Is it a good company at a reasonable price? The stock price seems relatively cheap. This is not a dividend growth company. Dividends are unstable. They maybe a dividend growth company in the future. It used to be an Income Trust and all the old income trusts are having a hard time with dividends and the switch to a corporation. The risk level would be high.
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 the accrual ratio has been fairly accurate, especially lately. The accrual ratio has done 12 predictions over the past 16 years and has been accurate 67% of the time on the movement of the stock price in the following year. Over the past 7 years, there has been 7 predictions and 5 have been correct with a prediction rate of 71%. The Accrual Ratio expects the stock price to be low in 2022 than in 2021. So far, the stock price has fallen in 2022 by 21%.
I found interesting that the analysts on Market Screener agree with the Free Cash Flow (FCF) value of the company at $33M for 2021. Morningstar (MS) gave a FCF of a negative $500M and Wall Street Journal (WSJ) gave a negative of $470M.
If you had invested in this company in December 2011, for $1,001.70 you would have bought 159 shares at $26.30 per share. In December 2021, after 10 years you would have received $1,170.24 in dividends. The stock would be worth $2,288.01. Your total return would have been $3,458.25.
| Cost | Tot. Cost | Shares | Years | Dividends | Stock Val | Tot Ret |
|---|---|---|---|---|---|---|
| $6.30 | $1,001.70 | 159 | 10 | $1,170.24 | $2,288.01 | $3,458.25 |
The dividend yields are moderate with dividend growth restarted. The current dividend yield is moderate (2% to 4% ranges) at 4.24%. The 5 and 10 year dividend yields are good (5% to 6% ranges) at 6.52% and 6.85%. The historical median dividend yield is high (7% and over) at 7.93%. The dividends are down by 17% per year over the past 5 years. The last dividend change was an increase in 2022 by 33%.
The company changed from a corporation to an income trust in 2006. Because the law changed, the company changed back to a corporation in 2011. The problem is that income trusts can pay a higher dividend than corporations. All previous income trust must find a way to lower the dividends to an affordable rate for corporations.
In 2008 the company lowered the dividend by 70%. The Dividend Payout Ratio was often quite high over the following years. The company decreased the dividends again in 2020 by 71%. Over the past 15 years, the company increased dividends 8 times and decreased then 4 times.
The Dividend Payout Ratios (DPR) are fine. The DPR for EPS for 2021 is 20% with 5 year coverage at 69%. The DPR for EPS is expected to be around 30% in 2022. The company shows a Free Cash Flow (FCF) or AFFO DPR and for 2021 that DPR is 18% with 5 year coverage at 43%. This DPR is expected to be around 16% in 2022. The DPR for Cash Flow per Share (CFPS) for 2021 is 6% with 5 year coverage at 12%.
Debt Ratios are fine. Because this is a financial, I am looking at Long Term Debt/Covering Asset Ratio and for 2021 is it 0.93 and acceptable. The Liquidity Ratio for 2021 is good at 2.86. The Debt Ratio is fine for a financial at 1.13.
The Total Return per year is shown below for years of 5 to 15 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 | -16.96% | 8.93% | 3.79% | 5.15% |
| 2011 | 10 | -6.31% | 17.65% | 8.61% | 9.03% |
| 2006 | 15 | -6.43% | 12.08% | 4.63% | 7.46% |
The 5-year low, median, and high median Price/Earnings per Share Ratios are 6.53, 7.82 and 9.12. The corresponding 10 year ratios are 7.74, 9.38 and 10.92. The corresponding historical ratios are 6.98, 8.70 and 10.92. The current P/E Ratio is 7.40 based on a stock price of $11.32 and EPS estimate for 2022 of $1.53. The current ratio is below the low ratio of the 10 year median ratios. This stock price testing suggests that the stock price is relatively cheap.
I also have Free Cash Flow (FCF) from this company. The 5-year low, median, and high median Price/FCF Ratios are 5.92, 7.09 and 8.37. The corresponding 8 year ratios are 6.50,7.73 and 9.86. The current P/FCF is 3.91 based on FCF per Share estimate for 2022 of $2.90 and a stock price of 11.32. The current ratio is 45% below the 8 year median ratios. This stock price testing suggests that the stock price is relatively cheap.
I get a Graham Price of $11.32. The 10-year low, median, and high median Price/Graham Price Ratios are 0.61, 0.75 and 0.87. The current P/GP Ratio is 0.54 based on a stock price of $11.32. The current ratio is below the low ratio of the 10 year median ratios. 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 1.21. The current P/B Ratio is 0.89 based on a stock price of $11.32, Book Value of $210M and Book Value per Share of $12.68. The current ratio is 26% below the 10 year median ratios. This stock price testing suggests that the stock price is relatively cheap.
I also have a Book Value per Share (BVPS) estimate for 2022 of $12.00. This BVPS results in a ratio of 0.94 based on a stock price of $11.32 and Book Value of $199M. This ratio is 80% below the 10 year median 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 that is negative. You cannot do P/CF Ratio testing with a negative ratio.
I get an historical median dividend yield of 7.93%. The current dividend yield is 4.24% based on dividends of $0.48 and a stock price of $11.32. The current dividend yield is 47% below the historical median dividend yield. This stock price testing suggests that the stock price is relatively expensive. The problem with this test is that this stock used to be an income trust. All income trust had to reduced their dividends or keep them flat when becoming a corporation again.
I get a 10 year median dividend yield of 6.85%. The current dividend yield is 4.24% based on dividends of $0.48 and a stock price of $11.32. The current dividend yield is 38% below the historical median dividend yield. This stock price testing suggests that the stock price is relatively expensive. The problem with this test is that this stock used to be an income trust. All income trust had to reduced their dividends or keep them flat when becoming a corporation again.
The 10-year median Price/Sales (Revenue) Ratio is 1.44. The current ratio is 0.67 based on Revenue estimate for 2022 of $279M, Revenue per Share of $16.83 and a stock price of $11.32. the current ratio is 53% 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 P/S Ratio test is showing this. Analysts do expect a sharp rise in Revenue in 2022 of some 102%. (They were close in 2021 saying Revenue would be $136M and it was $138M.) The results of the second quarter of 2022 also support this revenue. The dividend yield tests are not good as dividends are declining. The other valid tests say that the stock price is cheap.
When I look at analysts’ recommendations, I find Buy (2) and Hold (1). The consensus would be a Buy. The 12 month stock price consensus is $15.75. This implies a total return of 43.37% with 39.13% from capital gains and 4.24% from dividends based on a current stock price of $11.32.
Last entries for this company on Stock Chase was in 2019. They liked the stock then. Stock Chase give this company 1 star out of 5. It is not on the Money Sense list. Nikhil Kumar on Motley Fool says Chesswood Group is North America’s only public company focused exclusively on commercial equipment finance for small and medium-sized businesses. Jason Hoang on Motley Fool talked about this company in March 2020. The company talks about on Newswire its 2021 year end results. The company on Newswire talk about their third quarter of 2022 results.
Simply Wall Street via Yahoo Finance talk about who owns shares in this company. Simply Wall Street has 4 warnings signs of debt is not well covered by operating cash flow; high level of non-cash earnings; dividend of 4.24% is not well covered; and shareholders have been diluted in 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. The US Equipment Financing business, which is the key revenue driver, is in the US and is involved in small-ticket equipment leasing and lending to small and medium-sized businesses. 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 Friday, November 18, 2022 around 5 pm. Tomorrow on my other blog I will write about Low Interest Credit Cards .... learn more on Thursday, November 17, 2022 around 5 pm.
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