I do not own this stock of K-Bro Linen Inc (TSX-KBL, OTC-KBRLF). People were talking about this stock at the 2009 Toronto Money Show. This was one income trust being touted as currently a good buy with very good yield. It was also recommended by Aaron Dunn who is the Senior Equity Analyst for Keystone Publishing Corp, a publisher of Canadian investment newsletters.
When I was updating my spreadsheet, I noticed this company had hit a high in 2015 and was recovering up to 2019, but has been hit again this year. Analysts expect the revenue and earnings to go down in 2020 including an earnings loss, but then the company is expected to do better in 2021. This stock used to be an income trust and as such now has a hard time getting the dividends in line with earnings. They should have cut the dividends in line with earnings on becoming a corporation.
The dividend yields are moderate with dividend growth non-existent. The current dividend yield is moderate (2% to 4% ranges) at 4.34%. The 5, 10 and historical dividend yields are also moderate at 2.90%, 3.25% and 4.47%. The dividends have been flat since 2015 and analysts do not expect this change in the near future. Analysts do not expect a dividend cut in the near future either.
The Dividend Payout Ratios (DPR) need improving for EPS. The DPR for EPS for 2019 is 117% with 5 year coverage at 115%. Because an earnings loss is expected in 2020, the dividend will not be covered in 2020. The 5 year coverage is e expected to move up to 164%. When there is an earnings loss, DPR for EPS cannot be calculated. The DPR for CFPS for 2019 is 30% with 5 year coverage at 40%. The DPR for Free Cash Flow for 2019 is 43%. The 5 year coverage cannot be calculated because of past negative FCF.
Debt Ratios are good. The Long Term Debt/Market Cap Ratio for 2019 is 0.14. It is low and good. The liquidity Ratio for 2019 is good at 1.78. The Debt Ratio is good at 2.26. The Leverage and Debt/Equity Ratios are good and low at 1.80 and 0.80.
The Total Return per year is shown below for years of 5 to 15 to the end of 2019. 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. |
|---|---|---|---|---|---|
| 2014 | 5 | 0.00% | 0.87% | -1.83% | 2.70% |
| 2009 | 10 | 0.87% | 17.74% | 12.05% | 5.69% |
| 2004 | 15 | 1.09% | 15.01% | 8.92% | 6.10% |
The 5 year low, median, and high median Price/Earnings per Share Ratios are 31.30, 36.12 and 40.93. The corresponding 10 year ratios are 23.62, 27.61 and 31.60. The corresponding 10 year ratios are 18.82, 19.68 and 21.32. The current P/E Ratio is negative, so a stock price test cannot be done on it. The P/E Ratio for 2021is 67.49 based on a stock price of $27.67 and EPS estimate for 2020 of $0.41. This stock price testing suggests that the stock price is relatively expensive.
I get a Graham Price of $12.77. The 10 year low, median, and high median Price/Graham Price Ratios are 1.59, 1.86 and 2.13. The current P/GP Ratio is 2.17 based on a stock price of $27.67. 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 2.46. The current P/B Ratio is 1.57 based on a stock price of $27.67, Book Value of $187M and Book Value per Share of $17.68. The current ratio is 36% below the 10 year median ratio. This stock price testing suggests that the stock price is relatively cheap.
I get a 10 year median Price/Cash Flow per Share Ratio of 13.40. The current P/CF Ratio is 7.58 based on a stock price of $27.67, Cash Flow per Share estimate for 2020 of $3.65 and Cash Flow of $38.7M. The current ratio is 43% below the 10 year median ratio. This stock price testing suggests that the stock price is relatively cheap.
I get an historical median dividend yield of 4.47%. The current dividend yield is 4.34% based on dividends of $1.20 and a stock price of $27.67. The current yield is 3% below the historical dividend yield. This stock price testing suggests that the stock price is relatively reasonable but above the median.
I get an historical median dividend yield of 3.25%. The current dividend yield is 4.34% based on dividends of $1.20 and a stock price of $27.67. The current yield is 33% above the historical dividend yield. This stock price testing suggests that the stock price is relatively cheap.
The 10 year median Price/Sales (Revenue) Ratio is 1.73. The current P/S Ratio is 1.50 based on Revenue estimate for 2020 of $195M, Revenue per Share of $18.39, and a stock price of $27.67. The current ratio is 13% 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 reasonable. The dividend yield tests show different results with the historical dividend yield test showing the stock price above the median and the 10 year dividend yield test showing the stock price as cheap. The reasonableness of the dividend tests is confirmed by the P/S Ratio test which says the stock price is relatively reasonable and below the median.
Is it a good company at a reasonable price? The stock price seems to be reasonable and below the median. The good thing is that Revenue is growing. The bad thing is that earnings are not growing and they cannot cover their dividend with earnings and will not be able to in the next couple of years either. Coverage by Cash Flow is getting high. I would think that the dividend is at risk. To me, this is not a dividend growth company and I would not be interested in it at the present time.
When I look at analysts’ recommendations, I find Strong Buy (2) and Buy (4). The consensus would be a Buy. The 12 month stock price is $39.00. This implies a total return of 45.28% with 4.34% from dividends and 40.95% from capital gains.
There are no recent entries by analysts on Stock Chase. The analysts lost interest in 2018. Daniel Da Costa on Motley Fool thinks this company is in a strong position to weather the current environment. A writer on Simply Wall Street says this stock is trading above it intrinsic value of $20.96. A writer on Simply Wall Street says that although this company is paying out more than it is earning, the dividends are covered by its Free Cash Flow.
K-Bro Linen Inc is a healthcare and hospitality laundry and linen processor in Canada. It operates around 15 facilities in major cities across Canada, and two distribution centers, providing management services and laundry processing of hospitality, healthcare, and specialty linens. It operates through two divisions such as the Canadian division and the UK division. Its web site is here K-Bro Linen Inc.
The last stock I wrote about was about was Le Chateau Inc (TSX-CTU, OTC-LCUAF) ... learn more. The next stock I will write about will be Linamar Corporation (TSX-LNR, OTC-LIMAF) ... learn more on Friday, October 02, 2020 around 5 pm. Tomorrow on my other blog I will write about Best Stocks I Follow.... learn more on Thursday, October 01, 2020 around 5 pm.
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