Is it a good company at a reasonable price? The stock price seems reasonable, but it is above the median. The Hold recommendation and a 12 months stock price of $16.00 seems off as that price points to a 16% total return. Pizza Pizza Royalty Corp (PPRC) financials looks fine, but I worry about the financials of Pizza Pizza Ltd (PPL) and especially, their Debt Ratios. If I misunderstand the financials, it is even a better reason for me to avoid this stock. The financials are complicated because you must look at both PPL and PPRC financials. I do not like complicated stocks.
I do not own this stock of Pizza Pizza Royalty Corp (TSX-PZA, OTC-PZRIF). Several people have recommended this stock, so I decided to look at it. It was on once on John Heinzl's Dividend Hog Portfolio, but has been taken off.
When I was updating my spreadsheet, I noticed what I do not like about this company is the complexity. I must look at both the Pizza Pizza Royalty Corp (PPRC) and Pizza Pizza Limited (PPL). The Pizza Pizza Royalty Corp (PPRC) is the one on the stock market. When you have a great deal of complexity, it is much easier to miss things. It is also easier for the company to do things that you may not like, and it is easy for you to miss.
If you had invested in this company in December 2012, for $1,002.00 you would have bought 100 shares at $10.02 per share. In December 2022, after 10 years you would have received $794.92 in dividends. The stock would be worth $1,364.20. Your total return would have been $2,158.92.
| Cost | Tot. Cost | Shares | Years | Dividends | Stock Val | Tot Ret |
|---|---|---|---|---|---|---|
| $10.02 | $1,002.00 | 100 | 10 | $794.92 | $1,364.00 | $2,158.92 |
For Pizza Pizza Limited (PPL) there is some growth figures below for the past 5 and 10 years. Items such a Net Income and Cash Flow has grown well recently, but they are down quite a bit over the past 10 years.
| Year | Item | Tot. Growth | Per Year |
|---|---|---|---|
| 5 | Revenue PPL | 34.81% | 6.16% |
| 5 | Net Income Growth | 102.70% | 15.18% |
| 5 | Cash Flow Growth | 186.52% | 23.43% |
| 5 | Royalty Payments Growth | 2.28% | 0.45% |
| 5 | Asset Growth | 39.97% | 6.96% |
| 10 | Revenue PPL | 29.90% | 2.65% |
| 10 | Net Income Growth | -98.29% | -33.43% |
| 10 | Cash Flow Growth | -51.64% | -7.01% |
| 10 | Royalty Payments Growth | 16.49% | 1.54% |
| 10 | Asset Growth | 20.60% | 1.89% |
Also, for Pizza Pizza Limited (PPL) the debt ratios seem awful and I am taking into consideration, their deferred gain. With the Liquidity Ratio, below 1.00 it means that the current assets cannot cover the current liabilities. This is true even if you talk into consideration the Cash Flow (CF).
| Type | Ratio |
|---|---|
| Lg Term | 0.78 |
| Intang/GW | 0.01 |
| Liquidity | 0.64 |
| Liq. + CF | 0.69 |
| Debt Ratio | 1.24 |
| Leverage | 2.87 |
| D/E Ratio | 2.90 |
The current dividend yield is good with dividend growth restarting. The current dividend yield is good (5% to 6% ranges) at 6.00%. The 5 and 10 median dividend yields are also good at 6.92% and 6.24%. The historical median dividend yield is high (7% or higher) at 7.43%. This company used to be an income trust and this explains the past high dividend yields. The dividends were cut in 2020, but they are now back to where they were before the cut.
The Dividend Payout Ratios (DPR) are fine for PPRC. The DPR for 2022 for Earnings per Share (EPS) is 92% with 5 year coverage at 95%. The DPR for 2022 for Adjusted Earnings per Share (AEPS) is 89% with 5 year coverage at 92%. The DPR for 2022 for Cash Flow per Share (CFPS) is 68% with 5 year coverage at 71%. The DPR for 2022 for Free Cash Flow (FCF) is 94% with 5 year coverage at 98%.
| Item | Cur | 5 Years |
|---|---|---|
| EPS | 91.57% | 95.42% |
| AEPS | 89.18% | 92.29% |
| CFPS | 68.19% | 71.02% |
| FCF | 93.86% | 97.66% |
The Pizza Pizza Royalty Corp (PPRC) can payout basically all their income. However, what counts is the ability of Pizza Pizza Ltd (PPL) to pay out the Royalty Payments to PPRC. The Royalty Payments are made from income. As near as I can tell, PPL paid out 99.5% of their Net Income to PPRC in 2022 and the 5 year average is 102.2%. It is higher than Net Income excluding the Royalty payment because PPL has had earning losses.
Debt Ratios for PPRC are good, but I wonder about the Debt Ratios for PPL (see above). The Long Term Debt/Market Cap Ratio for 2022 is 0.14. The Intangible/Good Will Ratio is too high at 1.05. You do not want this above 1.00 and you probably want it much lower. The Liquidity Ratio is good at 2.85. The Debt Ratio is good at 4.88. The Leverage and Debt/Equity Ratios are good at 1.76 and 0.36.
| Type | Ratio |
|---|---|
| Lg Term | 0.14 |
| Intang/GW | 1.05 |
| Liquidity | 2.85 |
| Liq. + CF | 5.20 |
| Debt Ratio | 4.88 |
| Leverage | 1.76 |
| D/E Ratio | 0.36 |
The Total Return per year is shown below for years of 5 to 16 to the end of 2022. 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. |
|---|---|---|---|---|---|
| 2017 | 5 | -1.65% | 1.74% | -3.38% | 5.12% |
| 2012 | 10 | 1.01% | 10.22% | 3.13% | 7.09% |
| 2007 | 15 | -0.76% | 9.35% | 2.03% | 7.32% |
| 2005 | 17 | 0.14% | 9.22% | 1.84% | 7.37% |
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 13.12, 15.06 and 17.18. The corresponding historical ratios are 12.59, 14.76 and 16.75. The current P/E Ratio is 17.07 based on a stock price of $14.51 and EPS estimate for 2023 of $0.85. The current 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 but above the median.
I also have Adjusted Earnings per Share (AEPS) data. The 5-year low, median, and high median Price/Adjusted Earnings per Share Ratios are 10.11, 13.76 and 15.71. The corresponding 10 year ratios are 12.58, 14.43 and 16.29. The current P/AEPS Ratio is 15.77 based on a AEPS estimate for 2023 of $0.92 and a stock price of $14.51. The current ratio is above the high ratio of the 10 year median ratio. This stock price testing suggests that the stock price is relatively expensive.
I get a Graham Price of $13.43. The 10-year low, median, and high median Price/Graham Price Ratios are 0.84, 0.97 and 1.09. The current P/GP Ratio is 1.08 based on a stock price of $14.51. The current 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 but above the median.
I get a 10-year median Price/Book Value per Share Ratio of 1.49. The current P/B Ratio is 1.67 based on a stock price of $14.51, Book Value of $215M and Book Value per Share of $8.71. The current ratio is 12% 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 10.97. The current P/CF Ratio is 12.22 based on Cash Flow for the last 12 months of $29.2M, Cash Flow per Share of 1.19 and a stock price of $14.51. The current ratio is 11% 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 7.43%. The current dividend yield is 6.00% based on a stock price of $14.51 and dividends of 0.87. The current dividend yield is 19% below the historical median dividend yield. This stock price testing suggests that the stock price is relatively reasonable but above the median.
I get a 10 year median dividend yield of 6.24%. The current dividend yield is 6.00% based on a stock price of $14.51 and dividends of 0.87. The current dividend yield is 4% 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 0.56. The current P/S Ratio is 0.59 based on Royalty System Sales estimate for 2023 of $610M. The current P/S Ratio is 5% 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 probably still reasonable, but above the median. The dividend yield tests say this and it is confirmed by the P/S Ratio testing.
When I look at analysts’ recommendations, I find a Hold (1). The consensus would be a Hold. The 12 month stock price consensus is $16.00. This implies a total return of 16.26% with 10.27% from capital gains and 6.00% from dividends based on a stock price of $14.51.
When I looked at analysts’ recommendations last year, I found 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 based on a stock price of $12.55. What happened the stock price rising to 14.51 and that implies a total return of 21.84% with 15.62% from capital gains and 6.22% from dividends based on a stock price of $12.55.
These seems to be only one comment a year on Stock Chase for this stock. The latest was a Buy recommendation. It is not on the Money Sense, Maple Money, or Aristocrat dividend lists. Stock Chase gives this stock 4 stars out of 5. Rajiv Nanjapla on Motley Fool thinks this is a good passive income stock. Aditya Raghunath on Motley Fool thinks this is a quality monthly payout stock. The company put out a Press Release on their 2022 results. The company put out a Press Release on their 2023 first quarter results. Alicja Siekierska on Yahoo Finance looks at this stock
Simply Wall Street via Yahoo Finance reviewed this stock. Simply Wall Street has two warnings of Earnings have declined by 1% per year over past 5 years; and dividend of 6% is not well covered by earnings or cash flows. Simply Wall Street gives this stock 3 stars out of 5.
Pizza Pizza Royalty Corp., through its subsidiary, Pizza Pizza Royalty Limited Partnership, owns and franchises quick-service restaurants under the Pizza Pizza and Pizza 73 brands. 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 Monday, May 29, 2023 around 5 pm.
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