Wednesday, August 20, 2014

ONEX Corp.

On my other blog I am today writing about Possible Stocks for Investing continue...

I do not own this stock of ONEX Corp. (TSX-OCX, OTC- ONEXF), but I used to. I thought this was a dividend paying stock, but was mistaken. Sometimes it is a good idea to review the sort of stock that we should not buy. I bought this stock in 2001 because it was on a stock hit list article I read. By April 2008, I knew that this was not the sort of stock I wanted to be invested, so I sold.

I did not make much money in this stock and I wondered if it would ever make much money for shareholders. I held this stock for 7 years and make total returns over this period of 5.87% per year with 5.44% per year from capital gains and 0.43% per year from dividends.

Well, investors over the past 5 and 10 years did better than I did. The 5 and 10 years total return to date is at 22.09% and 12.68% per year. The portion of these total returns attributable to dividends is at 0.36% and 0.37% per year. The portion of these total returns attributable to capital gains is at 21.73% and 12.31% per year.

An interesting note is that dividends have been increasing lately. This started in 2013 with a 36.4% increase. Dividends were increased again in 2014 by some 33.3%. Onex management says that these dividend increases reflects Onex' success and ongoing commitment to its shareholders. However, the prior dividend increase was in 1995 some 19 years ago and it was for 10%.

The outstanding shares have decreased by 1.8% and 2.8% per year over the past 5 and 10 years. Shares have increased due to DRIP and Stock Options and have decreased due to Buy Backs. There has been some growth in revenue, earnings and cash flow over the past 5 and 10 years. Growth is better over the past 10 years. Because shares are declining, the growth in revenue, earnings and cash flow is more important than growth in Revenue per Share, EPS and CFPS.

Revenue has grown at 2% and 5.3% per year over the past 5 and 10 years. Revenue per share has grown at 3.8% and 8.7% per year over the past 5 and 10 years.

Since 2013 is a year of earnings loss, it is hard to measure earnings growth. For EPS, it has declined by 11.7% per year over the past 5 years looking at 5 year running average. It has grown by 5% per year over the past 10 years looking at 5 year running averages. There is nothing I can say about earnings (or net income) because 10 years ago there was also an earnings loss as there was an earnings loss in 2013.

For 4 of the past 5 years, the ROE has been below 10%. The ROE for 2013 is a negative 24.7% and the 5 year median ROE is a negative 3.1%. The ROE on comprehensive income is a negative 16.9% for 2013 and the 5 year median ROE is a positive 0.4%.

I am not especially fond of this company's the debt ratios. The Liquidity Ratio is good at 1.56. However, the Debt Ratio is rather low at 1.13 and the Leverage and Debt/Equity Ratios are rather high at 8.48 and 7.48.

I cannot get a fix on the Price/Earnings per Share Ratio as there has been too many years with earnings losses. However, the current P/E Ratio is 66.39 based on a stock price of $63.07 and 2014 earnings estimate of $0.95 it looks rather excessive.

I get a Graham price of $15.27 and the Price/Graham Price Ratio at 4.13 is also rather excessive. The 10 year median Price/Book Value per Share is 2.28, but the current P/B Ratio at 5.78 is some 153% higher and rather high. I cannot do stock price testing using dividend yield as dividends were level for so many years.

If you look at P/S Ratio, the 10 year median is 0.16 and the current one at 0.25, using 12 month Revenue is some 59% higher. For CFPS using the last 12 months of cash flows, shows a current P/CF Ratio of 5.28 and this stock has a 10 year median P/CF Ratio of 2.48. The current one is some 113% higher. On a relative basis both these tests show a relatively expensive stock price. However, on an absolute basis, a P/S of 0.25 and a P/CFPS Ratio of 5.28 are both good ratios. You have to wonder why shareholders put such low values on P/S Ratios and P/CFPS Ratios for this stock.

It is also interesting that analysts' have given recommendations on this stock, but these same analysts, except for some EPS estimates, do not give estimates for this company. The analysts' recommendations are Strong Buy, Hold and Underperform, with the consensus recommendation a Hold because most of the recommendations are a hold. The average 12 month target price is $67.80. This suggests a total return of 7.82% with 7.50% from capital gain and 0.32% from dividends.

A recent Financial Post article says that Onex is fairly valued as cash limits near-term growth. Another recent financial post article says that RBC Capital Markets has downgraded Onex on growth concerns.

Sound bit for Twitter and StockTwits is: Increasing dividends, but expensive. See my spreadsheet at ocx.htm.

I will have only one entry for this stock as I must do on some stock because I cover too many stocks to do double entries on all that I follow.

Onex is one of North America's oldest investment firm committed to acquiring and building high-quality businesses in partnership with talented management teams. Onex manages investment platforms focused on private equity, real estate and credit securities. Gerald Schwartz is a major owner. Its web site is here Onex.

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.

See my website for stocks followed and investment notes. Follow me on Twitter or StockTwits.

1 comment:

  1. Hi Susan:
    One major reason that I do not like this stock is that their CEO is the highest paid in Canada.
    $85.3 million...obscene.
    John B.
    Oakville, ON CA