Badger Daylighting Ltd.

I do not own this stock of Badger Daylighting Ltd. (TSX-BAD, OTC-BADFF). I started to follow this stock after reading a couple of articles in February 2012 in the G&M that talked about the company. The first article looked at what the pros who manage small-cap funds are buying. Badger was one of 10 stocks mentioned and it looked like an interesting stock. It is a dividend paying small cap. The second article looked at what stocks might appeal to a conservative investor looking for income.

This stock used to be an income trust. They cut their dividends in 2011 as a number of income trust companies did when changing over to a corporation. The dividends were cut some 19%. However, they have started to raise their dividends again and in 2012 they increased the dividends by 5.9%. In 2013 and so far in 2014 they have done no dividend increase.

Even before switching from an income trust, they were inconsistent in raising dividends. There was no dividend raise between 2007 and 2010. However, tax law changes for income trusts were announced in October 2006. This could explain the lack of increases then. I cannot find any intent of what the company will do with dividends and analysts do not mention what they expect from dividends.

However, the Dividend Payout Ratios are good on this stock. The 5 year DPR for EPS is at 43.7% and for CFPS is at 25.7%. The DPR for 2013 for EPS is at 33% and for CFPS is at 19.1%. The DPR is expected to be even lower for 2014.

Shareholders have done very well with this stock. The stock price was up over 40% in 2012 and up by over 175% in 2013. This has slowed as stock is up just over 2% for 2014. The 5 and 10 year total return on this stock is at 48.12% and 21.23% per year with 43.67% and 17.52% per year from capital gains and 4.45% and 3.71% per year from dividends. Analysts do expect further gains as the 12 months consensus stock price is at $37.00 which is around a 27% rise from today's price.

The Return on Equity was been above 10% each year over the past 10 years. However, prior to 10 years ago, it had a hard time breaking into this range. The ROE for 2013 is at 23.6% and the 5 year median is also 23.6%. The ROE on comprehensive income is slightly higher at 26.8% and this is, of course, a very good sign.

Debt ratios are also good, with the current Liquidity Ratio at 2.42, the Debt Ratio at 2.05 and the Leverage and Debt/Equity Ratios at 1.95 and 0.95.

The 5 year low, median and high median Price/Earnings per Share Ratios are 7.60, 9.38 and 11.17. The corresponding 10 year median P/E Ratios are just slightly higher. The current P/E Ratio is 22.91 based on a stock price of $29.10 and 2014 earnings estimate of $1.27. On a relative basis, the current stock price is expensive. However, a P/E Ratio of 22.91 is not particularly high.

I get a Graham Price of $11.92. The 10 year low, median and high median Price/Graham Price Ratios are 0.90, 1.18 and 1.45. These are rather high ratios for this sort of company. The current P/GP Ratio is 2.44 and however you look at it this ratio shows that this stock is relatively and absolutely expensive using this ratio.

The 10 year Price/Book Value per Share is 3.03. The current P/B Ratio is 7.23 based on a stock price of $29.10 and BVPS of $4.97. The current P/B Ratio is some 93% higher than the 10 year median P/B Ratio. This stock price test says that the stock price is relatively expensive. A P/B Ratio of 7.23 is also on the high side.

Since this was an old income trust stock, using the dividend yield for testing would not be a fair test. However, I can use the Price/CP Ratio test. The 10 year P/CF Ratio is 6.09. The current P/CF Ratio at 12.76 is some 110% higher. This stock price test says that the stock price is relatively expensive. Also a P/CF Ratio of 12.76 is a rather high one.

When I look at the analysts' recommendations, I find only two analysts following this stock and they have recommendations of Strong Buy and Buy. The consensus is a Strong Buy. The 12 month consensus stock price is $37.00 and this implies a total return of 28.38% with 27.15% from capital gains and1.24% from dividends.

The site WKRB recently talked about analysts' ratings on this stock.

Sound bit for Twitter and StockTwits is: Not a great dividend stock and expensive. I like dividend growth stock and this stock is not at the moment such a stock. I also think that the stock price is high, but who knows, money could be made while this stock has momentum. Even this might have past as the TSX has been slowly rising over the past 3 months while this stock has been falling. See my spreadsheet at bad.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. If this stock turns into a dividend growth stock, I will do more entries on it in the future.

Badger is North America's largest provider of non-destructive excavating services. Badger traditionally works for contractors and facility owners in the utility and petroleum industries. Badger's business model involves the provision of excavating services through two distinct entities: the Operating Partners (franchisees in the United States and agents in Canada), and Badger Corporate. Its web site is here Badger Daylighting Ltd..

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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