Have an account? Please log in.
Pat McKeough responds to many personal questions on specific stocks and other investing topics from the members of his Inner Circle. Every week, his comments and recommendations on a selection of the most intriguing questions of the past week go out to all Inner Circle members. And every Friday, we offer you one of the highlights from these Q&A sessions.
This week, there was a question about a stock that has been on the rise, Canada’s biggest private liquor store operator. Pat examines the company’s prospects for future growth in Canada as well as the possible risks and rewards of U.S. expansion.
Q: Pat: Can I have your recommendation on Liquor Stores N.A.? Thank you.
A: Liquor Stores N.A. Ltd. (symbol LIQ on Toronto; www.liquorstoresna.com), is Canada’s largest private liquor store operator, with 238 outlets. Of that total, 174 are in Alberta, 35 are in B.C., 20 are in Alaska and nine are in Kentucky. Liquor Stores’ banners include Liquor Depot, Liquor Barn and Brown Jug.
Alberta privatized retail liquor sales in 1993, prompting Irv Kipnes to found Liquor Depot and Henry Bereznicki to start Liquor World that year. Kipnes and Bereznicki, both Edmonton-based real estate developers, merged their companies and founded Liquor Stores Income Fund in 2004.
The fund first sold units to the public at $10 and began trading on Toronto in September 2004.
Liquor Stores Income Fund converted to a regular corporation on December 31, 2010, in response to Ottawa’s income trust tax.
The company’s strategy is to offer customers more choice—typically two to three times more products than its competitors. Liquor Stores lets each store juggle its product mix to meet local tastes.
In the third quarter of 2011, the company earned $15.8 million, or $0.48 a share. That’s a big jump from the $2.9 million, or $0.15 a share, that it earned a year earlier. However, the latest figure includes a $4.9-million gain on the settlement of a lawsuit. The company also had a $4.8-million foreign exchange gain in the latest quarter, compared to a $1.8-million loss a year earlier. Cash flow per share rose 10.2%, to $0.54 from $0.49.
Sales rose 3.6%, to $157.1 million from $151.6 million. Same-store sales rose 7.1% in Canada, mainly due to a 10.1% increase in Alberta. That’s mainly because the company is keeping its stores open longer and spending more on promotions. Same-store sales rose 1.2% in the U.S.
Liquor Stores’ long-term debt of $101.7 million is a manageable 26.2% of its market cap. It also holds cash of $895,000, or $0.04 a share.
The company pays a monthly dividend of $0.09 a share, which yields a high 6.3% on an annualized basis. In the latest quarter, it paid out 50.0% of its cash flow as dividends.
The company entered the U.S. in 2008, when it bought 19 Brown Jug stores in Alaska. It followed that with its purchase of eight Liquor Barn stores in Kentucky in 2009.
The stock trades at 16.2 times the $1.06 a share its forecast to earn in 2012.
In the latest Inner Circle Q&A, Pat looks at the company’s growth potential in a Canadian market dominated by government monopolies and at whether it can sustain its high dividend yield. He also examines the pros and cons of its U.S. expansion. He concludes with his clear buy-hold-sell advice.
Inner Circle members see Pat’s analysis and recommendations on the stocks that other members have asked about in each week’s Inner Circle Q&A. You can view it immediately when you become a member of this unique investment group. You will get Pat McKeough’s answers to your personal investment questions, full access to our members-only Inner Circle website, and many other membership privileges. Click here to get started right away.
(Note: If you are a current member of the Inner Circle, please click here to view Pat’s recommendation. Be sure to log in first.)Be the first to comment
All of our articles are available for republishing as long as you provide a link back to the original article.
In today's economy, it's more important than ever to have clear investment advice that is tailored to your own personal goals. This is where Pat McKeough's conservative safe-investing philosophy comes in. Through TSI Network, you get access to reports, monthly newsletters and premium services that go beyond the daily headlines to give you all the advice and information you need to build a portfolio with long-term growth potential. Simply click on the links below to discover which service is right for you.
TSI Premium Services