Morneau Shepell Inc.

Sound bite for Twitter and StockTwits is: May not be as cheap as it seems. On some measures, this stock is cheap. However, looking at the P/B Ratio testing it is not. The book value is basically the breakup value of a company and this value has been declining. BVPS is down by 2.1 and 1.1% per year over past 5 and 9 years or 9.9% over the past 9 years. This is not good. See my spreadsheet at msi.htm.

I do not own this stock of Morneau Shepell Inc. (TSX-MSI, OTC-MSIXF). Every once in a while I go through the stocks that my brokerage, TD Waterhouse, is recommending to find promising new stocks. In February 2013 this stock was rated a buy by TD Waterhouse. It was under Diversified Financials.

This company used to be an income trust under Morneau Sobeco Income Trust (TSX-MSI.UN). It changed to a corporation in January 2011 and changed its name to Morneau Shepell Inc. At the same time the dividends were decreased by 17.4%. Also since then the dividends have not been increased. There was dividend increases prior to 2011 on this company that went public in 2005.

Dividends are still paid monthly. If you compare dividends paid to EPS, the Dividend Payout Ratio is 152% in 2014. Analysts expect this to drop to around 84% in 2015. They come up with a Distributable Income, which they now call Normalized Free Cash Flow and say that their Payout Ratio is 74%. I get a DPR for cash flow at 41% in 2014. It would seem that they would perhaps have room in the future to increase dividends again.

The total return over the past 5 and 10 years is 16.34% and 9.33% per year with 9.98% and 3.15% per year from capital gains and 6.37% and 6.18% per year from dividends. Future dividends will be lower as this company is no longer an income trust. Current dividends are good at 4.67%.

Outstanding shares have increased by 0.1% and 6.4% per year over the past 5 and 9 years. Outstanding shares have increased due to Share Issues, Stock Options and Conversion of Debentures. Revenue growth has been good. Earnings growth has been low to good. Cash Flow Growth has been moderate to good.

Revenues have grown at 10.1% and 18.1% over the past 5 and 9 years. Revenue per Share has grown at 10% and 11% per year over the past 5 and 9 years. EPS has 14.4% and 1.8% per year over the past 5 and 9 years. Cash Flow has grown at 7.2% and 33.6% per year over the past 5 and 9 years. CFPS has grown at 7.1% and 25.6% per year over the past 5 and 9 years. Analysts only expect little change for 2015.

The Return on Equity has always been low with the ROE for 2014 at 7.9% and the 5 year median at 6.1%. The ROE on comprehensive income is similar with the ROE for 2014 at 8% and the 5 year median at 6.3%.

Debt ratios are fine. The Liquidity Ratio for 2014 was 1.90 and the Debt Ratio for 2014 was 1.73. Leverage and Debt/Equity Ratios are a little high at 2.38 and 1.38.

Insiders seem to be selling. For example last time I looked the CEO has some 27,000 shares and now has none and the Chairman had some 2.24M shares and now has some 396,000 shares. This is not really a good sign.

The 5 year low, median and high median Price/Earnings per Share Ratios are 24.70, 27.52 and 30.35. The corresponding 10 year values are similar at 24.35, 29.22 and 32.30. The current P/E Ratio is 17.77 based on a stock price of $16.70 and 2015 EPS estimate of $0.94. This stock price testing suggests that the stock price is relatively cheap.

I get a Graham Price of $11.81. The 10 year low, median and high median Price/Graham Price Ratios are 1.24, 1.45 and 1.59. The current P/GP Ratio is 1.41 based on a stock price of $16.70. This stock price testing suggests that the stock price is relatively cheap.

I get a 10 year Price/Book Value per Share of 1.57. The current P/B Ratio is 2.53 based on a stock price of $16.70 and PVPS of $2.53. This stock price testing suggests that the stock price is expensive. The problem is that the Book Value has been declining after hitting a peak in 2009. This is not a good sign.

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.

Morneau Shepell Inc. provides human resource consulting and outsourcing services. The firm delivers solutions to assist employers in managing the financial security, health and productivity of their employees. The company has business in Canada and US. Its web site is here Morneau Shepell.

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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