I do not own this stock of Chesswood Group Ltd (TSX-CHW, OTC-CHWWF). A reader wrote me in 2012 that he was researching and found a company that he hoped I could give him a brief outlook on. He said that the company is Chesswood Group and they are basically a financial leasing company. From 2009 to 2012 they increased their dividends from 2.5 cents to 5.5 cents per month. This is a 120% increase.
When I was updating my spreadsheet, I noticed that they had an earnings loss due to restructuring and goodwill and intangible asset impairment charges. They are expected to do much better going forward. The last three years of EPS were $1.37, $0.71, and -$0.48. The next three years are expected to be $1.54, $1.61, and $2.00.
The dividend yields are moderate with dividend growth restarting. The current dividend yield is moderate (2% to 4% ranges) at 2.54%. The 5, 10 and historical dividend yields are high (7% and above) at 7.52%, 7.35% and 8.02%. This used to be an income trust and this explains the very high dividend yields of the past. They just recently cut the dividend by some 60% in 2020. The last increase was in 2021 and it was for 50%. Dividends are paid monthly.
The Dividend Payout Ratios (DPR) are fine and improving. The DPR for EPS for 2020 can not be calculated because of an earnings loss. The 5 year coverage was 85%. The DPR for EPS is expected to be 20% with 5 year coverage at 70%. The DPR for CFPS for 2020 was 6% with 5 year coverage at 13%. The DPR for 2020 for Free Cash Flow was 8% but 5 year coverage cannot be calculated due to negative cash flows. Different sites disagree about the FCF, but not by much.
Debt Ratios are fine. Because this is in the Finance sector, we need to look at how debt is covered by assets. The Long Term Debt/Asset ratio is 0.86 and this is fine. The Current Liabilities/Asset Ratio is very good and low at 0.02. Debt/Cash Flow Ratio is a little high at 7.24. The Liquidity Ratio is good at 2.75, but it is not an important one for Financials. The Debt Ratio is fine at 1.21 for a financial.
The Total Return per year is shown below for years of 5 to 14 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.
Note that in the future, the percentage of dividends for total return will be much lower. The current rate is moderate at 2.54%. My guess is that it will now stay in the moderate range of 2% to 4%.
| From | Years | Div. Gth | Tot Ret | Cap Gain | Div. |
|---|---|---|---|---|---|
| 2015 | 5 | -15.55% | 7.12% | -1.75% | 8.87% |
| 2010 | 10 | -2.91% | 14.49% | 3.92% | 10.57% |
| 2006 | 14 | -6.36% | 10.52% | 1.59% | 8.92% |
The 5 year low, median, and high median Price/Earnings per Share Ratios are 6.53, 7.85 and 9.37. The corresponding 10 year ratios are 8.15, 9.72 and 11.65. The corresponding historical ratios are 7.43, 9.36 and 11.29. The current P/E Ratio is 9.22 based on a stock price of $14.20 and EPS estimate for 2021 of $1.54. This ratio is between the median and high ratios of the 10 year median ratios. This stock price testing suggests that the stock price is relatively reasonable and below the median.
I get a Graham Price of $18.60. The 10 year low, median, and high median Price/Graham Price Ratios are 0.67, 0.79 and 0.92. The current P/GP Ratio is 0.76 based on a stock price of $14.20. The current ratio is between the low and median ratios of the 10 year median 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 1.32. The current P/B Ratio is 1.42 based on a Book Value of $165M, Book Value per Share of $9.99 and a stock price of $14.20. The current ratio is 7% above the 10 year median ratio. This stock price testing suggests that the stock price is relatively reasonable but above the median. A risk is that the Book Value per Share is going down. That is why the current ratio is higher than the median.
I cannot do any Price/Cash Flow Ratio testing because the 10 year median ratio is negative and the current P/CF Ratio is negative. This is not unusual for financials however.
I get an historical median dividend yield of 8.02. The current dividend yield is 2.54% based on dividends of $0.36 and a stock price of $14.20. The current dividend yield is 68% below the historical median dividend yield. This stock price testing suggests that the stock price is relatively expensive. Using the historical dividend yield since 2009 and change to a corporation does not help as that Dividend Yield is 7.68% and 67% below the historical dividend yield.
I get an historical median dividend yield of 7.35. The current dividend yield is 2.54% based on dividends of $0.36 and a stock price of $14.20. The current dividend yield is 66% below the historical median dividend yield. This stock price testing suggests that the stock price is relatively expensive. The problem is the declining dividends, but since it is no longer an income trust, but a now a corporation, the dividends will probably stay low.
The 10 year median Price/Sales (Revenue) Ratio is 1.44. The current P/S Ratio is 1.73 based on Revenue estimate for 2021 of $136M, Revenue per Share of $8.19 and a stock price of $14.20. The current ratio is 21% above the 10 year median ratio. This stock price testing suggests that the stock price is relatively expensive.
Results of stock price testing is that the stock price is probably relatively expensive. This is what the P/S Ratio testing shows. I also wonder about the Revenue estimate of $136M because the 12 months to the end of the third quarter only get to a Revenue of $106. Even if the fourth quarter is a good and the third quarter, the Revenue only gets to $114M. The Dividend Yield test are not good as dividends are declining. The P/E Ratio and P/GP Ratio testing does say that the stock price is reasonable.
Is it a good company at a reasonable price? I think that the stock price is on the high side, or in other words, expensive. This company has not made much in capital gains lately. Going forward, the dividend yields are going to be much lower in the past because it is now a corporation. If shareholders are to have a reasonable return, higher capital gains would be required. This is a small company and therefore risky.
The stock price did go up well year to date with an 56% gain. However, the 5, 10 and 15 year capital gains to date only gives capital gains of 3.51%, 8.47% and 4.54%. It would seem to me that only the 10 year capital gains to date is good, the others are rather low. I expect total return from my investments of a minimum of 8%. This stock could possible do that, but it is a small cap and therefore risky.
When I look at analysts’ recommendations, I find Buy (2) and Hold (1). The consensus would be a Buy. The 12 months stock price is 18.00. this implies a total return of 29.30% with 26.76% from capital gains and 2.54% from dividends based on a stock price of $14.20.
Last year when I look at analysts’ recommendations, I found a Buy (1) recommendation. The consensus would be a Buy. The 12 month stock price was $8.25. This implied a total loss of 0.12% with a capital loss of 2.94% and dividends of 2.82% based on a current stock price of $8.50. What happened was a total return of $69.88% with 67.06% from capital gains and 2.82% from dividends as current price is $14.20.
Last year I thought that the stock price seemed reasonable. Until 2020, this company was making money for its shareholders. It is a small cap. It is also rather risky. The stock price is down just 17% in 2020. This is not bad considering how other companies have fared.
The last entries were in 2019 so analysts on Stock Chase are not interested in this company at the moment. Nikhil Kumar on Motley Fool thinks Chesswood is well positioned to benefit from a boom in equipment financing opportunities. Jason Hoang on Motley Fool thinks you should buy this stock well it is cheap. The Executive Summary on Simply Wall Street gives this stock 3 stars out of 5 and list 3 risks: of debt is not well covered by operating cash flow; high level of non-cash earnings; and unstable dividend track record. Newsfile Corp on Yahoo Finance talks about Chesswood Group Limited to Acquire Rifco Inc. A writer on Simply Wall Street says that even though the stock has dropped recently, shareholders have done well over the past year.
Chesswood Group Ltd is a Canada-based company focused on commercial equipment finance for small and medium-sized businesses. The company's operations consist of Equipment Financing- US; and Equipment Financing-Canada. Its web site is here Chesswood Group Ltd.
The last stock I wrote about was about was Quarterhill Inc (TSX-QTRH, OTC-QTRHF) ... learn more. The next stock I will write about will be Northland Power Inc (TSX-NPI, OTC-NPIFF) ... learn more on Monday, November 22, 2021 around 5 pm.
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