Friday, October 7, 2016

K-Bro Linen Inc.

Sound bite for Twitter and StockTwits is: Currently expensive. I think that the P/E Ratios are too high. This is after a laundry company, not a tech company. It would be much closer to a viable P/E Ratio is it was $10 lower with a P/E of 17.80. See my spreadsheet on K-Bro Linen Inc.

I know that a lot of analysts are looking for quick growth because of them coming into Ontario. I still think that P/E Ratios are too high. I would wait for the year end dip. I am currently doing that. I wonder when and if it will happen. On the other hand some industries in various areas have done well in consolidating their industry. I am thinking of the funeral business and cheese industry.

I do not own this stock of K-Bro Linen Inc. (TSX-KBL, OTC-KBRLF). People were talking about this stock at the 2009 Toronto Money Show. This was one income trust being touted as currently a good buy with very good yield. It was also recommended by Aaron Dunn who is the Senior Equity Analyst for Keystone Publishing Corp, a publisher of Canadian investment newsletters.

This stock grew its dividend a bit while it was an Income Trust. Dividends were not increased each year and most increases were low (that is under 3%). However, the dividend has been flat since 2014. A lot of old Income Trusts are having difficulties increasing dividends after the change to a corporation if they do not decrease dividends at the time of the change.

The Dividend Payout Ratio is for 2015 at 79%. It is expected to be around 70% in 2016. This ratio has been traveling south for some time, but it is a bit high. I would like to see it between 50 to 60%. Because of where this ratio is, it is probably why analysts do not see a dividend increase soon.

Dividends are moderate and increases are very low. The current dividend is 2.97% based on dividends of $1.20 and a stock price of $40.43. The dividends have grown at 1.75% and 1.53% per year over the past 5 and 10 years. I do not consider a stock a dividend growth stock unless the dividends growth faster than the rate of inflation. According to the Bank of Canada the 3, 5 and 10 year rate of inflation is at 1.60%, 1.38% and 1.64%. I have hope for this stock.

The 5 year low, median and high median Price/Earnings per Share Ratios are 19.60, 23.30 and 26.99. The corresponding 10 year values are 15.05, 17.20 and 19.57. Personally, I think that the 5 year median P/E Ratios are too high for a consumer discretionary stock. The current P/E Ratio is 23.64 based on a stock price of $40.43 and 2016 EPS estimate of $1.71. Compared to the 5 year P/E Ratio this is showing as relatively reasonable. However, compared to the 10 year ratios, it is relatively expensive.

I get a Graham Price of $23.50. The 10 year low, median and high median Price/Graham Price Ratios are 1.12, 1.26 and 1.39. The current P/GP Ratio is 1.72 based on a stock price of $40.43. This stock price testing suggests that the stock is relatively expensive.

The 10 year median Price/Book Value per Share Ratio is 2.03. The current P/B Ratio is 2.82 based on BVPS of $14.35 and a stock price of $40.43. The current P/B Ratio is some 39% higher than the 10 year median P/B Ratio. This stock price testing suggests that the stock price is relatively expensive.

Because this stock used to be an income trust and income trusts have higher dividend yields than corporations, the testing using the historical or 10 year dividend yield would make no sense. The 5 year dividend yield is 3.44%. This is some 14% higher than the current dividend yield of 2.97%. This testing suggests that the stock price is relatively expensive.

When I look at analysts' recommendations, I find Buy and Hold Recommendations. Most are a Hold recommendation and the consensus recommendation is a Hold. The 12 month stock price is $47.18. This implies a total return of 19.66% with 16.70% from capital gains and 2.97% from dividends.

Teresa Graham on Cerbat Gem talks about analysts ratings and the fact the TD just reaffirmed their buy rating. This company announced via Newswire that they are moving to their new facilities in Toronto. Tria Donaldson and Cheryl Stadnichuk talk about some of the controversy in the privatization of laundry services at Rabble. There are other viewpoints such as the editorial at Calgary Herald. See what analysts are saying at 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 and here.

The last stock I wrote about was about was Le Chateau Inc. (TSX-CTU.A, OTC-LCUAF)... learn more . The next stock I will write about will be Linamar Corporation (TSX-LNR, OTC-LIMAF)... learn more on Tuesday, October 11, 2016 around 5 pm. Today on my other blog I will write about Money Show 2016 - Gold Panel... learn more .

K-Bro is the largest owner and operator of laundry and linen processing facilities in Canada. K-Bro provides a comprehensive range of general linen and operating room linen processing, management and distribution services to healthcare institutions, hotels and other commercial accounts. K-Bro currently has seven processing plants in six Canadian cities: Quebec City, Toronto, Edmonton, Calgary, Vancouver and Victoria. Its web site is here K-Bro Linen 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. 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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