I do not own this stock of Pizza Pizza Royalty Corp (TSX-PZA, OTC-PZRIF). What I do not like is that the accounting is complex. The problem with complex accounting is that it is easier to make a mistake about what the accounting is telling you. Also, it is important that the company paying royalties to Pizza Pizza can afford to pay these royalties.
When I was updating my spreadsheet, I noticed Royalty Income is growing more than twice as fast as the Royalty System Sales over the past 10 years but is closer over the past 5 years. The Revenue has grown at 1.50% over 10 years with Royalty Income growing at 4.76% over the past 10 years. The Revenue has grown at 2.16% over 5 years with Royalty Income growing at 2.19% over the past 5 years.
If you look at Royalty Shares and Operating Income on a per share basis you get something similar, but find that Royalty Shares and Operating Income has not grown over the past 5 years. The Revenue per Share has grown at 0.28% over 10 years with Royalty Income per Share growing at 3.51% past 10 years. The Revenue per Share has gone down by 0.28% over the past 5 years and Royalty Income has gone down by at 0.25% over the past 5 years.
This company used to be an income trust. This is the reason for the dividend cut in 2011 and why the dividend growth is showing as low or non-existent over the past few years. Another problem is that the dividends have not changed since 2017. It is not surprising considering the lack of growth in Royalty Systems Sales.
The yield on this stock has always been high. The current yield is 8.60%, with 5, 10 and historical yields at 5.71%, 6.655 and 7.43%. As with all ex-income trust companies, the yield is currently lower than in the past. The yield on this company topped out at around 17% in the past.
The Dividend Payout Ratios are too high. They can afford to payout all that they received from Pizza Pizza limited. They however, cannot go above 100%. The Dividend Payout Ratio for 2018 for EPS was 101%. The 5 hear coverage is 99%. They should have some safety margins. However, they are totally dependent on PPL for income. It would seem that PPL is paying Pizza Pizza Royalty Corp 96.2% of their income in 2018 with 5 year coverage at 88.2%. This seems high as PPL would need money for reinvestment purposes.
Debt Ratios are awful. The only ones that count are for PPL. I am excluding the Deferred Gain on the sale of the Pizza Pizza Rights and Marks as a liability, but still the Debt Ratio is low at 1.35 and with 5 year median of 1.37.
The Total Return per year is shown below for years of 5 to 13 to the end of 2018. 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.
| From | Years | Div. Gth | Tot Ret | Cap Gain | Div. |
|---|---|---|---|---|---|
| 2013 | 5 | 2.33% | -0.31% | -7.62% | 7.30% |
| 2008 | 10 | -0.73% | 15.79% | 3.91% | 11.88% |
| 2005 | 13 | 0.88% | 7.85% | -0.85% | 8.70% |
The 5 year low, median, and high median Price/Earnings per Share Ratios are 15.83, 17.36 and 19.16. The corresponding 10 year ratios are 14.19, 15.97 and 18.15. The corresponding 10 year ratios are 13.48, 15.35 and 17.22. The current P/E Ratio is 11.31 based on a stock price of $9.95 and 2019 EPS estimate of $0.88. This stock price testing suggests that the stock price is relatively cheap.
I get a Graham Price of $12.91. The 10 year low, median, and high median Price/Graham Price Ratios are 0.93, 1.04 and 1.17. The current P/GP Ratio is 0.77 based on a stock price of $9.95. 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 1.46. The current P/ B Ratio is 1.18 based on Book Value of $207M, Book Value per Share of $8.41 and a stock price of $9.95. The current ratio is 19% below the 10 year ratio. This stock price testing suggests that the stock price is relatively reasonable and below the median. If the ratio was 20% below the 10 year ratio, the stock would be relatively cheap.
I get an historical median dividend yield of 7.43% and taking into consideration the 25% drop in 2011 because of the change to a corporation, 5.60%. The current yield is 8.60%. This is 16% above the first yield and 54% above the second yield. This stock price testing suggests that the stock price is relatively cheap to relatively reasonable and below the median.
The 10 year median Price/Sales (Revenue) Ratio is 0.54 using Royalty System Sales. The current P/S Ratio is 0.45 based on 2019 Sales estimate of $548M, Sales per Share of $22.26 and a stock price of $9.95. The current ratio is 18% below the 10 year ratio. This stock price testing suggests that the stock price is relatively reasonable and below the median.
Results of stock price testing is cheap or very close to cheap. Both the P/B Ratio testing and the P/S Ratio testing says that the stock price is relatively reasonable and below the median. However, the testing shows that the stock price is getting very close to cheap.
When I look at analysts’ recommendations, I find one Hold recommendation. The consensus would be a hold. I find it surprising that there are almost no analysts following this stock. The stock price consensus is $11.00. This implies a total return of 19.15% with 10.55% from capital gains and 8.60% from dividends.
See what analysts are saying on Stock Chase. Recent comments have been negative. Demetris Afxentiou on Motley Fool thinks it is a predominate brand and has a juicy yield. A writer on Simply Wall Street thinks the company’s ROCE is low, but normal that its industry. . Ryan Modesto on BNN Business discusses this stock. The company announces first quarterly results for 2019 via Yahoo Finance.
Pizza Pizza Royalty Corp., through its subsidiary, Pizza Pizza Royalty Limited Partnership, owns and franchises quick-service restaurants under the Pizza Pizza and Pizza73 brands. Its web site is here Pizza Pizza Royalty Corp.
The last stock I wrote about was about was Mullen Group Ltd (TSX-MTL, OTC-MLLGF) ... learn more. The next stock I will write about will be Reitmans (Canada) Ltd (TSX-RET.A, OTC-RTMAF) ... learn more on Wednesday, May 22, 2019 around 5 pm. Today, on my other blog I will write about Stocks to Buy.... learn more on Tuesday, May 21, 2019 around 5 pm.
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