Friday, March 20, 2015

Melcor Developments Inc. 2

Sound bite for Twitter and StockTwits is: Stock price reasonable to cheap. It is a good time to buy stocks when they are relatively cheap. See my spreadsheet at mrd.htm.

I own this stock of Melcor Developments Inc. (TSX-MRD, OTC-MODVF). This was one of the stocks on Mike Higgs' list of good dividend growth stocks. So I looked into it and bought it. I bought this stock first in 2008 and then some more in 2009. It is a little followed real estate company from Western Canada

When I look at insider trading for the past year I see insider selling at $6.1M and net insider selling at 5.8M. Insider buying is small. The net insider selling is 0.9% of market cap and therefore relatively small. There is insider ownership. The CEO owns shares worth around $1.5M and chairman owns shares worth around $37M.

However, Melton Holdings holds around 47.5% of the outstanding shares. See a Market Wired announcement dated in 2014 about Melton Holdings acquiring some Melcor Development shares.

In 2014 the outstanding shares were increased by 226,000 shares with a book value of $3.7M. This number of shares would be worth $4.4M at the end of 2014. This number of shares is around 0.68% of outstanding shares and so probably reasonable.

The 5 year low, median and high median Price/Earnings per Share Ratios are 5.36, 6.07 and 6.79. The corresponding 10 year ratios are 5.30, 8.10 and 9.33. The current P/E Ratio is 7.11 based on 2015 EPS estimate of $2.44 and a stock price of $17.36. It is high according to the 5 year ratios, but looks more reasonable against the 10 year ratios.

I get a Graham Price of $38.66. The 10 year low, median and high median Price/Graham Price Ratios are 0.39, 0.60 and 0.78. The current P/GP Ratio is 0.45 based on a stock price of $17.36. This testing suggests that the stock price is relatively reasonable.

I get a 10 year Price/Book Value per Share Ratio of 0.96. The current P/B Ratio is 0.64 a value some 33.6% lower. The current P/B Ratio is based on a stock price of $17.36 and a BVPS of $27.22. This testing suggests that the stock price is relatively cheap.

The 5 year median dividend yield is 2.78% and the current dividend yield at 3.46% is some 24.18% higher. The current dividend is based on a dividend of $0.60 per year and a stock price of $17.36. The historical average and historical median dividend yields are 2.71% and $2.70% with the current dividend some 27.8% and 28% higher. This testing suggests that the stock price is relatively reasonable to cheap. It is not historically cheap as the historical high dividend is 3.95% a value still above the current one.

When I look at analysts' recommendations, I find Buy and Hold recommendations. There are only 3, two Buys and one Hold, so the consensus would be a Buy. The 12 month stock price consensus is $27.50. This implies a total return of 61.87% with 3.46% from dividends and 58.41% from capital gains. This is a rather high total return for the lukewarm recommendations. I do not believe the stock price consensus value, but stock could do well because it is relatively cheap.

This article on Market Wired talks about Melcor Developments' relationship with Melcor REIT (TSX-MR.UN), a REIT that started trading on the TSX in 2013. There is a recent Dakota Financial News item about RBC Capital dropping their target price from $29.00 to $25.50. This article in the Calgary Herald talks about a community planned by Melcor Development.

This is the second of two parts. The first part was posted on Thursday, March 19, 2015 and is available here. The first part talks about the stock and the second part talks about the stock price.

This company is primarily engaged in the acquisition of land for development and sale of residential communities, multi-family sites and commercial sites. It operates western Canada and the US. The company also develops, owns and manages commercial income properties, as well as four golf courses. Its web site is here Melcor.

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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