Monday, January 4, 2016

Metro Inc.

Sound bite for Twitter and StockTwits is: Relatively Expensive. Not a good sign that insiders and institutional owners see to be selling. See my spreadsheet on Metro Inc.

I own this stock of Metro Inc. (TSX-MRU, OTC-MTRAF). I was following this stock before I bought it because it was on Mike Higgs' Canadian Dividend Growth stock list and on the other dividend lists that I was following.

This is a stock with low dividends and moderate dividend increases. The current dividend yield is 1.20% and the 5 year median dividend yield is 1.58%. Dividends have increased by 15.8% and 13.4% per year over the past 5 and 10 years.

I have held this stock for just over 11 years and I have a total return of 19.92% per year with 18.17% per year from capital gains and 1.75% from dividends. My cost basis for this stock is $5.89 per year. I have earned $2.69 in dividends, so dividends have covered some 45.6% of the cost of my shares. I am earning some 7.92% dividend yield on the original cost of my shares.

This company can certainly afford their dividends. The 5 year median Dividend Payout Ratios are 19.4% for EPS and 12.2% for CFPS.

This company has decreased their shares by 5.1% and 3.4% per year over the past 5 and 10 years. Shares have increased due to Share Issues and Stock Options and have decreased due to Buy Backs. This means and I, as a shareholder is more interested in growth of Revenue, Net Income and Cash Flow than the per share values. By decreasing shares, growth in things like EPS looks better than they actually are.

Net Income has grown by 5.3% and 10.3% per year over the past 5 and 10 years. Earnings per Share have increased by 10.6% and 12.1% per year over the past 5 and 10 years. Growth is rather good in EPS. Analysts expect growth in EPS to continue.

However, this is not so in Revenue. Revenue is up by 1.5% and 6.2% per year over the past 5 and 10 years, where Revenue per share is up by 7% and 10% per year over the past 5 and 10 years. Revenue growth over the past 5 years is a concern. Growth in Revenue in 2015 was 5.5%, but Analysts expect lower growth in 2016 at around 2.9%.

The one comment to make on the balance sheet is that the Liquidity Ratio is weak at just 1.10. If you add in cash flow after dividends, the ratio becomes 1.64. So basically they are counting on cash flow to adequately cover current liabilities. However, the Liquidity Ratio has always been low on this stock. This gives them vulnerability in bad times.

There has been a relatively lot of insider selling over the past year. Net insider selling is at 0.22% of market cap. I prefer this to be under 0.02% or 0.03%. (The median NIS for all my stocks is 0.02% and 70% are under 0.11%. This is to give you a reference point.) Also, according to Reuters, there were 249 institutional owners, owning some 72.6% of the outstanding shares last year. Now there are 231 institutional owners owning 47% of the outstanding shares. This is rather a big decrease.

The stock is not showing as cheap using the historical median dividend yield as will be shown in my next report.

The 5 year low, median and high median Price/Earnings per Share Ratios are 11.39, 12.28 and 13.18. The corresponding 10 year values are similar, but lower at 10.38, 11.64 and 13.47. The current P/E Ratio is 17.45 based on a stock price of $38.74 and 2016 EPS of $2.22. This stock price testing suggests that the stock price is relatively expensive.

When I look at analysts' recommendations, I find Strong Buy, Buy, Hold and Underperform recommendations. Most of the recommendations are either a Buy or Hold. The consensus would be Buy recommendation. The 12 month price consensus is $40.88. This implies a total return of 6.73% with 5.52% from capital gains and 1.20% from dividends.

On the Putnam Standard site is an article talking about 12 analysts giving this stock a Hold rating and about some insider selling. (It depends on what site you go to, to get collected recommendations what collected recommendations you get as they can vary.) An article on Dakota Financial News talks about another insider selling. There is also some good comments on Stock Chase

I will have only one entry for this stock this year. However, I did a more complete report on this company in 2015 and you can see that report here or here.

Metro is a leader in the food and pharmaceutical sectors. It operates a network of food stores under the banners Metro, Metro Plus, Super C, Adonis and Food Basics. It has 250 pharmacies under the banners Brunet, Clini Plus, Metro Pharmacy and Drug Basics. Its web site is here Metro Inc.

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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