Davis & Henderson Corp. 2

I own this stock of Davis & Henderson Corp. (TSX-DH, OTC-DHIFF). This stock has been recommended a number of times by MPL Communications. So I looked into it and bought some. At that time this company was an income trust. Dividend yield was good and they had a history of dividend increases.

When I look at insider selling I find $0.5M of insider selling and $0.5M of net insider selling. All the selling is by the CFO and as a result of this sale, the CFO has no more shares in the company. The CFO has not changed so this sale tells of nothing as people sell shares for all sorts of reasons.

There is some insider ownership with the Chairman owing shares worth around $6.4M, the another director having shares worth around $8.9M and the CEO having shares worth around $1.4M

The 5 year low, median and high median Price/Earnings per Share Ratios are 10.31, 11.77 and 14.14. The current P/E Ratio is 14.12. The current P/E is based on a stock price of $31.20 and 2014 EPS estimates of $2.21. This stock price tests suggests that the stock price is still reasonable, but it is at the top end of the reasonable range.

I get a Graham Price of $25.58. The 10 year Price/Graham Price Ratios are 0.79, 0.95 and 1.12. The current P/GP Ratio is 1.17. This stock price test suggests that the current stock price is high.

The 10 year median Price/Book Value per Share is 1.75. The current P/B Ratio is 2.18 based on a BVPS of $14.21 and a current stock price of $31.20. The current P/B Ratio is some 24% higher than the 10 year median P/B Ratio. This stock price test suggests that the current stock price is high.

Because dividends were cut in the change from an income trust to a corporation, any stock price test based on dividend yield is not valid. I can say that it was expected that old income trusts were expected to end up with a dividend yield between 4 and 5% by a combination of stock price increases and dividend decreases and this is where this stock has end up. The current Dividend Yield is 4.1%.

Looking at the Price/Cash Flow per Share Ratios, the 10 year median P/CF Ratio is 7.10 and the current P/CF Ratio is 17.63 based on a stock price of $31.20 and 2014 CFPS estimate of $2.36. This stock price test suggests that the stock price is high. (Analysts do not expect much growth in CFPS for 2014 as the 2014 CFPS estimates is almost 25% lower than the CFPS for 2013.)

If you look at the Price/Sales Ratio, the 10 year medina P/S Ratio is 2.30 and the current P/S Ratio is 2.26 a value almost 2% lower. The current P/S Ratio is based on a stock price of $31.20 and Revenue per Share at $13.80 or Revenue at $1,114.00. This stock price test suggests that the stock price is reasonable. (Analysts seem to be expecting a big increase (around 33%) in Revenues for 2014.)

The analysts' recommendations are Buy and Hold, and the consensus recommendation would be a Hold. The 12 month target stock price is $31.80. This implies a total return of 6.03% with 1.92% from capital gains and 4.1% from dividends. The 12 total returns are consistent with the recommendations and with my stock price testing.

There is an article in the Financial Postabout the Harland Financial Services purchases being a transformational deal for D&H. The blogger Passive Income Earner did a review of this stock last year. This company was a January 2014 buy for the fund Dynamic Aurion Canadian Equity Fund.

Most of my stock price testing suggests that the stock price is rather high. See my spreadsheet at dh.htm.

This is the second of two parts. The first part was posted on Wednesday, April 16, 2014 and is available here. The first part talks about the stock and the second part talks about the stock price.

Davis & Henderson is a leading solutions provider to the financial services marketplace. Founded in 1875, the company today provides innovative programs, technology products and technology based business services to customers who offer chequing accounts, credit card accounts and personal, commercial, and other lending and leasing products. Its web site is here Davis & Henderson.

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. I do research for my own edification and I am willing to share. I write what I think and I may or may not be correct.

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