Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk. Â This isÂ best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another companyÂ or by reviewing theÂ 10 Stocks for Using A Benjamin Graham Value Investing Strategy – FebruaryÂ 2017.Â By using theÂ ModernGraham methodÂ one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries. Â What follows is a stock analysis showing a specific look at how Crombie Real Estate Investment Trust (TSE:CRR.UN)Â fares in theÂ ModernGraham valuation model.
Company ProfileÂ (obtained fromÂ Google Finance): Crombie Real Estate Investment Trust (Crombie) is a Canada-based unincorporated open-ended real estate investment trust (REIT). Crombie invests in income-producing retail, office and mixed use properties in Canada. Crombie focuses on grocery-anchored and drug store-anchored retail properties. Crombie owns a portfolio of over 260 commercial properties in over 10 provinces, including approximately 17.7 million square feet of gross leasable area (GLA). Crombie instituted a distribution reinvestment plan (DRIP) whereby Canadian resident REIT unitholders may elect to automatically have their distributions reinvested in additional REIT units. Its property portfolio includes Aberdeen Business Centre, Barrington Place, Brunswick Place, Kenmount Business Centre, Barrington Tower, CIBC Building, Amherst Centre, Avalon Mall, County Fair Mall, 1 Avenue NW Safeway, 2 Avenue West Safeway, 13 Avenue, Territorial Drive Plaza, Fortune Drive Safeway, Kildonan Green and Yellowhead Highway Safeway.
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Downloadable PDF version of this valuation:
Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?
|Defensive Investor; must pass 6 out of the following 7 tests.|
|1. Adequate Size of the Enterprise||Market Cap > $2Bil||$1,212,458,429||Fail|
|2. Sufficiently Strong Financial Condition||Current Ratio > 2||0.24||Fail|
|3. Earnings Stability||Positive EPS for 10 years prior||Fail|
|4. Dividend Record||Dividend Payments for 10 years prior||Pass|
|5. Earnings Growth||Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end||-125.35%||Fail|
|6. Moderate PEmg Ratio||PEmg < 20||-105.91||Fail|
|7. Moderate Price to Assets||PB Ratio < 2.5 OR PB*PEmg < 50||1.47||Fail|
|Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.|
|1. Sufficiently Strong Financial Condition||Current Ratio > 1.5||0.24||Fail|
|2. Sufficiently Strong Financial Condition||Debt to NCA < 1.1||-17.01||Fail|
|3. Earnings Stability||Positive EPS for 5 years prior||Fail|
|4. Dividend Record||Currently Pays Dividend||Pass|
|5. Earnings Growth||EPSmg greater than 5 years ago||Fail|
Stage 2: Determination of Intrinsic Value
|MG Growth Estimate||-4.25%|
|MG Value based on 3% Growth||-$1.88|
|MG Value based on 0% Growth||-$1.10|
|Market Implied Growth Rate||-57.20%|
|% of Intrinsic Value||N/A|
Crombie Real Estate Investment Trust does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the small size, low current ratio, insufficient earnings stability or growth over the last ten years, and the high PEmg and PB ratios. The Enterprising Investor has concerns regarding the level of debt relative to the current assets, and the lack of earnings stability or growth over the last five years. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.
As for a valuation, the company appears to be Overvalued after seeing its EPSmg (normalized earnings) decline from $-0.08 in 2012 to an estimated $-0.13 for 2016. This level of negative earnings does not support a positive valuation.As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.
At the time of valuation, further research into Crombie Real Estate Investment Trust revealed the company was trading above its Graham Number of $8.59. The company pays a dividend of $0.89 per share, for a yield of 6.5%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was -105.91, which was below the industry average of 31.91, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-17.03.
Crombie Real Estate Investment Trust scores quite poorly in the ModernGraham grading system, with an overall grade of D+.
Stage 3: Information for Further Research
|Net Current Asset Value (NCAV)||-$17.03|
|Number of Consecutive Years of Dividend Growth||1|
|ModernGraham tagged articles||Morningstar|
|Google Finance||MSN Money|
|Yahoo Finance||Seeking Alpha|
Most Recent Balance Sheet Figures
|Balance Sheet Information||9/1/2016|
|Total Current Assets||$42,642,000|
|Total Current Liabilities||$177,364,000|
|Shares Outstanding (Diluted Average)||147,946,000|
Earnings Per Share History
|Next Fiscal Year Estimate||$0.35|
Earnings Per Share – ModernGraham History
|Next Fiscal Year Estimate||-$0.13|
Other ModernGraham posts about the company
None. This is the first time ModernGraham has covered the company.
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The author did not hold aÂ position in any company mentioned in this articleÂ at the time of publication and had no intention of changing that position within the next 72 hours. Â See my current holdings here. Â This article is not investment advice; any reader should speak to aÂ registeredÂ investment adviser prior to making any investment decisions. Â ModernGraham is not affiliated with the company in any manner. Â Please be sure to review our detailed disclaimer.