Friday, January 30, 2015

Valener Inc.

I do not own this stock of Valener Inc. (TSX-VNR, OTC- VNRCF). I was looking for another utility to invest in, in 2009 and I was looking possibly at another pipeline stock. This company has natural gas pipelines in Quebec. I also recognized the name of this company. In 2010 it reorganized and made a public utility stock out of 29% of what was Gas Metro. This makes the valuation of this stock very complex.

It is discouraging that you cannot find out simple facts from the statements and websites. I was looking for the actual number of shares that Valener Inc. holds in Gaz Metro and could not find this. I know from the financial statements that Valener Inc. is buying shares in Gaz Metro and they say how many more, but not the exact current holding. It just says that Valener holds 29% of Gaz Metro and this has not changed since 2010.

Another problem with this stock is that just looking at Valener Inc.'s statements are not enough. You have to look at the statements of the companies they invest in. They seem to only give statements on Gaz Metro.

Gas Metro used to be an Income Trust, but changed to a corporation at the end of 2010. Dividends were decreased just over 19% when it changed to a corporation. However, dividends hit a high in 2004 and have been level or dropping since that time. So prior to 2004, this was a dividend growth stock but it has not been one since. Dividends have decreased by 4.2% and 3% per year over the past 5 and 10 years.

The Dividend Payout Ratios are too high. The 5 year median DPR for EPS is 103% and for CFPS is 86%. The corresponding ratios for the 2014 financial year are 103% for EPS and 83% for CFPS. The DPR for EPS hit a high of 133% in 2012 and is expected to be below 100% in 2015.

Revenue for Gaz Metro hit a peak in 2009 and the revenue just went pass this revenue value in 2014. Revenue is up by 2.4% per year over the past 5 years. However, Revenue per Share is down by 2.2% per share over the past 5 years.

For Valener Inc. income is up by 2.2% and 1% per year over the past 5 and 10 years. However, income per share is only up 0.5% and is down by 0.4% per year over the past 5 and 10 years. Also EPS for Valener is down 6% and 3.6% per year over the past 5 and 10 years.

Valener has much better debt ratios than Gaz Metro. Gaz Metro Liquidity Ratio for 2014 is 1.20, but the 5 year median is just 0.84. Gaz Metro Debt Ratio for 2014 is 1.32 and the 5 year median is 1.35. For Valener, the Liquidity Ratios for 2014 is 1.41 and it has a 5 year median of 1.16. The Debt Ratio for 2014 is 7.98 and its 5 year median ratio is 7.98.

The 5 year low, median and high median Price/Earnings Ratios are 15.69, 16.16 and 16.63. The corresponding 10 year ratios are similar. The current P/E Ratio is 16.60 based on a stock price of $16.93 and 2015 EPS estimate of $1.02. This stock price testing suggests that the stock price is still relatively reasonable, but in the higher part of the reasonableness range.

I get a Graham Price of $19.28. The 10 year Price/Graham Price Ratios are 0.90, 0.99 and 1.06. The current P/GP Ratio is 0.88 based on a stock price of $16.93. This stock price test suggests that the stock price is cheap.

The 10 year Median Price/Book Value per Share ratios is 1.82. The current P/B Ratio at 1.05 based on a BVPS of $16.19 and a stock price of $16.93. This stock price test suggests that the stock price is relatively cheap. However, you have to wonder about the BVPS as it increased in 2010 by 108% when the calculation was based on Valener, and not on Gaz Metro.

The 5 year median, historical average and historical median Dividend Yields are 6.38%, 7.52% and 7.34%. Compared to these dividend yields, the current dividend of 5.91% is down by 7.4%, 21% and 19.5%. This stock price testing suggests that the stock price is relatively reasonable to relatively expensive.

Looking around at what analysts are projecting no one seems to think that the dividend is going to change anytime soon. Neither do they think that the yield is going to change. This basic means they do not expect much change in the stock price either.

When I look at analysts' recommendations, I find Hold and Underperform recommendations. Most of the recommendations are a Hold and the consensus recommendations would be a Hold. The 12 month consensus stock price is $16.80. This implies a total return of 5.14% with 5.91% from dividends and a capital loss of 0.77%.

Brenda Bouw of the Globe and Mail says this stock is stable with a good dividend.

Sound bite for Twitter and StockTwits is: price is reasonable to expensive. Over the past 5 and 10 years, investors have had a total return of just slightly less than the dividend yield. It looks like analysts are saying this will continue. See my spreadsheet at sis.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.

Valener owns 29% of Gaz Metro and also owns a stake in the Seigneurie de Beaupré wind power projects located northeast of the city of Québec. Gaz Metro is Quebec's leading natural gas distributor. Its web site is here Valener.

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.

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