I do not own this stock of Onex Corp (TSX-ONEX, OTC-ONEXF), but I used to. I bought this stock in 2001 because it was on a stock hit list article I read. By April 2008, I knew that this was not the sort of stock I wanted to be invested in as it was really not a dividend paying stock as the dividends never changed, so I sold. Dividends were flat until 2012.
When I was updating my spreadsheet, I noticed in the second quarterly report that on January 1, 2019 Onex states that determined it met the definition of an investment entity, as defined by IFRS 10, Consolidated financial statements. This change in status has fundamentally changed how Onex prepares, presents, and discusses its financial results relative to periods ending on or before December 31, 2018. In the new year they just presented the new financial statements and I am not sure how this will affect the information I have on prior years.
With the new accounting statements, EPS and Book Value has jumped up significantly. It is how to know how this will affect how to value this company. I wonder if I want to continue to follow this stock. I will take another look next year and then decide. It is interesting that few analysts are following this company.
This was not a dividend growth stock until 2013. Before that there was a dividend, but the dividend had been flat for many years. Dividends are paid in CDN$ and have been increasing well lately. See chart below. The last increase was in 2019 and it was for 14.3%. The dividend yield has been low (below 2%). The current yield is 0.54% with 5, 10 and historical yields at 0.30%, 0.31% and 0.51% respectively.
I generally do not invest in companies with yields under 1% because it takes so long to get a decent yield on your original purchase amount. For this stock, after 20 years the yield is just 3%, although after 25 years it would be 10%.
The Dividend Payout Ratios are very low. The DPR for EPS for 2018 cannot be calculated as the company had an earnings loss in 2018. Also, for this company, the EPS fluctuates a lot, so you would probably want to go with the 5 year coverage. The DPR for EPS for 5 year coverage is 12.5%. The DPR for CFPS for 2018 is 1.3% with 5 year coverage at 1%.
Debt Ratios are probably fine, but with changes in 2019 it may be hard to tell how good the ratios actually are. With this company now reporting as an Investment Entity, the outstanding long term debt dropped some 99% from $21B to $134M from the end of 2018 to the end of the second quarter. The new reporting also affected the Liquidity Ratio, Debt Ratio, Leverage Ratio and Debt/Equity Ratio in a similar fashion. For example, the Liquidity Ratio went from 1.31 in 2018 to 13.67 in the second quarter of 2019.
The Total Return per year is shown below for years of 5 to 26 to the end of 2018 in CDN$. 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 chart below.
| From | Years | Div. Gth | Tot Ret | Cap Gain | Div. |
|---|---|---|---|---|---|
| 2013 | 5 | 20.11% | 6.80% | 6.41% | 0.39% |
| 2008 | 10 | 11.44% | 16.19% | 15.71% | 0.48% |
| 2003 | 15 | 7.49% | 12.27% | 11.80% | 0.47% |
| 1998 | 20 | 5.57% | 10.90% | 10.37% | 0.53% |
| 1993 | 25 | 4.83% | 13.15% | 12.20% | 0.95% |
| 1992 | 26 | 4.64% | 17.00% | 15.24% | 1.76% |
The Total Return per year is shown below for years of 5 to 17 to the end of 2018 in US$. 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 chart below.
| From | Years | Div. Gth | Tot Ret | Cap Gain | Div. |
|---|---|---|---|---|---|
| 2013 | 5 | 14.28% | 0.55% | 0.19% | 0.36% |
| 2008 | 10 | 10.25% | 15.26% | 14.68% | 0.58% |
| 2003 | 15 | 7.10% | 11.57% | 11.02% | 0.55% |
| 2001 | 17 | 6.18% | 8.70% | 8.25% | 0.45% |
The 5 year low, median, and high median Price/Earnings per Share Ratios are all negative. The corresponding 10 year ratios are also negative and therefore of no use. The historical ratios are 2.63, 3.26 and 3.87 which are very low, because of all the negative ratios. The current P/E Ratio is 133.90 based on a stock price of $74.35 and 2019 EPS estimate of $0.42.
Because of all the negative ratios of the past and because of the really high current one, I can really do no testing using the P/E Ratios. Also, the estimates make no sense because of the new accounting rules that Onex is using give the current 12 month EPS at $37.44 compared to the 2019 EPS estimate of $0.42. There is no continuity between the prior accounting and the current accounting.
I get a Graham Price of $33.26. The 10 year low, median, and high median Price/Graham Price Ratios are 0.53, 0.60 and 0.68. The current P/GP Ratio is 2.24 based on a current stock price of $74.35. This stock price testing suggests that the stock price is relatively expensive.
I get a 10 year median Price/Book Value per Share Ratio of 2.34. The current P/B Ratio is 0.88 based on Book Value of $6,706M, Book Value per Share of $66.98 and a stock price of $59.26. The current ratio is 62% below the 10 year median ratio. This stock price testing suggests that the stock price is relatively cheap. This is in US$.
I get an historical median dividend yield of 0.51%. The current dividend yield is 0.54% based on dividends of $0.40 and a stock price of $74.35. The current yield is 5.5% above the historical median. This stock price testing suggests that the stock price is relatively reasonable and below the median.
The 10 year median Price/Sales (Revenue) Ratio is 0.23. The current P/S Ratio is 0.26 based on last 12 months Revenue of $22,905M, Revenue per Share of $228.76 and a stock price of $29.26. The current ratio is 11.5% above the 10 year median. This stock price testing suggests that the stock price is relatively reasonable and above the median.
Results of stock price testing is that the stock price is from below to above the median, so the price is probably reasonable. There is continuity in the dividends paid, so the dividend yield test is probably valid also. There is also continuity in the Revenue. So, the P/S Ratio tests should be fine. In the P/B Ratio, the values are quite different than in the past, so this might not be a good test.
Is it a good company at a reasonable price? It is never a good sign when a company changes their accounting rules with no or little continuity. For a large company, there is few analysts following this stock an even fewer giving any estimates. Canadians have made a decent return but US investors returns are very low at present. It might be a good dividend growth company is dividend increases continue, but it is uncertain this would be the case. I think the company is risky, because the amount of risk you would take buying this stock is unknown. Price is probably reasonable.
When I look at analysts’ recommendations, I find Strong Buy (2), Buy (2) and Hold (2). The consensus would be a Buy. The 12 month stock price is $96.36. This implies a total return of 30.14% with 29.60% from capital gains and 0.54% from dividends based on a stock price of $74.35.
See what analysts are saying on Stock Chase. One analyst complains that it hard to analysts. Some looking at it are just doing technical analysis. Will Ashworth on Motley Fool talks about it buying WestJet. A writer on Simply Wall Street talks about who owns this company. The company announces on Global Newswire the sale of Jack’s Family Restaurants. The company on Global Newswire talks about their second quarterly results of 2019.
Onex Corp is a private equity investor and asset management firm. The company invests in businesses in partnership with management teams. It also invests in non-investment-grade debt through credit funds and collateralized loan obligations. It invests its capital together with funds from public and private pension funds, sovereign wealth funds, banks, insurance companies, and family offices. Its web site is here Onex Corp .
The last stock I wrote about was about was BlackBerry Ltd (TSX-BB, NASDAQ-BBRY) ... learn more. The next stock I will write about will be Evertz Technologies (TSX-ET, OTC-EVTZF) ... learn more on Friday, August 16, 2019 around 5 pm. Tomorrow on my other blog I will write about SNC Lavalin Group Inc.... learn more on Thursday, August 15, 2019 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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