Chesswood Group Ltd

Sound bite for Twitter and StockTwits is: Dividend Growth Financial. I think that this stock is showing in stock tests as expensive because the risk is high. For many tests on an absolute basis the stock is cheap. For example both the P/B Ratio of 1.37 and the P/GP Ratio of 0.95 are actually quite low or show a cheap stock price. See my spreadsheet on Chesswood Group Ltd.

I do not own this stock of Chesswood Group Ltd. (TSX-CHW, OTC-CHWWF). A reader wrote me in 2012 that he was researching and found a company that he hoped I could give him a brief outlook on. He said that the company is Chesswood Group and they are basically a financial leasing company. From 2009 to 2012 they increased their dividends from 2.5 cents to 5.5 cents per month. This is a 120% increase.

The dividend increase was true, but in 2009 and the previous year dividends were decreased by just over 70%. The big increases have stopped and the dividend growth for the past 5 years is 5.7% per year or 31.9%. There was no dividend growth over the past 10 years as dividends have declined by 0.7% per year or 6.6%. The most recent dividend increase was for 2016 and it was for 7.7%.

The year is almost over and Chesswood has said there will be no dividend increase in 2017. Analysts do not comment on when the next one might be.

The company was an income trust that changed to a corporation in 2011. The dividend decreases probably occurred in 2008 and 2009 because the new law for Income Trusts was announced in October 2006. Income Trust can afford to pay higher dividends than corporations.

The outstanding shares have increased by 10.98% and 8.90% over the past 5 and 10 years. This means that to measure growth you need to look at the per share values. This can make a big difference sometimes. For the company the Revenue has grown at 6.49% and 4.78% per year over the past 5 and 10 years. However, Revenue per Share has declined by 6.75% and 3.78% per year over the past 5 and 10 years. The real growth for a shareholder is the per share growth and in this case there is none.

The 5 year low, median and high median Price/Earnings per Share Ratios are 8.05, 10.03 and 12.01. The corresponding historical ones are 7.43, 9.36 and 11.92. The current P/E Ratio is 14.71 based on a stock price of $11.47 and 2017 EPS estimate of $0.78. The P/E Ratio is relatively high as EPS is expected to drop some 41% in 2017. That is the EPS is expected to go from $1.33 to $0.78. This stock price testing suggests that the stock price is relatively expensive.

If we use the 12 month EPS to the end of the second quarter of $0.91 the P/E Ratio becomes 12.60. This testing still suggests that the stock price is relatively expensive.

I get a Graham Price of $12.11. The 10 year low, median and high median Price/Graham Price Ratios are 0.54, 0.76 and 0.92. The current P/GP Ratio is 0.95 based on a stock price of $11.47. This stock price testing suggests that the stock price is relatively expensive. However, note that a stock is considered cheap is the P/GP Ratio is below 1.00.

The 10 year median Price/Book Value per Share Ratio is 1.21. The current P/B Ratio is 1.37 based on a stock price of $11.47 and Book Value of $138M, BVPS of $8.36 and a stock price of $11.47. The current P/B Ratio is some 13% higher than the 10 year median. This testing still suggests that the stock price is relatively expensive.

However, note that a P/B Ratio of 1.50 and below is considered a good P/B Ratio. The Book Value per Share has grown at 11.6% and 2.9% per year over the past 5 and 10 years. The 5 year growth is good, but the 10 year one is really low.

Since this used to be an income trust company, I will use the Median Dividend Yield from 2009 which is 7.87%. The current dividend yield is 7.32% based on dividends of $0.84 and a stock price of $11.47. The current dividend yield is some 6.9% below the dividend yield since 2009. This testing still suggests that the stock price is relatively expensive.

However, a yield of 7.32% is a very good yield and denotes a cheap stock. On the other hand when a company has a yield at 6% and above, it could indicate a very risky stock and a stock than should be handled with caution.

The 10 year median Price/Sales (Revenue) Ratio is 0.89. The current P/S Ratio is 2.00 based on 2017 Revenue estimate of $94.8M, Revenue per Share of $5.72 and a stock price of $11.47. The current ratio is some 124% above the 10 year median. This testing still suggests that the stock price is relatively expensive.

When I look at analysts' recommendations I find Strong Buy (1), Buy (1) and Hold (2). There are not many analysts following this stock. The consensus would be a Buy. The 12 months stock price consensus is $13.50. This implies a total return of 25.02% with 17.70% from capital gains and 7.32% from dividends.

The company comments on the third quarterly results on Cision. Willa Russo has an interesting discussion about this company's ROE on Simply Wall Street. See what analysts are saying about this company on Stock Chase. They seem to think it is a potential takeout candidate.

Chesswood Group Limited is a financial services company operating primarily in the specialty finance industry. Chesswood's approach is to acquire financial services businesses. Its web site is here Chesswood Group Ltd.

The last stock I wrote about was about was Quarterhill Inc. (TSX-QTRH, NASDAQ-QTRH)... learn more. The next stock I will write about will be Northland Power Inc. (TSX-NPI, OTC-NPIFF)... learn more on Friday, December 8, 2017 around 5 pm. Tomorrow on my other blog I will write about Something to Buy December 2017... learn more on Thursday, December 7, 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.

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