Canadian Financial Services Stocks

Tricon Capital Group Inc Valuation – Initial Coverage $TSE:TCN

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Stocks for Using A Benjamin Graham Value Investing Strategy – March 2017.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Tricon Capital Group Inc (TSE:TCN) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Tricon Capital Group Inc. is a Canada-based company, which is a principal investor and asset manager focused on the residential real estate industry in North America. The Company operates through five segments: Private Funds and Advisory (PF&A), Principal Investing in Tricon Housing Partners (THP), Tricon American Homes (TAH), Tricon Lifestyle Communities (TLC) and Tricon Luxury Residences (TLR). In Private Funds and Advisory, the Company manages, on behalf of private investors, commingled funds, sidecars and separate investment accounts that invest in the development of real estate in North America. Tricon’s investment activities are carried on through Tricon Housing Partners (land and homebuilding), Tricon American Homes (single-family rental), Tricon Lifestyle Communities (manufactured housing communities) and Tricon Luxury Residences (purpose-built multi-family apartments). It manages capital on behalf of third-party institutional and high net-worth accredited investors.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of TSE-TCN – April 2017

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $1,232,979,038 Fail
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.25 Fail
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end -392.72% Fail
6. Moderate PEmg Ratio PEmg < 20 14.10 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.38 Pass
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 1.25 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 22.33 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

EPSmg $0.77
MG Growth Estimate 15.00%
MG Value $29.74
Opinion Undervalued
MG Grade B-
MG Value based on 3% Growth $11.20
MG Value based on 0% Growth $6.57
Market Implied Growth Rate 2.80%
Current Price $10.89
% of Intrinsic Value 36.62%

Tricon Capital Group Inc 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 poor dividend history. The Enterprising Investor has concerns regarding the level of debt relative to the current assets. 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 Undervalued after growing its EPSmg (normalized earnings) from $0.06 in 2013 to an estimated $0.77 for 2017. This level of demonstrated earnings growth outpaces the market’s implied estimate of 2.8% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value above the price.

At the time of valuation, further research into Tricon Capital Group Inc revealed the company was trading below its Graham Number of $12.4. The company pays a dividend of $0.26 per share, for a yield of 2.4%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 14.1, which was below the industry average of 21.55, 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 $-2.22.

Tricon Capital Group Inc performs fairly well in the ModernGraham grading system, scoring a B-.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$2.22
Graham Number $12.40
PEmg 14.10
Current Ratio 1.25
PB Ratio 1.38
Current Dividend $0.26
Dividend Yield 2.38%
Number of Consecutive Years of Dividend Growth 0

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Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2016
Total Current Assets $49,715,000
Total Current Liabilities $39,629,000
Long-Term Debt $225,233,000
Total Assets $1,297,511,000
Intangible Assets $33,595,000
Total Liabilities $323,903,000
Shares Outstanding (Diluted Average) 123,647,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $0.79
Dec2016 $0.61
Dec2015 $0.81
Dec2014 $1.10
Dec2013 $0.56
Dec2012 -$0.15
Dec2011 $0.03
Dec2010 -$0.62
Dec2009 -$0.14

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $0.77
Dec2016 $0.70
Dec2015 $0.66
Dec2014 $0.45
Dec2013 $0.06
Dec2012 -$0.18
Dec2011 -$0.18
Dec2010 -$0.24
Dec2009 -$0.05

Recommended Reading:

Other ModernGraham posts about the company

None. This is the first time ModernGraham has covered the company.

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Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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