It would also appear that PPL cannot afford the royalties it is paying PZA. Also, the stock is hardly cheap. It would not be my first choice of something to buy. See my spreadsheet on Pizza Pizza Royalty Corp.
I do not own this stock of Pizza Pizza Royalty Corp (TSX-PZA, OTC-PZRIF). A number of people have recommended this stock, so I decided to take a look at it. There is nothing inherently wrong with this type of royalty corp. I do not like the complexity of the accounting and having to evaluate both companies involved. The more complex a situation the more likely one can make an error in evaluating a company.
One of my concerns about this type of company is whether or not the under lying entity can afford to pay the royalty payments required to the Royalty Corp so that they can pay dividends. The accounting done by the Royalty Corp and the underlying entity is not always easy to follow. Since PPL had an earnings loss and negative cash flow (after paying the royalties to PZA) this implies that PPL cannot afford the royalties.
PPL in 2017 paid out 121% of their income in Royalties to PZA. The 5 year coverage is 84% which is positive. However, if we turn to cash flow the payout is higher. PPL has negative cash flow for 2017. For 2017 I think that the Royalties Payout Ratio is 118% with 5 year coverage at 176%. So it would seem that Royalties are covered by earnings (over 5 years) but not by cash flow. I could be wrong in my percentages.
The Liquidity Ratio and Debt Ratio on PZA look great at 2.59 and 5.01 respectively. However, the ones that really count are the ones for PPL as they are the ones who provide the money for the PZA distributions. PPL Liquidity Ratio is 0.82. This means that current assets cannot cover current liabilities. PPL Debt Ratio is 0.82. This means that assets cannot cover liabilities. They have a negative book value. This is, of course, not good.
This is a dividend growth stock except the dividend has not always grown. Dividend grew from 2006 to 2010. They were cut by 25% in 2011 and then they started to grow again.
According to the PZA statements it seems that they have a Dividend Payout Ratio of 98% with 5 year coverage of 97%. The DPR for Cash Flow for PZA is 75% and 5 year coverage of 71%. Personally, I do not think that this counts as the real questions is can PPL afford the royalties. It seems to me that PPL is payout more than their net income and more than their cash flow.
The Total Return is show below for years of 5 to 12. Under the Capital Gain column is the portion of the Total Return attributable to capital gains. Under the Dividend column is the portion of the Total Return attributable to dividends. See charts below. Shareholders have done well with total return on this stock.
|Years||Div Gth||Tot Ret||Cap Gain||Div|
The 5 year low, median and high median Price/Earnings per Share Ratios are 15.83, 17.36 and 18.87. The corresponding 10 year values are 14.19, 15.97 and 17.22. The corresponding historical ratios are 14.11, 15.55, and 17.00. The current P/E Ratio is 14.84 based on a stock price of $13.21 and 2018 EPS estimate of $0.89. This stock price testing suggests that the stock price is relatively reasonable and below the median.
I get a Graham Price of $13.04. The 10 year low, median and high median Price/Graham Price Ratios are 0.93, 1.04 and 1.11. The current P/GP Ratio is 1.01 based on a stock price of $13.21. This stock price testing suggests that the stock price is relatively reasonable and below the median.
I get a 10 year median Price/Book Value per Share of 1.42. The current P/B Ratio is 1.55 based on Book Value of $209.2M, Book Value per Share of $8.50 and a stock price of $13.21. Problem here is that the BVPS has been declining with current BVPS below what it was both 5 and 10 years ago. The current P/B Ratio is some 9.7% higher than the 10 year median. This stock price testing suggests that the stock price is relatively reasonable but above the median.
I get an historical median dividend yield of 7.92%. The current dividend yield is 6.48% based on dividends of $0.86 and a stock price of $13.21. The current yield is some 18% below the historical median yield. Problem with this test is that dividends have gone down as well as up and there has been no grow in dividends until the last 5 years. This stock price testing suggests that the stock price is relatively reasonable but above the median.
The 10 year median Price/Sales (Revenue) Ratio is 0.48 based on Royalty System Sales. The current P/S Ratio is 0.58 based on Sales estimate for 2018 of $558M, Sales per Share of $22.67 and a stock price of $13.21. The current P/S Ratio is some 21% above the 10 year median. This stock price testing suggests that the stock price is relatively expensive.
The 10 year median Price/Sales (Revenue) Ratio is 8.39 based Operating Income of PZA. The current P/S Ratio is 9.55 based on Operating Income estimate for 2018 of $35.4M, Income per Share of $1.44 and a stock price of $13.21. The current P/S Ratio is some 10% above the 10 year median. This stock price testing suggests that the stock price is relatively reasonable but above the median.
When I look at analysts’ recommendations I find one Hold recommendation so the consensus recommendation would be a Hold. The 12 month stock price is $15.00. This suggests a total return of 20.03% with 13.55% from capital gains and 6.48% from dividends. It seems there is only one analyst following this stock.
PZA talks about first quarterly results on Cision. Donald Bartholomew on Simply Wall Street says that PZA is paying out 98.74% of its earnings and that is too high. A Fisher Staff Writer pm Fisher Business News says PZA has a Value Composite score of 44, where 0 means a stock is undervalued and 100 means a stock is overvalued.. See what analysts are saying about this stock on Stock Chase. Some analysts worry about the sector this stock is in.
Pizza Pizza Royalty Corp., through its subsidiary, Pizza Pizza Royalty Limited Partnership, owns and franchises quick service restaurants under the Pizza Pizza and Pizza73 brands. Its web site is here Pizza Pizza Royalty Corp.
The last stock I wrote about was about was Mullen Group Ltd (TSX-MTL, OTC-MLLGF)... learn more. The next stock I will write about will be Ritchie Bros Auctioneers Inc. (TSX-RBA, NYSE-RBA)... learn more on Tuesday, May 22, 2018 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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