Wednesday, July 6, 2016

Empire Company Ltd

Sound bite for Twitter and StockTwits is: Cheap and risky. My favourite stock price test is using the dividend yield if applicable. It is only this test that shows that the stock is cheap. The problem is integration of Safeway. The loss for the latest financial year is write offs due to Safeway. Some people are worried that this company has become a value trap. I will put a note out later on what this means. See my spreadsheet on Empire Company Ltd.

I do not own this stock of Empire Company Ltd (TSX-EMP.A, OTC-EMLAF). I have known about this stock for some time, but I had not had the opportunity to follow it before.

This stock has a rather low dividend and moderate dividend growth. The current dividend is the highest it has been at 2.13%. The historical high dividend yield is 1.97% and the 5 year median dividend yield is 1.49%. The historical median dividend yield is 1.44%. The 5 and 10 year growth in dividends is at 8.5% and 7.92% per year over the past 5 and 10 years.

Last year, in 2015 the dividend increase was for 11.1%. This year the dividend increase is a lot lower at just 2.5%. The financial year ends at or just after the end of April each year. They have raised their dividends every year since 1996. I have dividend information back to 1985 and they have been raising their dividend inconsistently since. That is some years had no dividend increases.

They had a big earnings lost for the financial year ending 7 May 2016 at $7.78. The company said that the main reason is that impairment losses were recognized in the West business unit for goodwill and long-lived assets of $1,285.9 million and $10.9 million, respectively. Although in the accounting records they seem to take impairment charges of $3,027 million and 10.9 million.

Shares have grown by 5.9% and 3.3% per year over the past 5 and 10 years. This makes per share values the most important ones to me. Revenue growth is low to good. Earnings growth is low to moderate. Cash Flow growth is moderate to good.

Revenue has grown at 9% and 6.5% per year over the past 5 and 10 years. Revenue per share has grown at 3% and 3.1% per year over the past 5 and 10 years.

Some sites including TD Waterhouse give the adjusted EPS value. For this stock for the financial year ending 7 May 2016 the EPS is $1.50. Even using this EPS value the growth in EPS is a decline of 3.7% and flat earnings over the past 5 and 10 years.

Cash Flow has grown by 11.1% and 7.6% over the past 5 and 10 years. CFPS has grown by 4.9% and 4.2% per year over the past 5 and 10 years.

The Liquidity Ratio for the financial year ending in May 2016 is just 0.96. The 5 year median is just 0.96 also. This means that current assets cannot cover current liabilities. If you add in cash flow after dividends, the ratio is 1.25. I much prefer this ratio to be 1.50. The Debt Ratio is better at 1.68 and has a 5 year median of 1.99. Leverage and Debt/Equity Ratios are a bit high at 2.51 and 1.49, respectively.

Until recently the Return on Equity was good. The 5 year median was 10.2% in 2013. The last three years it has been 4.1%, 7% and -58.8%.

The 5 year low, median and high median Price/Earnings per Share are 13.56, 17.04 and 20.53. This is higher than the corresponding 10 year values of 10.52, 11.62 and 13.12. They are also higher than the corresponding historical values of 9.48, 11.14 and 13.43. The current P/E Ratio is 12.64 based on 2017 EPS estimates of $1.52 and a stock price of $19.21. This would suggest that the stock price is probably reasonable, but above the median.

I get a Graham Price of $21.37. The 10 years Price/Graham Price Ratios are 0.72, 0.78 and 0.90. The current P/GP Ratio is 0.90. This stock price testing suggests that the stock price is reasonable but above the median.

I get a 10 year Price/Book Value per Share Ratio of 1.20. The current P/B Ratio is 1.44 based on BVPS of $13.35 and a stock price of $19.21. The current P/B Ratio is some 19.5% higher than the 10 year median. This stock price testing suggests that the stock price is reasonable but above the median. If the current P/B Ratio was 20% above the 10 year median, the stock price would be considered expensive. So in this test it is quite close to expensive.

The historical median dividend yield is 1.44%. The current dividend yield is 2.13% based on dividends of $0.41 and a stock price of $19.21. The current dividend is some 48% higher than the historical dividend yield. This would suggest that the stock price is cheap. This historical high is 1.97% and the current dividend yield is 8% above this. This testing is saying the stock is cheap.

When I look analysts' recommendations, I find Buy, Hold and Underperform. The vast majority is a Hold recommendation and the consensus recommendation would be a Hold. The 12 month stock price is $21.67. This implies a 14.94% total return with 12.81% from capital gains and 2.13% from dividends.

This article from the Canadian Press on CBC News talks about Empire big reported loss in the 4th quarter of their financial year ending 7 May 2016. Kay Ng of Motley Fool asks if Empire is currently a bargain. She concludes that at best it is fairly valued. Renee Jackson on The Cebat Gem talks about what analysts ratings on this stock. See what analysts are saying about this company on Stock Chase. Their real problem is the integration of Safeway out west.

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.

Yesterday on my other blog I wrote about Dividend Stocks July 2016... learn more. The next stock I will write about will be Morneau Shepell Inc. (TSX-MSI, OTC-MSIXF)... learn more on Friday, July 8, 2016 around 5 pm. Tomorrow on my other blog I will write about Something to Buy July 2016... learn more on Thursday, July 7, 2016 around 5 pm.

Empire Company Limited is engaged in the business of food retailing and related real estate. The Company operates through two segments: Food Retailing and Investments and Other Operations. The Company's Investments and Other Operations segment includes its equity investments in real estate, which are focused on the ownership of income-producing retail, office and mixed-use properties through an equity accounted ownership interest in Crombie REIT and residential land development in select communities in Ontario, Western Canada and the United States through its investments in Genstar. Its web site is here Empire Company 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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