Friday, December 14, 2018

The Keg Royalties Income Fund

Sound bite for Twitter and StockTwits is: Dividend Growth Consumer. This is a restaurant stock and it is showing up on testing with a reasonable to expensive stock price. They seem to be getting their Dividend Payout Ratio under control. This is a positive going forward. See my spreadsheet on The Keg Royalties Income Fund.

I do not own this stock of Keg Royalties Income Fund (TSX-KEG.UN, OTC-KRIUF). This was a stock suggested by one of my readers. I like dining at The Keg. I find the food very good. At stock forums I viewed, investors liked this company as it is guaranteed 4% of the sales at Keg restaurants as income to the fund. So, I decided to take a look at it.

When I was updating my spreadsheet, I noticed there is a big difference between the Basic and Diluted EPS. Basic for 2017 is $1.50 and the Diluted is $1.15. The difference is due to Exchange Partnership Units. Revenue and Assets depend on Keg Restaurants Ltd (KRL) for which there is no financial statements.

However, Keg Restaurant Ltd is now owned by Recipe Unlimited Corporation (TSX-RECP). Note that Recipe Unlimited Corporation used to be Cara Operations limited (TSX-CARA) which has recently changed its name. RECP is a publicly traded company for which there are financial statements. Still the company is still wholly dependent on KRL

The current dividend yield is high with dividend yield at 6.67%. The dividend has always been high because this used to be an income trust. The historical median dividend yield is 8.20%. The dividend yield since 2011 when it changed from an income trust is 5.83%. The 5 and 10 year median dividend yields are 5.57% and 6.62%.

The historical dividend growth record looks bad because dividends were cut in 2011 by some 25%, then they held steady for a couple of years before resuming growth. Dividend were cut when the stock was no longer an income trust. Dividends started to grow again in 2015 at just over 3% per year. The last increase was in 2017 and it was for 3.1%. Last year of 2017 was the first year that the dividends were below the EPS. The Dividend Payout Ratio for 2017 is 99% with 5 year coverage at 154%.

It is interesting that as far as taxes go, most of the current distribution is taxed as Eligible Dividends and a small portion as Return of Capital. In 2017 just over 99% was Eligible Dividends and just less than 1% as ROC.

The Debt Ratios for this stock are rather meaningless and the debt ratios that really count are those for KBL, which I do not have. There is nothing wrong with the Debt Ratios for the fund. The Long Term Debt/Market Cap Ratio is 0.63. The Liquidity Ratio is 1.91. The Debt Ratio is 1.55. The Leverage and Debt/Equity Ratios are 2.83 and 1.83. Nothing surprising here, but they are wholly dependent on KBL. Some 97% of their assets depend on KBL.

The Total Return per year is shown below for years of 5 to 16 to the end of 2017. 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 charts below.

If you look at total return to date, the 5 and 10 year total returns are very different with total return for the past 5 years at just 7.09%, but total return for the past 10 years at 22.10%. The 10 year return is a lot higher because exactly 10 years ago there was a big drop in the stock price. The 5 year return is different because the stock has dropped almost 15% this year.

Years Div. Gth Tot Ret Cap Gain Div.
5 2.89% 12.92% 6.63% 6.29%
10 -0.75% 11.90% 4.52% 7.39%
15 4.90% 14.58% 5.27% 9.31%
16 12.60% 4.42% 8.18%


The 5 year low, median, and high median Price/Earnings per Share Ratios are 23.55, 24.93 and 26.36. The corresponding 10 year ratios are 17.02. 18.98 and 20.93. The corresponding historical ratios are 10.98. 11.75 and 12.98. The current P/E Ratio is 14.66 based on a stock price of $17.01 and latest 12 month EPS of $1.16. I am using the latest 12 month EPS as no estimates are available. This stock price testing suggests that the stock price is probably relatively reasonable.

I get a Graham Price of $14.54. The 10 year low, median, and high median Price/Graham Price Ratios are 1.28, 1.43 and 1.57. These are rather high P/GP Ratios for this sort of company. The current P/GP Ratio is 1.17 based on a stock price of $17.01. 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 1.72. The current P/B Ratio is 2.10 based on Book Value of $91.9M, Book Value per Share of $8.10 and a stock price of $17.01. The current P/B Ratio is some 22% above the 10 year median. This stock price testing suggests that the stock price is relatively expensive.

I get an historical median dividend yield of 8.20%. The current dividend yield is 6.67% based on dividends of $1.135 and a stock price of $17.01. The current yield is some 18.6% below the historical yield. This stock price testing suggests that the stock price is relatively reasonable but above the median (and close to expensive.)

Because this stock used to be an income trust and income trusts have much higher yields than corporation, I will also do testing on median dividend yield since 2011. Since 2011 the median dividend yield is 5.83%. The current yield at 6.67% is some 14.5% lower. This stock price testing suggests that the stock price is relatively reasonable and below the median

The 10 year median Price/Sales (Revenue) Ratio is 7.36. The current P/S Ratio is 6.52 based on Revenue of 29.6M and Revenue per Share of $2.61 and a stock price of $17.01. The current P/S Ratio some 11% below the 10 year median ratio. This stock price testing suggests that the stock price is reasonable and below the median.

There is a big increase in this company’s P/E Ratios over time. Part of this probable is due to the fact that the company used to be an income trust. Analysts expected the stock price to rise and yields to drop on all income trusts when they because corporation. However, recent P/E Ratios are rather high for this sort of company. The current one on an absolute basis might be considered to be reasonable. I generally do not like the P/E test in any event.

I find that the P/GP Ratio of 1.17 rather high for showing a cheap price. However, I do admit that everything is relatively especially when it comes to stock price testing. I do not like the fact that the P/B Ratio is showing the stock as expensive. The current P/B Ratio of 2.10 is rather high. This is because the Book Value decreased from 2011 and 2015. This is not a good situation. This was due to the fact that they were paying in dividends more than they were earning.

The P/S Ratio testing shows that the stock price is reasonable and below the median. There is no problem with this test. There is also no problem with the P/B Ratio testing which is showing the stock as relatively expensive. On the other hand, situation where they were paying more than they are earning seems to be over, so the P/B Ratio should improve.

When I look at analysts’ recommendations, I find s Buy (1) recommendations. The 12 month stock price given is $23.00. This implies a total return of $41.88% with 35.21% from capital gains and 6.67% from dividends based on a current stock price of $17.01. Frankly, I have a hard time believing this.

Troy Warner on MTL News says that Williams Percent Range for this stock is -88.75 and so it is oversold. Joseph Solitro on Motley Fool that the stock was worth buying for the high yield. See what analysts are saying on Stock Chase. This stock is not well followed, but analysts in the past think it is a decent stock, but not much growth because it is in the restaurant business.

Keg Royalties Income Fund is a Canada based company. The organization works under the Restaurant business sector. The target market of this company is those people who want higher end casual dining experience. The business model of this company is that all Keg restaurants are placed under it, so the majority of its revenue is in the form of royalty income. Its web site is here The Keg Royalties Income Fund.

The last stock I wrote about was about was Stella-Jones Inc. (TSX-SJ, OTC- STLJF) ... learn more. The next stock I will write about will be FirstService Corp (TSX-FSV, NASDAQ-FSV) ... learn more on Monday, December 17, 2018 around 5 pm.

Also, on my book blog I have put a review of the book Enlightenment Now by Steven Pinker learn more...

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.

See my website for stocks followed and investment notes. I have three blogs. The first talks only about specific stocks and is called Investment Talk. The second one contains information on mostly investing and is called Investing Economics Mostly. My last blog is for my book reviews and it is called Non-Fiction Mostly. Follow me on Twitter or StockTwits. I am on Instagram. Or you can just Google #walktoronto spbrunner8166 to see my pictures.

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