Wednesday, April 13, 2016

DH Corp

Sound bite for Twitter and StockTwits is: Stock price expensive. I think that on a number of tests this stock price is showing as expensive. In this case I rather like using the P/B Ratio as we are not using any estimates. The P/E Ratio is also rather high on an absolute basis. I must say I often wonder if analysts believe in buying low and selling high. I think that this is a good company, but I see the stock price as relatively too high at present. See my spreadsheet on DH Corp.

I own this stock of DH Corp (TSX-DH, OTC-DHIFF). This stock has been recommended a number of times by MPL Communications. So I looked into it and bought some. This was in 2009 and at that time this company was an income trust. Dividend yield was good and they had a history of dividend increases.

So, how have I done? I have had this stock for almost 5 years and have made several purchases in 2009, 2010, 2011 and 2013. The total return is 22.82% per year with 16.07% from capital gains and 6.75% from dividends. I do not think that such high gains will be made in the future and the dividends yields have gone down and are currently at 3.38% based on dividends of $1.28 and a stock price of $37.86.

In 2011 this company changed to a corporation from an Income trust and cut the dividend by around 35% and changed the frequency of the dividends from monthly to quarterly. They had a couple of small increases in 2012 and 2013 and then the dividend has been flat. Analysts expect the company to cut dividends in 2016 or 2017. The dividend cuts are probably because the payout ratios are so high. The dividend cut is expected to be in the 20% to 25% range. If dividends dropped 25%, the yield would go to 2.5%.

The Dividend Payout Ratio for EPS was 152%. The DPR for EPS was below 100% only in 2011 and 2014. The DPR for CFPS is better with the rate at 32% for 2015 and the 5 year median at 40.5%.

Part of the reason I am willing to hold on to this company is because they are in FinTech. I think that over the longer term they will be successful. The year of 2015 was not a great year for this company. Revenues and Cash Flow were up but profits were down.

The 5 year low, median and high median Price/Earnings per Share Ratios are 20.68, 24.66 and 28.65. These are a lot higher than the corresponding 10 year values of 9.80, 11.74 and 13.99. They are also a lot higher than the historical values of 10.31, 11.77 and 14.14. The current P/E Ratio is 26.66 based on a stock price of $37.86 and 2016 EPS estimate of $1.42. Even for the much higher P/E Ratios for the past 5 years, this stock price testing says that the stock price is above the median.

I think that the current P/E Ratios are too high for this company. However, the historical rates are probably now too low. A good P/E for this company is probably around 15.00.

I get a Graham price of $37.86. The 10 years low, median and high median Price/Graham Price Ratios are 0.79, 0.95 and 1.12. The current P/GP Ratio is 1.42 based on a stock price of $37.86. This stock price testing suggests that the stock is relatively expensive. On an absolute basis, a P/GP Ratio of 1.00 or less says that a stock price is relatively low or cheap

Looking at the Price/Book Value per Share Ratios, I get a 10 year median of 1.69 and a current P/B Ratio of 2.18 based on BVPS of $22.26 and a stock price of $37.86. The current P/B Ratio is some 29% higher than the 10 years median. This stock price testing suggests that the stock is relatively expensive.

I do not think that stock price testing using the dividend yield will be helpful. The problem is that this company was an Income Trust and Income Trust companies had quite high dividend yields which fell when the companies became corporations.

When I look at analysts' recommendations, I find Strong Buy and Buy recommendations. Most of the recommendations are a Buy and the consensus would be a Buy. The 12 month stock price consensus is $45.44. This implies a total return of 23.40% with 3.18% from dividends and 20.02% from capital gains.

Linda Rogers on Clinton Financial says that analysts are mostly bullish on this stock. Robin Reyes in Sonoran Weekly Review says that DH Corp has been awarded a multi-year Canada Student Loans Program Contract. Lou Schizas in December 2015 in the G&M did a technical analysis of this company. He says that the stock price drop in last October was due to short sellers.

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 those reports here and here.

The last stock I wrote about was Russel Metals Inc. (TSX-RUS, OTC-RUSMF)... learn more . The next stock I will write about will be Barrick Gold Corp. (TSX-ABX, NYSE-ABX)... learn more on Friday, April 15, 2016 around 5 pm.

Also, on my book blog I have put a review of the book Identity Economics by Akerlof and Kranton learn more...

DH Corp is a leading solutions provider to the financial services marketplace. Founded in 1875, the company today provides innovative programs, technology products and technology based business services to customers who offer chequing accounts, credit card accounts and personal, commercial, and other lending and leasing products. Its web site is here DH Corp.

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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