Wednesday, May 25, 2016

Reitmans (Canada) Ltd.

Sound bite for Twitter and StockTwits is: Probably cheap but certainly risky. I plan to hold on to the shares I have as I do expect (perhaps hope might be the better word) this stock to recover. They are trying to revamp their business. Will they recover before the next recession? See my spreadsheet on Reitmans (Canada) Ltd.

I own this stock of Reitmans (Canada) Ltd. (TSX-RET.A, OTC-RTMAF). I bought this company in September 2013. It was in financial difficulties and so was quite cheap. I believe it will recover. I still believe it will recover so I continue to hold my shares and I also bought another 100 shares in April of this year.

I guess the question is: Have they made any progress? Note that financial year ends at the end of January each year, so we are dealing with the end of January 2016. Revenue was down only 0.02% in 2016 compared to declines of 2.2% and 4% in 2015 and 2014. Cash flow was down by 47% compared to a decline of 23% in 2015 and a gain of 63% in 2014. If you look at Cash Flow less Working Capital, the decline for 2016 was 17% compared to a decline of 7% in 2015 and 30% in 2014.

The company has generally made a profit, but they had an earnings loss in 2016 of $0.39. Analysts expect the company to again have a profit in 2017 of $0.09. You have to wonder if the stock price has hit the bottom yet. If not, it is probably close to it. It hit a low of $3.62 in January 2016 and has been above $4.00 since mid-February 2016.

The Dividend Payout Ratios for EPS are high and they have been high since 2012. I would like them to do better in EPS or perhaps cut the dividend again. High DPR for EPS often precedes dividend cuts. On a 5 year running average, the company has paid out 237% of Earnings in dividends. However, if the dividends for the past 5 years had been at $0.20 a share then they have paid out only 89% of the earnings.

If you look at DPR in connection with cash flow the DPR for the financial year ending in January 2016 is 28%. However, if you look at 5 year running averages, the DPR for CFPS is higher at 49%.

This company has always had very good debt ratios. They still do. The Liquidity Ratio for 2016 is 2.64. The Debt Ratio for 2016 is 3.37. For both this ratios you generally look for ones at 1.50 and above. Leverage and Debt/Equity Ratios are 1.42 and 0.42, respectively. Good debt ratios can get a company through really rough times.

Another positive is the insiders are buying, not selling. Mind you they are not buying much, but they are buying.

I will first look at the stock price in relation to Dividend Yield. However, this sometimes is not a good test when dividends are cut. The historical median yield is 3.11%. The current dividend yield is 4.72% a value some 51% higher. The current dividend is based on a dividend of $0.20 and a stock price of $4.24. This test would suggest that the stock price is relatively cheap.

However, the historical high yield is 8.36% and we are also far from this. As I had said, there is a problem when dividends are cut and you use dividend yield to test the stock price.

I get a Graham Price of $3.49 and the Price/Graham Price Ratio is 1.21 based on a stock price of $4.24. The 10 year P/GP Ratios are 0.99, 1.29 and 1.56. This stock price test suggests that the stock price is relatively reasonable and below the median.

I get a 10 year Price/Book Value per Share Ratio of 1.89. The current P/B Ratio is 0.70 based on a stock price of $4.24 and BVPS of $6.02. The current ratio is some 63% below the 10 years median ratio. This stock price testing suggests that the stock price is relatively cheap. Also, on an absolute basis, a P/B Ratio of less than 1.00 suggests that the stock is selling below its breakup price and is therefore cheap.

The 5 year low, median and high median Price/Earnings per Share Ratios are 26.24, 32.95 and 38.59. The corresponding 10 year ratios are a lot lower at 11.94, 13.64 and 16.60. The corresponding historical ratios are close to the 10 year values at 10.16, 13.05and 15.47. The current P/E Ratio is 47.11 based on a stock price of $4.24 and 2017 EPS estimate of $0.09. This testing suggests that the stock price is relatively expensive. You are paying a lot of potentially little in earnings.

When I look at analysts' recommendations, I can find only one. That is a Hold recommendation. The 12 month stock price is given as $4.00. This is 5.7% lower than the current price of $4.24.

This article in the Chronicle Herald talks about Reitmans' laying off 10% of their head office staff to save money. This press release talks about Reitmans new activewear banner called Hyba . This article by Eva Friede in the Montreal Gazette talks about Hyba stores replacing Smart Set stores and other moves by Reitmans. En Passant at Seeking Alpha has an interesting and positive take on Reitmans.

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 about was McCoy Global Inc. (TSX-MCB, OTC-MCCRF)... learn more . On my other blog tomorrow I will write about the sectors I invest in compared to CDZ... learn more on Thursday, May 26, 2016 around 5 pm.

Reitmans (Canada) Limited is a Canada-based company engaged in the sale of women's specialty apparel at retail. The Company operates retail banners: Reitmans, Penningtons, Addition Elle, RW & CO., Thyme Maternity, Smart Set and Hyba. Its web site is here Reitmans (Canada) Ltd.

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. I have three blogs. The first talks only about specific stocks and is called Investment Talk . The second one contains information on mostly investing and is called Investing Economics Mostly. My last blog is for my book reviews and it is called Non-Fiction Mostly. Follow me on Twitter or StockTwits.

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