Canadian General Investments Ltd Valuation – July 2018 $TSE-CGI

Company Profile (excerpt from Reuters): Canadian General Investments Limited (CGI) is a closed-end investment fund focused on medium- to long-term investments in primarily Canadian corporations. The Company’s objective is to provide better than average returns to investors through prudent security selection, timely recognition of capital gains and appropriate income generating instruments. It invests in the sectors, such as financials, consumer discretionary, energy, Industrials, materials, information technology, telecommunication services, consumer staples, utilities and health care. CGI participates in a securities lending program with its custodian, CIBC Mellon Trust Company. The Company’s securities lending collateral includes Federal government debt securities, Provincial government debt securities, Equities and the United States government debt securities. Morgan Meighen & Associates Limited (MMA) serves as an investment manager for the Company.


Downloadable PDF version of this valuation:

ModernGraham Valuation of TSE-CGI – July 2018

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 all 6 of the following tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $528,412,700 Fail
2. Earnings Stability Positive EPS for 10 years prior Fail
3. Dividend Record Dividend Payments for 10 years prior Pass
4. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 84.53% Pass
5. Moderate PEmg Ratio PEmg < 20 5.87 Pass
6. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 0.76 Pass
Enterprising Investor; must pass all 3 of the following tests, or be suitable for the Defensive Investor.
1. Earnings Stability Positive EPS for 5 years prior Fail
2. Dividend Record Currently Pays Dividend Pass
3. Earnings Growth EPSmg greater than 5 years ago Pass


Stage 2: Determination of Intrinsic Value

EPSmg $4.32
MG Growth Estimate 12.40%
MG Value $143.83
Opinion Undervalued
MG Grade B-
MG Value based on 3% Growth $62.62
MG Value based on 0% Growth $36.71
Market Implied Growth Rate -1.32%
Current Price $25.33
% of Intrinsic Value 17.61%

Canadian General Investments Ltd 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, insufficient earnings stability over the last ten years. The Enterprising Investor has concerns regarding the lack of earnings stability 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 Undervalued after growing its EPSmg (normalized earnings) from $2.36 in 2014 to an estimated $4.32 for 2018. This level of demonstrated earnings growth outpaces the market’s implied estimate of 1.32% annual earnings loss over the next 7-10 years. As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value above the price.

At the time of valuation, further research into Canadian General Investments Ltd revealed the company was trading below its Graham Number of $66.5. The company pays a dividend of $0.72 per share, for a yield of 2.8%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 5.87, which was below the industry average of 21.47, which by some methods of valuation makes it one of the most undervalued stocks in its industry.

Canadian General Investments Ltd performs fairly well in the ModernGraham grading system, scoring a B-.

Stage 3: Information for Further Research

Graham Number $66.50
PEmg 5.87
PB Ratio 0.76
Dividend Yield 2.84%
TTM Dividend $0.72
Number of Consecutive Years of Dividend Growth 5

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Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2017
Long-Term Debt & Capital Lease Obligation $74,902,000
Total Assets $841,618,000
Intangible Assets $0
Total Liabilities $150,178,000
Shares Outstanding (Diluted Average) 20,861,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $5.93
Dec2017 $5.93
Dec2016 $4.36
Dec2015 -$1.92
Dec2014 $2.17
Dec2013 $4.54
Dec2012 $2.16
Dec2011 -$2.90
Dec2010 $5.77
Dec2009 $5.92
Dec2008 -$18.79
Dec2007 $2.35
Dec2006 $8.34
Dec2005 $6.43
Dec2004 $4.90

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $4.32
Dec2017 $3.35
Dec2016 $2.12
Dec2015 $0.94
Dec2014 $2.36
Dec2013 $2.67
Dec2012 $0.64
Dec2011 -$0.59
Dec2010 $0.61
Dec2009 -$1.03
Dec2008 -$2.78
Dec2007 $4.95
Dec2006 $5.47
Dec2005 $3.45
Dec2004 $1.63

Recommended Reading:

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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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