential property management, and property services. This is an international company, having business in North and South America, Europe, Asia, Australia and New Zealand. Controlling shareholder is Jay Hennick. He has 9% holding, but has 52.5% voting control. Its web site is here FirstService.

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.