Chartwell Retirement Residences Valuation – August 2018 $TSE:CSH.UN
Company Profile (excerpt from Reuters): Chartwell Retirement Residences is an unincorporated, open-ended trust. The Company indirectly owns, manages and operates a range of seniors housing communities from independent living through assisted living to long term care. Its segments include Canadian Retirement Operations and Canadian Long Term Care Operations. It owns and operates senior residences in Canada. Its portfolio of residences includes independent living residences for seniors that include retirement units/townhouses/bungalows providing meals and general services; independent supported living residences for seniors that include retirement units/townhouses/bungalows with household general services; assisted living residences for seniors requiring personal care services; memory care units for seniors having Alzheimer’s or other form of dementia and requiring personal care services, and Long term care residences for people requiring professional nursing care on a daily basis and over 24-hour supervision.
Downloadable PDF version of this valuation:
ModernGraham Valuation of TSE-CSH.UN – August 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 6 out of the following 7 tests. | ||||
| 1. Adequate Size of the Enterprise | Market Cap > $2Bil | $3,254,692,829 | Pass | |
| 2. Sufficiently Strong Financial Condition | Current Ratio > 2 | 0.14 | 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 | -112.80% | Fail | |
| 6. Moderate PEmg Ratio | PEmg < 20 | 48.07 | Fail | |
| 7. Moderate Price to Assets | PB Ratio < 2.5 OR PB*PEmg < 50 | 3.30 | 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 | 0.14 | Fail | |
| 2. Sufficiently Strong Financial Condition | Debt to NCA < 1.1 | -5.89 | 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 | Pass | ||
Stage 2: Determination of Intrinsic Value
| EPSmg | $0.32 |
| MG Growth Estimate | 15.00% |
| MG Value | $12.36 |
| Opinion | Overvalued |
| MG Grade | D |
| MG Value based on 3% Growth | $4.65 |
| MG Value based on 0% Growth | $2.73 |
| Market Implied Growth Rate | 19.78% |
| Current Price | $15.43 |
| % of Intrinsic Value | 124.85% |
Chartwell Retirement Residences does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the 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 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 growing its EPSmg (normalized earnings) from $-0.22 in 2014 to an estimated $0.32 for 2018. This level of demonstrated earnings growth does not support the market’s implied estimate of 19.78% 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 below the price.
At the time of valuation, further research into Chartwell Retirement Residences revealed the company was trading above its Graham Number of $3.45. The company pays a dividend of $0.57 per share, for a yield of 3.7%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 48.07, which was above the industry average of 44.66. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-10.83.
Chartwell Retirement Residences 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) | -$10.83 |
| Graham Number | $3.45 |
| PEmg | 48.07 |
| Current Ratio | 0.14 |
| PB Ratio | 3.30 |
| Current Dividend | $0.57 |
| Dividend Yield | 3.71% |
| Number of Consecutive Years of Dividend Growth | 3 |
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Most Recent Balance Sheet Figures
| Balance Sheet Information | 6/1/2018 |
| Total Current Assets | $52,301,000 |
| Total Current Liabilities | $378,657,000 |
| Long-Term Debt | $1,923,491,000 |
| Total Assets | $3,311,179,000 |
| Intangible Assets | $55,343,000 |
| Total Liabilities | $2,328,737,000 |
| Shares Outstanding (Diluted Average) | 210,226,000 |
Earnings Per Share History
| EPS History | |
| Next Fiscal Year Estimate | $0.11 |
| Dec2017 | $0.06 |
| Dec2016 | $0.03 |
| Dec2015 | $1.99 |
| Dec2014 | -$0.05 |
| Dec2013 | $0.14 |
| Dec2012 | -$0.80 |
| Dec2011 | -$0.43 |
| Dec2010 | -$0.43 |
| Dec2009 | -$0.68 |
| Dec2008 | -$1.03 |
| Dec2007 | -$0.76 |
| Dec2006 | -$0.24 |
| Dec2005 | -$0.28 |
| Dec2004 | -$0.19 |
| Dec2003 | -$0.06 |
Earnings Per Share – ModernGraham History
| EPSmg History | |
| Next Fiscal Year Estimate | $0.32 |
| Dec2017 | $0.43 |
| Dec2016 | $0.50 |
| Dec2015 | $0.54 |
| Dec2014 | -$0.22 |
| Dec2013 | -$0.36 |
| Dec2012 | -$0.63 |
| Dec2011 | -$0.58 |
| Dec2010 | -$0.65 |
| Dec2009 | -$0.70 |
| Dec2008 | -$0.64 |
| Dec2007 | -$0.40 |
| Dec2006 | -$0.20 |
| Dec2005 | -$0.15 |
| Dec2004 | -$0.08 |
| Dec2003 | -$0.02 |
Recommended Reading:
Other ModernGraham posts about the company
Chartwell Retirement Residences Valuation – Initial Coverage $TSE:CSH.UN
Other ModernGraham posts about related companies
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.
