Just Energy Group Inc.

Sound bite for Twitter and StockTwits is: Dividend Paying Energy Utility. It would appear that the stock price could be cheap, but why anyone would buy a stock with a negative book value is beyond me. This stock is of high risk, it is quite vulnerable to any bad economic situation and one where I do not see why a high reward might be given for such a risk. See my spreadsheet on Just Energy Group Inc.

I do not own this stock of Just Energy Group Inc. (TSX-JE, NYSE-JE). I started to follow this is July 2010. It was one of the high yield income trusts that people were talking about, so I decided to check it out.

The thing to notice about this stock is its negative book value. The Debt Ratio is 0.89. This means that the assets cannot cover the liabilities. Why anyone would buy a company with negative book value beyond speculation I would not understand. It means that if the company broke up today, your shares are worthless. It is not that they do not have assets that are worth a lot of money. The problem is that their debt is very high. Shareholders in bankruptcies get paid last if there is anything left. This is a very high vulnerability.

The Liquidity Ratio is not great either. The one for the financial year ending March 2017 is 1.15. This is very low. I like this ratio to be at least 1.50. Even adding in cash flow after dividends it is just 1.26. This ratio has a 5 year median of just 0.92 and with cash flow after dividends a ratio the 5 year median is 0.99. If the ratio is at or below 1.00 means that the current assets cannot cover current liabilities. This gives this company another very high vulnerability.

On the other hand according to Reuters some 33% of this stock is held my institutions. It is in the TSX Index and this could be a reason for it being held by institutions. In the article below by Sebastian Weber on The Ledger Gazette, Sebastian seems to think that institutions expect that this stock is poised for long-term growth.

It has not done that well for investors. The total return over the past 5 years is 1.25% with 6.92% from dividends and a capital loss of 5.66%. The total return over the past 10 years is a loss 1.42% with 7.62% from dividends and a capital loss of 9.05%.

The other thing I noticed is the decline of the dividend payments. This company used to be an income trust. All income trusts paid higher dividends than they could afford just looking at earnings. Instead dividend payments were measured against the Funds from Operations (FFO). On that basis the company was paying out some 80% of the FFO where acceptable rates were considered to be between 75% and 90%.

When the company became a corporation in 2011 it needed to reconsider the payout ratios and compare them to the earnings. What the company did was to leave the dividends flat until 2013 and then decreased them in 2014 and 2015 and made the dividends payments quarterly instead of monthly in 2015. Dividends are down by 16.6% and 6.7% per year over the past 5 and 10 years.

The other thing to point out is the extreme volatility of the earnings. Earnings for the last 10 years are $1.41, loss of $10.03, $1.79, $3.73, loss of $0.93, $3.68, $1.12, loss of $4.01, $0.43, and $2.42. The change in earnings over this time is down 811.35%, up 117.85%, up 108.38%, down 125%, up 496%, down 70%, down 458%, up 111%, and up 463%. Earnings for the financial year of March 2018 are expected to be down by 59%. This gives the company vulnerability. You expect some volatility in earnings, but this seems extreme.

The 5 year low, median and high median Price/Earnings per Share Ratios are 2.66, 3.11 and 3.56. The 10 year corresponding values are 2.91, 3.40 and 3.89. The historical ratios are 7.32, 8.73 and 10.15. The P/E Ratios are very low because of past earnings losses. The current P/E Ratio is 7.09 based on a stock price of $7.09 and 2018 EPS estimate of $1.00. On an absolute basis a P/E Ratio of 7.09 says that the stock is relatively cheap. This P/E Ratio is lower than the historical median low and so is relatively cheap.

You need a positive book value to calculate a Graham Price. This company has not had a positive book value since 2008. I would also need a positive book value to do some stock price testing using the Price/Book Value Ratio.

The historical median dividend yield is 8.17%. The median dividend yield since 2011 is 9.01%. The 5 year median dividend yield is 8.42%. All these yields are higher than the current yield of 7.05% by 14%, by 22% and by 16%. The current dividend yield is based on dividends of $0.50 and a stock price of $7.09. So this stock price testing suggests that the stock price is probably relatively reasonable but above the median.

The other thing is that a dividend yield of 7.05% is a very high yield. If a yield on a company is over 5%, this generally points to a high risk company. The yields are high for a reason. The market thinks that the company could get into difficulties and so wants a high yield. Always be very careful when investing in a company with yields over 5%.

The 10 year median Price/Sales (Revenue) Ratio is 0.49. The current P/S Ratio is 0.27 based on 2018 Revenue estimate of $3,881M, Revenue per Share of $26.43 and a stock price of $7.09. The current P/S Ratio is some 45% below the 10 year median ratio. This stock price testing suggests that the stock price is relatively cheap.

When I look at analysts' recommendations, I find Strong Buy (1), Buy (2) and Hold (4). The consensus would be a Buy. The 12 month stock price is $8.72. This implies a total return of 30.04% with 22.99% from capital gains and 7.05% from dividends.

Sebastian Weber on The Ledger Gazette seems to be to have analyzed two loser companies and declared this company a winner. Sebastian Eder on Simply Wall Street points to the current good Dividend Payout Ratio. See my comments on this below. See what analysts are saying on Stock Chase. On analysts says that it is a risky business model so he would stay away. I do tend to agree with this.

I get Dividend Payout Ratio for the financial year of March 2017 of 20.66%. This is because of the very high earnings in the last fiscal year. However, to me that looks like a blimp as the EPS for the 12 month period ending in the first quarter of 2018 (June 2017) is just $0.47. The EPS for the financial year ending of March 2016 was $0.44. The DPR for the financial year of March 2018 is expected to be 50%. However, the 5 year coverage will be 260%. At least Sebastian Eder thinks you should say clear of this stock because of the volatility of its dividends.

Just Energy's business involves the sale of natural gas and/or electricity to residential and commercial customers under long-term fixed-price and price-protected contracts. Just Energy derives its margin or gross profit from the difference between the fixed price at which it is able to sell the commodities to its customers and the fixed price at which it purchases the associated volumes from its suppliers. The company also offers "green" products through its Just Green program. Through its subsidiary Terra Grain Fuels, the Fund produces and sells wheat-based ethanol. Its web site is here Just Energy Group Inc.

The last stock I wrote about was about was Smart REIT (TSX-SRU.UN, OTC-CWYUF)... learn more. The next stock I will write about will be Accord Financial Corp (TSX-ACD, OTC- ACCFF)... learn more on Monday, September 18, 2017 around 5 pm.

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. I am on Instagram. Or you can just Google #walktoronto spbrunner8166 to see my pictures.