Thursday, February 6, 2014

AGF Management Ltd.

I do not own this stock of AGF Management Ltd. (TSX-AGF.B, OTC- AGFMF), but I used to. I bought it in 2001 and sold half in 2006 and the rest in 2008. It used to be a dividend growth stock, but has not been one for some time now. I sold because I did not see that the stock would improve. It was raising dividends still but at the expense of DPR. In 2008 I was lucky that I sold before it crashed. It has yet to recover.

What I saw was a continuing problem with the company in that they continued to increase the dividends to the detriment of their Dividend Payout Ratios long after they should have. They have finally stopped doing dividend increases with the DPR for earnings reaching 432% in 2013. The DPR for cash flow was cash flow was also high in 2013 at 82%. However, this was not as bad as last year when the cash flow was negative.

Even though they had continued with dividend increases I must admit that they had really slowed down in the last 5 years with the dividend increase at just 2.6% per year. The 10 year increase was at 13.86% per year. This is a high rate and it takes us back to 2003, the year that I began to get concerned about this stock. I made a total return of 2.08% per year on this stock. My return was all in dividends.

The total return on this stock was fine to the end of December in 2013 for a 5 year return at 16.88% per year. Not much was made over the past 10 years with a return of 2.70% per year. The stock was looking up a bit by the end of December 2013, but has again fallen with the market.

If you look at total return over the past 5 year to day, it is slightly below negative per year. Total return to date over the past 10 years is at 1.78% per year. The 10 years to date total return includes dividends and dividends were at 6.33% per year.

Outstanding shares are down slightly per year over the past 5 and 10 years. Problem is lack of growth in revenue, earnings and cash flow. No matter how you look at the figures, the company has the problem of negative growth.

Revenue per Share is down by 7.5% and 1.6% per year over the past 5 and 10 years. Even looking at 5 year running averages, growth is basically negative with Revenue per Share down 3.7% over the past 5 years and up 0% over the past 10 years.

Looking at Earnings per Share using the 5 year running averages I get declines of 7.5% and 2% per year over the past 5 and 10 years. If you look at Earnings per share over the past 5 and 10 years there is a decline of 29% and 6% per year over the past 5 and 10 years. The fact is that earnings have declined steadily over the past 5 years.

If you look at Cash Flow per Share over the past 5 and 10 years the decrease is at 15.9% and 5.2% per year. Cash flow has been declining over the past 5 years. It was better in 2013 but that is because there was negative cash flow in 2012. If you use 5 year running averages, you do not get much different results.

Over the past 5 years, the Return on Equity was above 10% in one year only and that was in 2010. The ROE for 2013 was 2.3% and the 5 year median ROE was 7%. For the first time in a while, the ROE on comprehensive income was higher than the ROE on net income. For 2013 the ROE on comprehensive income was 3.1%. So that ROE is better, but still very low.

The Liquidity Ratios have been very, very good over the past 2 years with the 2013 ratio at 2.92. However, this is unusual for this company which has a 5 year median ratio of 0.72. The same is true for the Debt Ratio, with the 2013 ratio being at 2.48 and the 5 year median ratio at 1.32.

The Leverage and Debt/Equity Ratios for 2013 were quite good at 1.67 and 0.67. The 5 year ratios for the company are 4.06 and 3.06, respectively. Debt ratios have gone from lousy to very good. My question, of course is, will this last?

The problem with this company is no growth. See my spreadsheet at agf.htm.

This is the first of two parts. The second part will be posted on Friday, February 7, 2014 and will be available here.

AGF Management Limited is an integrated, global wealth management company, whose principal subsidiaries provide investment management for mutual funds, institutions and corporations, as well as high-net-worth clients; and trust products and services. They sell their products in Canada. Its web site is here AGF.

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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