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 2020 the EPS was not as bad as analysts expected. The consensus EPS for 2020 was an earnings loss of $0.04. The EPS for 2020 came in at $0.36. This is still lower than EPS for 2018 and 2019 of $0.59 and $1.03. However, the EPS for this company has always been quite volatile.
The dividend yields are moderate with dividend growth non-existent. The current dividend yield is moderate (2% to 4% ranges) at 2.91%. The 5, 10 and historical dividend yields are also moderate at 3.23%, 3.25% and 3.96%. The dividends have been flat since 2014. The problem is that this company used to be an income trust. Income trusts can afford to pay more in dividends than corporations. They will probably increase the dividends when the DPR rates are better for EPS.
The Dividend Payout Ratios (DPR) are improving. The DPR for EPS for 2020 is 333% with 5 year coverage at 148%. Analysts expect the DPR in 2021 to be 85% and then moving to 50% in 2022. The problem is that this company used to be an income trust and income trusts could pay more in dividends than corporation. The DPR for CFPS for 2020 is 32% with 5 year coverage at 38%. The DPR for Free Cash Flow for 2020 is 32%. The 5 year coverage is 538%. (This is because of negative FCF in the past.)
Debt Ratios are good. The Long Term Debt/Market Cap Ratio for 2020 is 0.10. The Liquidity Ratio for 2020 is 1.72. The Debt Ratio for 2020 is 2.41. The Leverage and Debt/Equity Ratios for 2020 are 1.71 and 0.71.
The Total Return per year is shown below for years of 5 to 16 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 | 0.00% | -2.60% | -5.22% | 2.88% |
| 2010 | 10 | 0.87% | 12.67% | 7.85% | 2.15% |
| 2005 | 15 | 1.02% | 13.70% | 7.73% | 2.53% |
| 2004 | 16 | 14.12% | 7.82% | 2.21% |
When I was updating my spreadsheet, I noticed the starting values for Dividend Yield, P/E Ratio and P/S Ratio. A low price is when the Dividend Yield is high, the P/E Ratio and P/S Ratio are low. As you can see below, on this stock they had a better return went starting with a high Dividend Yield, and low P/E Ratio and low P/S Ratio.
| From | Years | Total Ret | Beg P/E | Beg Yield | Beg P/S |
|---|---|---|---|---|---|
| 2015 | 5 | -2.60% | 33.52 | 2.36% | 2.82 |
| 2010 | 10 | 12.67% | 16.49 | 6.01% | 1.23 |
| 2005 | 15 | 13.70% | 16.35 | 8.09% | 1.08 |
The 5 year low, median, and high median Price/Earnings per Share Ratios are 54.44, 62.36 and 70.27. The corresponding 10 year ratios are 27.71, 32.07 and 36.42. The corresponding historical ratios are 19.60, 21.49 and 24.16. The current P/E Ratio is 29.28 based on a stock price of $41.29 and EPS estimate for 2021 of $1.41. The current ratio is between the low and median 10 year median ratios. This stock price testing suggests that the stock price is relatively reasonable and below the median.
The only reasonable ratios are the historical ones. The problem is when a company gets into trouble, the stock price will only go down so far. With this company the EPS has gone down a lot, but the stock price has not. This is a problem with using P/E Ratios.
I get a Graham Price of $23.65. The 10 year low, median, and high median Price/Graham Price Ratios are1.66, 1.95 and 2.26. The current P/GP Ratio is 1.75 based on a stock price of $41.29. The current ratio is between the low and median ratios of the 10 year median P/GP Ratios. This stock price testing suggests that the stock price is relatively reasonable and below the median.
I get a 10 year median Price/Book Value per Share Ratio of 2.46. The current P/B Ratio is 2.34 based on a stock price of $41.29, Book Value of $188M and Book Value per Share of $17.63. 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 a 10 year median Price/Cash Flow per Share Ratio of 13.40. The current P/CF Ratio is 16.00 based on Cash Flow per Share estimate for 2021 of $2.58, Cash Flow of $27.5M and a stock price of $41.29. The current ratio is 19% above the 10 year median ratio. This stock price testing suggests that the stock price is relatively reasonable but above the median.
I get an historical median dividend yield since this company became a corporation of 3.27%. The current dividend yield is 2.91% based on dividends of $1.20 and a stock price of $41.29. The current yield is 11% below the historical median dividend yield since this company became a corporation. This stock price testing suggests that the stock price is relatively reasonable and below the median.
I get a 10 year median dividend yield since this company became a corporation of 3.25%. The current dividend yield is 2.91% based on dividends of $1.20 and a stock price of $41.29. The current yield is 11% below the historical median dividend yield since this company became a corporation. 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 1.88. The current P/S Ratio is 1.96 based on Revenue estimate for 2021 of $225M, Revenue per Share of $21.07 and a stock price of $41.29. The current ratio is 4% above 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 and below the median. The P/S Ratio test says this. I know the Dividend Yield tests say the same thing, but since dividends have been flat, these are not a good test. The P/B Ratios tests says this and it is a good test. The P/CF Ratio is also a good test and it is showing the price as reasonable, but above the median.
Is it a good company at a reasonable price? It would seem that the stock price is currently reasonable. Analysts certainly expect that this company will do better in the future with Revenue and EPS going up. Until recently investors were making money on this stock.
When I look at analysts’ recommendations, I find Strong Buy (2), Buy (4) and Hold (1). The consensus would be a Buy. The 12 months stock price consensus is $52.64. This implies a total return of 30.39% with 27.49% from capital gains and 2.91% from dividends based on a current stock price of $41.29.
Analyst lost interest in this stock on Stock Chase after 2018. Adam Othman on Motley Fool thinks you should buy this stock. The executive summary on Simply Wall Street gives this stock 4 stars out of 5 and lists two risks. A writer on Simply Wall Street does not like the fact that earnings cannot cover the dividends, but at least it is covered well by cash flow. A writer on Simply Wall Street says that the CEO is paid more than the industry’s average.
K-Bro Linen Inc is a healthcare and hospitality laundry and linen processor in Canada. It operates 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, which are the Canadian division and the United Kingdom division. Its web site is here K-Bro Linen Inc.
The last stock I wrote about was about was Granite REIT (TSX-GRT.UN, NYSE-GRP.U) ... learn more. The next stock I will write about will be BRP Inc (TSX-DOO, OTC-DOOO) ... learn more on Friday, September 24, 2021 around 5 pm. Tomorrow on my other blog I will write about Canadian Stocks for September 2021.... learn more on Thursday, September 23, 2021 around 5 pm.
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