I do not own this stock of Keg Royalties Income Fund (TSX-KEG.UN, OTC-KRIUF). This was a stock suggested by one of my readers. I like dinning at The Keg. I find the food very good. At stock forums I viewed, investors liked this company as it is guaranteed 4% of the sales at Keg restaurants as income to the fund. So, I decided to take a look at it.
When I was updating my spreadsheet, I noticed that it is hard to get estimates for this stock because it seems only 1 analyst, that I can find, even follows this stock. Even though this analyst expects EPS to be $1.17 in 2019 compared to 2018 when it was $1.16, the 12 month EPS to the end of the third quarter is only $1.02 compared to last year $1.16.
The thing I still do not like about this fund is that from the financial statements you get no sense on how able KRL is to pay the royalties due the fund. It is like a business with one customer. The effect on a business if something happens to one of their customers depends on how many customers they have. It is very different if the company has 1, 10, 100, 10,000 etc. customers. For this fund 99% of their assets depend on KRL as well as all their income. Also, the Intangible/Market Cap Ratio is 0.97 in 2019. So almost all their assets are intangible.
The fund has a mixed record when looking at dividend growth. Dividends have gone up, down and remained flat in different years. In 2019 the dividends did not increase. The dividend yield is in the good range (above 5%). The current dividend yield is 7.14%. The 5, 10 and historical dividend yields are 5.57%, 5.74% and 7.72%.
The Dividend Payout Ratios are too high. The DPR for EPS for 2018 is 100%. The 5 year coverage is 133%. The DPR for CFPS for 2018 is 53% with the 5 year coverage also at 53%. The DPR for FCF for 2018 is 99% with 5 year coverage at 97%. They say that they are distributing 100.8% of the distributable cash. This is probably why no increases in distributions for 2019.
Debt Ratios appear fine. The Long Term Debt/Market Cap Ratio for 2018 is 0.75. The Liquidity Ratio is 1.85 with 5 year median also at 1.85. The Debt Ratio for 2018 is 1.69 with 5 year median at 1.64. The Leverage and Debt/Equity Ratios for 2018 are 2.46 and 1.46 with 5 yar medians at 2.39 and 1.39.
The Total Return per year is shown below for years of 5 to 17 to the end of 2018. 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.|
The 5 year low, median, and high median Price/Earnings per Share Ratios are 17.17, 19.30 and 21.74. The corresponding 10 year ratios are 17.02, 18.98 and 20.93. The corresponding historical median ratios are 11.44, 12.31 and 13.19. The current P/E Ratio is 13.59 based on a stock price of $15.90 and an EPS estimate of $1.17 for 2019. This stock price testing suggests that the stock price is relatively cheap.
I get a Graham Price of $15.01. The 10 year low, median, and high median Price/Graham Price Ratios are 1.28, 1.43 and 1.57. The current P/GP Ratio is 1.06 based on a stock price of $15.90. This stock price testing suggests that the stock price is relatively cheap.
I get a 10 year median Price/Book Value per Share Ratio of 1.95. The current P/B Ratio is 1.86 based on a stock price of $15.90, Book Value of $97M and Book Value per Share of $8.56. The current ratio is 5% below the 10 year median ratio. This stock price testing suggests that the stock price is relatively reasonable and below the median.
I get an historical median dividend yield of 7.72%. The current dividend yield is 7.14% based on dividends of $1.135 and a stock price of $15.90. The current dividend is 7.5% below the historical dividend yield. This stock price testing suggests that the stock price is relatively reasonable but above the median.
I get a 10 year median dividend yield of 6.37%. The current dividend yield at 7.14% is some 12% higher. 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 7.36. The current P/S Ratio is 6.03 based on 2019 Revenue estimate of $29.9M and a stock price of $15.90. The current ratio is 18% below the 10 year median ratio. This stock price testing suggests that the stock price is relatively reasonable and below the median.
Results of stock price testing is that the stock price is probably cheap to reasonable. The best tests are probably the P/S Ratio, the dividend yield, and the P/B Ratio tests. I think that the P/E Ratio are rather high for this sort of company.
Is it a good company at a reasonable price? The stock price is probably reasonable. However, it would not be my favourite stock to buy. We have the revenue from KRL but not the earnings. If you look at the history of KRL they stop publishing their earnings back in 2010 after 3 years of earnings losses. To me, history counts.
When I look at analysts’ recommendations, I find one Buy recommendation. So, the consensus would be a Buy. The 12 month stock price consensus is $20.50. This implies a total return of 36.07% with 28.93% from capital gains and 7.14% from dividends. However, this is only from one analyst.
See what analysts are saying on Stock Chase. There are few entries and not everyone likes restaurants. Christopher Liew on Motley Fool likes the dividend yield on this fund. A writer on Simply Wall Street thinks this fund is an attractive investment. Nikhil Kumar on Motley Fool thinks the Keg is an industry leader. Rob Hiaasen on Riverton Roll talks about Cara buying more shares in this company.
Keg Royalties Income is a Canada based company. The organization works under the Restaurant business sector. The target market of this company is those people who want higher end casual dining experience. The business model of this company is that all Keg restaurants are placed under it, so the majority of its revenue is in the form of royalty income. Its web site is here Keg Royalties Income Fund.
The last stock I wrote about was about was Stella-Jones Inc (TSX-SJ, OTC-STLJF) ... learn more. The next stock I will write about will be FirstService Corp (TSX-FSV, NASDAQ-FSV) ... learn more on Friday, December 13, 2019 around 5 pm. Tomorrow on my other blog I will write about Benj Gallander.... learn more on Thursday, December 12, 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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