Monday, February 1, 2016

Valener Inc.

Sound bite for Twitter and StockTwits is: Not yet a dividend growth stock. Dividends have started to rise again, but under Gaz Metro dividend when down as well and up. I also worry about the heavy debt load of Gaz Metro which Valener is mostly invested in. See my spreadsheet on 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 looks like this stock is trying to be a dividend growth stock again. After the reorganization of Gaz Metro in 2010 this company was formed with a 29% interest in Gaz Metro. Shareholders got their dividend decreased by just over 19%. Then the dividends were flat for 4 years until last year when they were increased by 4% and this year they were again increase and this increase was 3.8%.

It would appear that would again be a stock with a good dividend and a low rate of increase. The current dividend yield is 5.53% and the 5 year median dividend yield 6.27%. There should be some caution with this stock. Under Gaz Metro dividends were decreased as well as increased. It is hard to know at present if this stock will truly by a dividend growth stock.

Most of this company is invested in Gaz Metro. Therefore you have to consider Gaz Metro's annual statements also. The most notable thing is that Gaz Metro debt ratios are a lot worse than Valener's debt Ratios. Gaz Metro's Liquidity Ratio is 1.05 against Valener's of 1.27. Gaz Metro's Debt Ratio is 1.34 against Valener's of 5.60. Gaz Metro's Leverage and Debt/Equity Ratios are of 3.95 and 2.95 against Valener's 1.22 and 10.22. In all cases Valener's ratios are good and Gaz Metro's are mediocre at best.

Both companies seem to have hit a low in 2012 and things have been picking up since then. Although 5 and 10 years growth is from non-existent to low to moderate; revenue, income and earnings have been growing over the last 3 years.

The Dividend Payout Ratio was below 100% in 2015 and is expected to be lower in 2016. The last time this ratio was below 100% was in 2010. The DPR for 2015 for EPS was 91% and is expected to be around 88% in 2016.

The 5 year low, median and high median Price/Earnings per Share Ratios are 15.69, 16.16 and 16.63. These are close to the 10 year values of 14.38, 15.67 and 16.60. The current P/E Ratio is 15.87 based on a stock price of $19.20 and 2016 EPS estimate of $1.21. This stock price testing suggests that the stock price is reasonable and around the median.

I get a Graham Price of $21.58. The 10 year low, median and high median Price/Graham Price Ratios are 0.88, 0.96 and 1.05. The current P/GP Ratio is 0.89. This stock price testing suggests that the stock price is reasonable and below the median.

However, if you look at dividends, the story is different. I am following this stock from Gaz Metro's into Gaz Metro's reorganization in 2010. I have historical date back to 1997 and beyond. The historical median dividend yield is 7.22% a value that is some 22% higher than the current dividend yield of 5.63% based on Dividends of $1.08 and a stock price $19.20. This stock price testing suggests that the stock price is expensive.

The current dividend yield is closer to the 5 year median dividend yield of 6.27% a value some 10% higher. This stock price testing suggests that the stock price is reasonable but above the median.

There are 5 analysts following this stock and all give a recommendation of Hold. The consensus therefore would be a Hold. The 12 month stock price is $18.34. This implies a total return of 1.15%, with a capital loss of 4.48% and dividends at 5.63%. This is based on a current stock price of $19.20.

Tammy Falkenburg on Zolmax talks about recent ratings for this company by National Bank and RBC Capital. A sector perform rating is the same as a Hold rating. There is a press release via Stock House where Valener requested a withdrawal of its Standard & Poor's ("S&P") corporate credit rating following a methodology change that resulted in what it views as an unjustified downgrade by the rating agency. Joseph Solitro of Motley Fool likes this stock.

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.

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 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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