Tuesday, September 16, 2014

Just Energy Group Inc.

I do not own this stock of Just Energy Group Inc. (TSX-JE, NYSE-JE). I started to follow this is July 2010. It was one of the high yield income trusts that people were talking about, so I decided to check it out. However, I never liked its business plan and I like even less that the book value is negative.

As far as dividends goes, this company has just reduced their dividends by 40.5% and changed the dividend payments to quarterly from annually. I noticed a number of analysts now feel that this new dividend is sustainable, even though no one seems to suggest that the company will be making a profit for the next financial year ending in March 2015.

If you look at dividend growth over the past 5 and 10 years, it is at a negative 7.4% and a positive 1.6% growth over these periods. Because of negative profit in 2012, the 5 year median Dividend Payout Ratios are not valid. The DPR for EPS in the 2014 financial year is 89% and for CFPS is 95%. The DPR for Distributable Income is at 112% for the 2014 financial year.

The problem with EPS is that this value over the past has been all over the place; that is it has varied greatly year to year. Another problem is that the EPS/CF Ratio has been over 1.00 four times in the last 5 years. This is not a good sign. This ratio should be under 1.00. You want the CFPS to be higher than EPS.

Outstanding shares have increased by 5.2% and 3.4% per year over the past 5 and 10 years. The shares have increased due to DRIP, Stock Options and Share Issues. They have decreased due to Buy Backs. Revenues have grown over the past 5 and 10 years, but the company cannot seem to grow the earnings and cash flows with the growing revenues.

Revenues per share are up by 8% and 13.4% per year over the past 5 and 10 years. EPS is down by 15% and up by 17% over the past 5 and 10 years. Cash flow is down by 10% and up by 2% per year over the past 5 and 10 years.

On some basis, the current stock price is cheap. I guess the Graham Price is around $6.22. With a current price of $6.03 that would give this stock a P/GP Ratio of 0.97. This low ratio points to a cheap stock price on an absolute basis. It would also point to a cheap stock price on the basis of the 10 year low, median and high median P/GP Ratios of 1.10, 1.43 and 1.83.

The 10 year Price/Cash Flow per Share Ratio is 10.50 and the current P/CF Ratio at 7.44 is some 29% lower and points to a relatively cheap stock price. However, a P/CF Ratio of 7.44 is not cheap on an absolute basis.

The 10 year Price/Sales Ratio is 0.77 and the current P/S Ratio of 0.25 is some 68% lower. This low ratio points to relatively cheap stock price. On an absolute basis, a P/S Ratio is 0.25 is quite low and also points to a cheap stock price.

When I look at analysts' recommendations, I find Hold and Underperform recommendations. The consensus recommendation would be a Hold. The 12 month consensus stock price is $6.19. This implies total returns of 10.95% with 2.65% from capital gains and 8.29% from dividends. However, can we be sure that this new dividend rate will hold up?

Sound bit for Twitter and StockTwits is: Book Value is negative. I wonder if I need to say more about why I do not like this stock besides the book value is negative. Even with a cheap stock price, is it worth the risk of buying this stock? I do not see that risk and reward is in balance. See my spreadsheet at je.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.

Just Energy's business involves the sale of natural gas and/or electricity to residential and commercial customers under long-term fixed-price and price-protected contracts. Just Energy derives its margin or gross profit from the difference between the fixed price at which it is able to sell the commodities to its customers and the fixed price at which it purchases the associated volumes from its suppliers. The company also offers "green" products through its Just Green program. Through its subsidiary Terra Grain Fuels, the Fund produces and sells wheat-based ethanol. Its web site is here Just Energy.

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. The only stock I ever bought that you didn't like, I should have known better.