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. It was on once on John Heinzl's Dividend Hog Portfolio, but has since been taken off.
When I was updating my spreadsheet, I noticed that in all time periods, the total return is positive only because of dividends. In all time periods I looked, there was a capital loss. See chart below. Also, I noted that the Debt Ratios for Pizza Pizza Royalty Corp (PZA) are good, but the ones for Pizza Pizza Limited (PPL) are awful. The Liquidity Ratio for PZA is 3.21 for 2020 while the ones for PPL are 0.60. When this is below 1.00, it means that the current assets cannot cover the current liabilities.
The dividend yields are good with dividend growth currently non-existent. The current dividend yield is good (5% to 6% ranges) at 6.26%. The 5 and 10 year median dividend yields are also good at 6.92% and 6.65%. The historical dividend yield is high (7% or greater) at 8.41%. The stock has a mixed record when it comes to dividends growth. Over the past 15 years it has raised its dividend 8 times and decreased them 4 times. It was an income trust and as most income trusts it decreased its dividends when becoming a corporation. However, it probably did not decrease it as much as it should have. They decreased the dividends again in 2020.
The Dividend Payout Ratios (DPR) seem fine. The DPR for EPS for 2020 is 91% with 5 year coverage at 98%. The DPR for CFPS for 2020 is 68% with 5 year coverage at 74%. Generally, I like the DPR for CFPS to be 40% or less, but in reality, because of the stocks structure, they can probably pay more. What really matters is if Pizza Pizza Limited can pay the royalties it has agreed to.
Debt Ratios are good for PZA. The Long Term Debt/Market Cap Ratio for 2020 for PZA is 0.21. The Liquidity Ratio for 2020 is 3.21. The Debt Ratio for 2020 is 4.94. The Leverage and Debt/Equity Ratios are 1.76 and 0.36.
Debt Ratios are good for PPL. The Long Term Debt/Market Cap Ratio for 2020 for PPL is 0.86. The Liquidity Ratio for 2020 is 60. The Debt Ratio for 2020 is 0.69. This means that the assets cannot cover the liabilities. If you exclude the Deferred Gain, the ratio is quite low at 1.26. I like this to be 1.50 or higher.
The Total Return per year is shown below for years of 5 to 15 to the end of 2020. 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. |
|---|---|---|---|---|---|
| 2015 | 5 | -3.21% | -0.59% | -7.59% | 7.00% |
| 2010 | 10 | -2.94% | 9.92% | 0.91% | 9.01% |
| 2005 | 15 | -0.78% | 8.00% | -0.55% | 8.56% |
The 5 year low, median, and high median Price/Earnings per Share Ratios are 10.53, 14.54 and 19.16. The corresponding 10 year ratios are 14.19, 15.97 and 18.15. The corresponding historical ratios are 11.69, 14.84 and 16.96. The current P/E Ratio is 12.70 based on a stock price of $10.54 and EPS estimate for 2021. The current P/E Ratio is below the 10 year low ratio. This stock price testing suggests that the stock price is relatively cheap
I get a Graham Price of $12.50. The 10 year low, median, and high median Price/Graham Price Ratios are 0.93, 1.04 and 1.17. The current P/GP Ratio is 0.84 based on a stock price of $10.54. The current ratio is below the 10 year low ratio. 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 1.46. The current P/B Ratio is 1.26 based on a Book Value of $205.9M, Book Value per Share of $8.37, and a stock price of $10.54. 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.
I get a 10 year median Price/Cash Flow per Share Ratio of 11.19 for PZA. The current P/CF Ratio is 10.94 based on the Cash Flow for the last 12 months of $23.7M, Cash Flow per Share of $0.96, and a stock price of $10.54. The current ratio is 25% below the 10 year median ratio. This stock price testing suggests that the stock price is relatively cheap.
I cannot do a price check using the Cash Flow for PPL because there were lots of years with a negative cash flow.
I get an historical median dividend yield of 8.41%. The current dividend yield is 6.26% based on a stock price of $10.54 and dividends of $0.66. The current dividend yield is 26% below the historical median dividend yield. This stock price testing suggests that the stock price is relatively expensive.
I get a 10 year median dividend yield of 6.65%. The current dividend yield is 6.26% based on a stock price of $10.54 and dividends of $0.66. The current dividend yield is 6% below the historical median dividend yield. 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 0.54. The current P/S Ratio is 0.49 based on Royalty System Sales estimate of $525M, Revenue per share of $21.33 and a stock price of $10.54. The current ratio is 9% 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 10 year median dividend yield test shows then, even though there was a recent dividend cut. The Royalty System Sales Test also shows a reasonable price. The company used to be an income trust and as such had high dividend yields and this is the reason for high an historical median dividend yield. Most test is showing the stock as cheap or reasonable.
Is it a good company at a reasonable price? The stock price is probably reasonable. However, the accounting for PZA does not tell us much about the strength of the company to continue to pay dividends. I think that PPL has problem in last of cash flow and lack of growth in net income. At least with this royalty producing company, we do get financial statements from the company paying the royalty (PPL).
When I look at analysts’ recommendations, I find one Strong Buy recommendation. The consensus would be a Strong Buy. The 12 month target stock price is $12.50. This implies a total return of 24.86% with 18.60% from capital gains and 6.26% from dividends.
The latest entry says Buy on Stock Chase but gives not good reason why. Daniel Da Costa on Motley Fool thinks you should buy this for its dividend and potential dividend increase. The executive summary on Simply Wall Street gives this stock 4 stars out of 5 and list two risks. A writer on Simply Wall Street does not like the fact that the company pays out most of its cash flow. PZA can as it can payout most of its earned royalty. I worry about PPL being able to pay the royalties. Trapping Value Marketplace on Seeking alpha gives his analysis of this stock.
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.
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