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 over 99% of the Balance Sheet depends on Keg Restaurants Ltd. KRL is owned by Recipe Unlimited Corp (TSX-RECP, OTC-RCPOF). The only information that is in the financial reports for Keg Royalties is the Revenue, that KRL receives on which the income of Keg Royalties is based. I took a quick look online of Financial statements for RECP for the past 5 years to 2019. Revenue is going up, but Net Income is going down. The Balance sheet for RECP shows Shareholders’ equity going down. The Cash Flow statements shows Operating Income going up.
There is interesting accounting on the third quarterly report. Gross profit is $44.895 (last year it was $8.274 which is rather normal for this company). The Gross Profit is so high because the company added in $39,696 for Fair value gain on Exchangeable Partnership units. The Basic earnings per Fund Unit is $3.95 with the Diluted earnings per Fund Unit at $0.46. There is this big difference because to calculated the Diluted profit for the period, the $39,696 for Fair value gain on Exchangeable Partnership units is taken off the profit for the period. The company has this accounting each year, but for the 3rd quarter of 2018, the amount was $1,445 which was in line with other years.
The dividend yields are currently moderate with dividend growth going in the wrong direction. The current dividend yield is moderate (2% to 4% range) at 4.95%. The 5 and 10 year dividend yields are good (5% to 6% ranges) at 5.57% and 5.37%. The historical dividend yield is high (7% or higher) at 7.33%. This stock used to be an income trust and this accounts for past high dividend yields.
In the past the dividends have grown, but growth was never consistent and dividends were often flat. Currently dividends are going down. The restaurant business has been hit hard by Covid. After a 63% decline in dividends, dividends went back up by 43%. Net result is a decline in dividends of 47%.
The Dividend Payout Ratios (DPR) are improving. They never got their DPR for EPS under control since changing from an Income Trust. The DPR for EPS for 2019 was 102% with 5 year coverage at 123%. The DPR for 2020 is expected to be 56% with a 5 year coverage of 111%. The DPR for CFPS for 2019 was 53% with 5 year coverage also at 53%. This is too high. The DPR for CPFS is expect to be around 39% in 2020. There is some agreement in Free Cash Flow. The DPR for FCF for 2019 was 101% with 5 year coverage at 98%.
Debt Ratios are fine for Keg, but not for RECP. The Long Term Debt/Market Cap Ratio for 2019 is 0.80. The Liquidity Ratio is 2.04. The Debt Ratio is 1.71. The Leverage and Debt/Equity Ratios for 2019 is 2.41 and 1.41. Since it really counts on what Recipe Unlimited Corporation TSX-RECP does, as some 99% of the assets of Keg depend on this company. As far as I gather from online data, RECP’s Liquidity Ratio for 2019 is 0.66 (which means that current assets cannot cover current liabilities), and Debt Ratio for 2019 is 1.18. This are not good ratios.
The Total Return per year is shown below for years of 5 to 18 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 | 3.41% | 4.07% | -2.66% | 6.73% |
| 2009 | 10 | -1.18% | 12.38% | 3.62% | 8.76% |
| 2004 | 15 | 0.33% | 9.37% | 1.16% | 8.22% |
| 2001 | 18 | 4.47% | 11.47% | 2.38% | 9.09% |
The 5 year low, median, and high median Price/Earnings per Share Ratios are 16.86, 18.65, 20.13. The corresponding 10 year ratios is 17.02, 18.98 and 20.93. The corresponding historical ratios are 11.90, 13.11 and 14.31. The current P/E Ratio is 10.52 based on a stock price of $12.10 and EPS estimate for 2020 of $1.15. This stock price testing suggests that the stock price is relatively cheap.
I get a Graham Price of $17.99. 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 0.67 based on a stock price of $12.10. 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 0.97 based on a stock price of $12.10, Book Value of $142M, and Book Value per Share of $12.51. The current ratio is 51% below the 10 year 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 9.22. The current P/CF Ratio is 7.39 based on last 12 months Cash Flow of $18.6M, Cash Flow per Share of $1.64 and a stock price of $12.10. The current ratio is 23% below the 10 year ratio. This stock price testing suggests that the stock price is relatively cheap.
I get an historical median dividend yield of 7.33%. The current dividend yield is 4.96% based on dividends of $0.60 and a stock price of $12.10. The current dividend yield is 32% below the historical dividend yield. This stock price testing suggests that the stock price is relatively expensive. The problem is the recent dividend cut.
I get an historical median dividend yield of 6.37%. The current dividend yield is 4.96% based on dividends of $0.60 and a stock price of $12.10. The current dividend yield is 22% below the historical dividend yield. This stock price testing suggests that the stock price is relatively expensive. The problem is the recent dividend cut.
The 10 year median Price/Sales (Revenue) Ratio is 7.36. The current P/S Ratio is 4.52 based on Royalty Income Estimate for 2020 of $30.4M, Income per Share of $2.68 and a stock price of $12.10. The current ratio is 39% below the 10 year median ratio. This stock price testing suggests that the stock price is relatively cheap.
Results of stock price testing is that the stock price is probably cheap. The dividend yield tests are not good ones because of the recent cut in dividends. Of course, when a company cuts the dividend, it is never a good sign. The P/S Ratio test says the stock price is cheap, as does most of the other testing.
Is it a good company at a reasonable price? The price is reasonable. The dividend used to grow although once it because a corporation, it could not afford the dividends it was paying. They seem now under control. My problem with the stock that it is totally reliant on one company which is Keg Restaurants, for which I cannot find financials. Keg Restaurants is owned by Recipe Unlimited Corp and the financials I find online show that their debt ratios are not the sort I like. Personally, I would not buy this stock.
When I look at analysts’ recommendations, I find one Buy (1) for one month ago. There are no current recommendations I can find. There is no price consensus. It is not a good sign when analysts lose interest in a stock.
The last analyst comments for this stock on Stock Chase was in 2017 and it was rather negative. Kris Knutson on Motley Fool likes this stock for its higher yield. A writer on Simply Wall Street talks about who owns shares in this company. A writer on Simply Wall Street looks at insider trading. He says there is only insider selling, but it is so low, he does not think it matters much. The Keg announces its third quarterly results for 2020 on the Keg Site.
Keg Royalties Income Fund 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 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 11, 2020 around 5 pm. Tomorrow on my other blog I will write about Investing Sins.... learn more on Thursday, December 10, 2020 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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