Q: On the question from Ernest concerning this company as well as all dry bulkers - posible reason that prices are moving - speculation is that rates are improving for dry bulk carriers Ardmore etc. also moved.
Slainte, Chris
Slainte, Chris
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Investment Q&A
Not investment advice or solicitation to buy/sell securities. Do your own due diligence and/or consult an advisor.
Q: Circling back on Leon's Furniture as a stable dividend paying stock with hidden potential...
Furniture business is a tough one but Leon's is likely the best operator:
- there is no shortage of tough competition in this fragmented industry: Ikea, Costco, Wallmart, Sleep Country, Superstores and partially Amazon on-line & US shopping (although only subset of their inventory like electronics as people won't buy entire dining set on-line or load in their trunk across the US border).
- on the positive, landscape is also improving: bought their biggest / most direct competitor The Brick in 2013, Target is out of Canada, Future Shop closed and Sears Home is almost bankrupt.
Checking the financials, I was surprised to find Leon's actually growing despite tough Canadian economy: 2015 SSS: +1.2% and 2106 SSS: +4.1% - but based on above, to build a conservative case, I assume no sales growth going forward.
What struck my eye in the latest company presentation on their website is the likely financial improvement to come from internal synergies left from The Brick acquisition. Two slides caught my attention:
- "1% SG&A reduction = $20M savings": classical Leon's ran at ~32% while post-Brick, it shot up to 37.5%. In 2016, it finally started coming down to 36.5% with IT systems integration late 2015. Assuming it can continue synergies and get 1% down yearly over the next 4 years, it would add $0.24 to EPS yearly ($20M/83M shares).
- "$50M per year for debt repayment": From MD&A, current debt is $240M after $50M was indeed repaid in 2016. interest at ~3% so yearly interest expense savings of $0.03 yearly ($240M/$50M = 4.8 years; $13.3M interest / 4.8 years = $2.77M and $2.77/83M shares = $0.03).
- 2016 EPS was $1.05. Even with no growth, SG&A and Interest reduction could add $0.27 in 2017 (0.24+0.03) - with same savings target over next 4 years bringing to 2020: SG&A to 32.5% (pre-Brick acquisition) and almost all debt paid, with EPS up to $2.13. Even if hit only part of these targets, there is a lot of potential internal clean-up to improve financials.
A couple of other supporting item to thesis:
- Very aligned Management as Leon family owns 67% of the stock;
- Own most of their real estate, some rumors of possible REIT spin-off last year to unlock value;
- 20% dividend increase last quarter after a few years flat;
- Insider buying (Mark Leon bought 52K shares on March 8 for ~$900K)
Now back at ~$17, valuation seems modest compared to its 10-year average. LNF seems a good value stock - flying under the radar. Is above reasonable / realistic thesis? Thanks for your comments!
Furniture business is a tough one but Leon's is likely the best operator:
- there is no shortage of tough competition in this fragmented industry: Ikea, Costco, Wallmart, Sleep Country, Superstores and partially Amazon on-line & US shopping (although only subset of their inventory like electronics as people won't buy entire dining set on-line or load in their trunk across the US border).
- on the positive, landscape is also improving: bought their biggest / most direct competitor The Brick in 2013, Target is out of Canada, Future Shop closed and Sears Home is almost bankrupt.
Checking the financials, I was surprised to find Leon's actually growing despite tough Canadian economy: 2015 SSS: +1.2% and 2106 SSS: +4.1% - but based on above, to build a conservative case, I assume no sales growth going forward.
What struck my eye in the latest company presentation on their website is the likely financial improvement to come from internal synergies left from The Brick acquisition. Two slides caught my attention:
- "1% SG&A reduction = $20M savings": classical Leon's ran at ~32% while post-Brick, it shot up to 37.5%. In 2016, it finally started coming down to 36.5% with IT systems integration late 2015. Assuming it can continue synergies and get 1% down yearly over the next 4 years, it would add $0.24 to EPS yearly ($20M/83M shares).
- "$50M per year for debt repayment": From MD&A, current debt is $240M after $50M was indeed repaid in 2016. interest at ~3% so yearly interest expense savings of $0.03 yearly ($240M/$50M = 4.8 years; $13.3M interest / 4.8 years = $2.77M and $2.77/83M shares = $0.03).
- 2016 EPS was $1.05. Even with no growth, SG&A and Interest reduction could add $0.27 in 2017 (0.24+0.03) - with same savings target over next 4 years bringing to 2020: SG&A to 32.5% (pre-Brick acquisition) and almost all debt paid, with EPS up to $2.13. Even if hit only part of these targets, there is a lot of potential internal clean-up to improve financials.
A couple of other supporting item to thesis:
- Very aligned Management as Leon family owns 67% of the stock;
- Own most of their real estate, some rumors of possible REIT spin-off last year to unlock value;
- 20% dividend increase last quarter after a few years flat;
- Insider buying (Mark Leon bought 52K shares on March 8 for ~$900K)
Now back at ~$17, valuation seems modest compared to its 10-year average. LNF seems a good value stock - flying under the radar. Is above reasonable / realistic thesis? Thanks for your comments!
Q: Hello, great website by the way.. my question is directed to the US market.. I'm looking for a small/mid-cap company with a clean balance sheet and a decent growth profile.
Any suggestions? Thank you.
Any suggestions? Thank you.
Q: I consider WSP and STN my core holdings but now due to excellent appreciation they represent 7% and 3% of my portfolio. ARE has been a laggard and represents 1%. With ARE should I go back to SNC which I owned in the past (upside due to the recent acquisition?) or just keep WSP and STN as the only stocks in this area?
Q: I have a significant exposure to HCG which I want to reduce. I have been slowly selling some of my HCG shares the past few years, but I incur significant gains that I must pay taxes. My average cost is less than $3.00 per share. I was thinking of buying more HCG shares to increase my average cost and then sell within the year thereby paying less taxes. Do you think this is a sound strategy?
Q: I have cash in my children's RESP which I will withdraw in September. TPH.DB.E, a convertible debenture is maturing on September30, about the time I need to do the withdrawal.It is yielding over 7% (3.5% for 6 months) much better than other 6 month returns. Now that Morguard is the majority owner do you think this provides more safety making it more likely that the debenture will be paid out at face value at maturity. Does the company have adequate resources to mature the debenture?
Q: Hi,
from your balanced portfolio holdings, at current prices, can you give your top 5 stocks you would be buying?
I plan to purchase these in my TFSA and over time will be building the portfolio to match your balanced portfolio.
Thanks for your help.
Dan
from your balanced portfolio holdings, at current prices, can you give your top 5 stocks you would be buying?
I plan to purchase these in my TFSA and over time will be building the portfolio to match your balanced portfolio.
Thanks for your help.
Dan
Q: Since they are about the same price I am thinking about selling my FNV shares and buying an equal amount of SHOP shares. I am looking for more growth in the long term. Not worrying about sector allocation do you think this would be a wise move.
Q: Hi 5i, As one who remembers double digit interest rates, I've been wondering if and when the worm will turn again. It sounds like expectations are becoming pretty entrenched for higher rates in the US, and if that turns out to be true would expect Canada to follow with a year or two lag. Is there a typical pattern or approach that suggests which sectors and investment types benefit in a rising rate environment?
Thx for your excellent service!
Thx for your excellent service!
Q: In my rrif another bond was called.The Advisor suggested NVU.Bep.un NWh.un I also thought AQN or ENF as a substitute with good DIV.
Besides my Bonds I own TD ,BCE.Sentry 1032 some preferreds and MFR.un (floating share)I would greatly appreciate if any of those mentioned would be a good addition or
do you have a better choice .
thanks a lot
Margit
Besides my Bonds I own TD ,BCE.Sentry 1032 some preferreds and MFR.un (floating share)I would greatly appreciate if any of those mentioned would be a good addition or
do you have a better choice .
thanks a lot
Margit
Q: I have been holding both the above for some time, down considerably. Should I hold or sell, if sell possible replacement?? My other financials are BNS, SLF ITC. Thanks Jim
Q: As a pure growth play could you please rank the following companies - NFI,CCL, ZCL.
Q: Hi Peter and the super team!! I know what a PE ratio is....but I have heard reference made to a "normalized PE ratio". What kind of beast is this? There are also forward looking PE ratios...and possibly others. Could you give a brief run down of the various PE ratios and their definitions? Cheers, Tamara
Q: Brad asked a question about avoiding companies that return capital as part of their dividend because of the tax reporting nuisance.
I shared his concern and determined the best option was to simply hold any REITS or Trusts in my RRSP. I thought this was the easy solution but let me know if I am missing something.
I shared his concern and determined the best option was to simply hold any REITS or Trusts in my RRSP. I thought this was the easy solution but let me know if I am missing something.
Q: I noticed this stock is not part of the list of stocks in the summary. I hear a lot good things about this company and I'm considering it as part of my portfolio even at 114$/share. Would you consider this stock as good long term investment.
Q: Hi I am seeing a few dividend questions popping up. Here is a good dividend info site (especially the excel sheets) to pass on if you think appropriate.
http://www.dividendgrowthinvestingandretirement.com/canadian-dividend-all-star-list/
http://www.dividendgrowthinvestingandretirement.com/canadian-dividend-all-star-list/
Q: Enbridge issued a press release regarding an unsolicited mini-tender offer made by TRC Capital to purchase up to 2,500,000 common shares or Enbridge at a price of $53.38 per share which is 4.47% discount as of April 6, 2017 closing price. This type of mini-offers has happened to other publicly traded companies. What are the possible reason(s) for a company such as TRC Capital make an offer at a discount below market and believe this offer would be accepted? Perplexed… Thank you.
Q: Do you know of a good site to get a list of the largest market gains and losses during the trading day. It would seem like a relevant piece of data, but I haven't been able to locate it.
In addition, do you know a site which shows the list of largest absolute dividends paid by Canadian and us companies? In Canada the banks must lead the pack. In. The us I'm thinking xom or the big telcos. If not, wondering if other readers know. Thanks in advance.
In addition, do you know a site which shows the list of largest absolute dividends paid by Canadian and us companies? In Canada the banks must lead the pack. In. The us I'm thinking xom or the big telcos. If not, wondering if other readers know. Thanks in advance.
Q: Can I have your thoughts on this company.
Thank You
Thank You
Q: Hi, I try to stay away from companies that pay dividends as return of capital, mostly because of the tax issues.
Do all investors who do there own taxes keep up on the ACB, as it is sometimes only a % of the total distribution? And do they even know if their stock has a ROC?
Also I don't get it,if the company cannot afford the high dividend and relys on ROC, why are they paying it in the fist place. 3 to 5 % seems about right, anything after that is a bit of a gamble.
What am I missing, seems like a complication I can do without,especially if you have 8+ stocks
Thanks
Do all investors who do there own taxes keep up on the ACB, as it is sometimes only a % of the total distribution? And do they even know if their stock has a ROC?
Also I don't get it,if the company cannot afford the high dividend and relys on ROC, why are they paying it in the fist place. 3 to 5 % seems about right, anything after that is a bit of a gamble.
What am I missing, seems like a complication I can do without,especially if you have 8+ stocks
Thanks