Is it a good company at a reasonable price? Stock price is reasonable, but above the median. Restaurants have never been a category that I invest in. I like to invest in companies for the very long term and I do not see restaurants fitting that bill.
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 been taken off. It is interesting that this stock is not one of the 100 best Canadian Dividend Stocks on Money Sense.
When I was updating my spreadsheet, I noticed that the main question for Pizza Pizza Limited (PPL) is, can it afford the royalty that they have to pay the Pizza Pizza Royalty Corp? PPL had an earnings loss of $0.859M in 2021 and $3.835M in 2022 after paying Royalty to Pizza Pizza Royalty Corp (as well as other expenses). Over the past 5 years, their net loss is $7M. Over the past 17 years of this arrangement, PPL has a net income of $53M. Over the past 17 years that they have had 10 years of positive net income and 7 years of losses. PPL does have a net cash position of $7.7M and the cash flow is mostly coming from Investing Activities.
I also do not like the debt ratios for PPL. They have gone from bad to truly awful. The Liquidity Ratio is 0.57. This means that the current assets cannot cover the current liabilities. It is some $31M short. The Debt Ratio is low at just 1.25. I prefer both these to be at 1.50 or higher.
The good news is that most of the insider I am following have increased the number of shares they own over the past year. The Royalty Corp has increased dividends in 2021 and 2022.
If you had invested in this company in December 2011, $1000.35 you would have bought 117 shares at $8.55 per share. In December 2021, after 10 years you would have received $921.22 in dividends. The stock would be worth $1,406.34. Your total return would have been $2,327.56.
| Cost | Tot. Cost | Shares | Years | Dividends | Stock Val | Tot Ret |
|---|---|---|---|---|---|---|
| $8.55 | $1,000.35 | 117 | 10 | $921.22 | $1,406.34 | $2,327.56 |
The dividend yields are good with dividend growth restarted. The current dividend yield is good (5% to 6% ranges) at 6.22%. The 5 and 10 year dividend yields are also good at 6.92% and 6.41%. The historical median dividend yield is high (7% and higher) at 7.92%. Dividends were cut 30% in 2021. They started to raise them again in 2022. The last dividend increase was for 8.3% and it was in 2022. Dividends have declined over the past 5 years by 4% per year. Dividends are not yet back to where they were in 2019.
The Dividend Payout Ratios (DPR) are fine, but what counts is can Pizza Pizza Limited pay royalties. The DPR for EPS for 2021 is 93% with 5 year coverage at 97%. The DPR for Cash Flow per Share for 2021 is $68% with 5 year coverage at 73%. The DPR for Free Cash Flow for 2021 is 94% with 5 year coverage at 99%. PZA can afford to pay all income to dividends because they are a company that just collects royalties.
Debt Ratios are very good for PZA. For PZA, the Liquidity Ratio for 2021 is 3.33. The Debt Ratio for 2021 is 4.98. The Leverage and Debt/Equity Ratios are 1.75 and 0.35. All these ratios a very good.
Debt Ratios are awful for PPL. For PPL, the Liquidity Ratio for 2021 is 0.65. This means that the current assets cannot cover the current liabilities. The Debt Ratio for 2021 is 0.70. This means that the Assets cannot cover the Liabilities. However, if you take the Deferred Gain (Royalty Payments paid but not yet earned) into consideration, the ratio is 1.25. This is low.
The Total Return per year is shown below for years of 5 to 16 to the end of 2021. 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. |
|---|---|---|---|---|---|
| 2016 | 5 | -4.13% | -2.23% | -7.41% | 5.18% |
| 2011 | 10 | -0.50% | 11.56% | 3.47% | 8.10% |
| 2006 | 15 | -0.78% | 11.82% | 2.74% | 9.07% |
| 2005 | 16 | 8.88% | 1.16% | 7.72% |
The 5 year low, median, and high median Price/Earnings per Share Ratios are 10.53, 14.36 and 16.39. The corresponding 10 year ratios are 13.56, 15.76 and 18.15. The corresponding historical ratios are 12.32, 14.54 and 16.93. The current P/E Ratio is 15.49 based on a stock price of $12.55 and EPS estimate for 2022 of $0.81. The current ratio is between the low and the median 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 $12.41. The 10 year low, median, and high median Price/Graham Price Ratios are 0.89, 1.02 and 1.17. The current P/GP Ratio is 1.01 based on a stock price of $12.55. This ratio is between the low and median 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 1.43. The current P/B Ratio is 1.49 based on a stock price of $12.55, Book Value of $208M and Book Value per Share of $8.45. The current ratio is 4% above the 10 year median ratio. This stock price testing suggests that the stock price is relatively reasonable but above the median.
I get a 10 year median Price/Cash Flow per Share Ratio of 11.19. The current ratio is 12.17 based on a stock price of $12.55, Cash Flow from last 12 months of $25M and Cash Flow per Share of $1.03. The current ratio is 9% 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 of 7.92%. The current Dividend yield is 6.22% based on dividends of $0.78 and a stock price of $12.55. The current dividend yield is 22% 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 6.41%. The current Dividend yield is 6.22% based on dividends of $0.78 and a stock price of $12.55. The current dividend yield is 3% below the 10 year 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 0.60 based on Revenue estimate for 2022 of $519M, Revenue per Share of $21.08 and a stock price of $12.55. The current ratio is 9% above the 10 year median ratio. This stock price testing suggests that the stock price is relatively reasonable but above the median.
Results of stock price testing is that the stock price is reasonable but above the median. The 10 year dividend yield says this and it is confirmed by the P/S Ratio test. Note that the historical median dividend yield test says the stock price is expensive. All the other tests say above the median or expensive.
When I look at analysts’ recommendations, I find that Alpha Spread gives this stock an intrinsic Value of $13.90 CDN and a target price of $14.28 CDN. WSJ gives this stock a target of $14.00 and had one Hold recommendation. A target price of $14.00 implies a total return of 17.77% with 11.55% from capital gains and 6.22% from dividends.
Last entry on Stock Chase was in 2021. Seems analysts are not much interested in this stock. Stock Chase gives this stock 1 star out of 5 stars. Rajiv Nanjapla on Motley Fool says to buy this stock for passive income. Daniel Da Costa on Motley Fool says to buy this stock while yield is high. The company talks about their first quarter results on Newswire. The company talks about their fourth quarter of 2021 results on Newswire. A report on Simply Wall Street on this stock interestingly talks why this stock is not a multi-bagger stock on Yahoo Finance .
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. The business activity of the group primarily functions through Canada. Its web site is here Pizza Pizza Royalty Corp.
The last stock I wrote about was about was Canadian Utilities Ltd (TSX-CU, OTC-CDUAF) ... learn more. The next stock I will write about will be HLS Therapeutics Inc (TSX-HLS, OTC-HLTRF) ... learn more on Friday, May 27, 2022 around 5 pm. Tomorrow on my other blog I will write about Manulife Financial.... learn more on Thursday, May 26, 2022 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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