Labrador Iron Ore Royalty Corp Valuation – September 2018 $TSE:LIF
Company Profile (excerpt from Reuters): Labrador Iron Ore Royalty Corporation (LIORC) is a Canada-based company, which owns interests in Iron Ore Company of Canada (IOC) that operates an iron mine near Labrador City, Newfoundland and Labrador on lands leased from LIORC. The Company, through its subsidiary, Hollinger-Hanna Limited (Hollinger-Hanna), holds approximately 15.10% equity interest in IOC. The Company operates through the segment of its investment in IOC and its IOC royalty and commission interests. LIORC holds certain mining leases and mining licenses covering approximately 18,200 hectares of land near Labrador City. IOC has leased certain portions of these lands from which it mines iron ore. IOC is an iron ore producer, operating a mine, concentrator and pellet plant, and is a producer of iron ore pellets across the world. IOC has the capacity to extract approximately 50 million tons of crude ore annually.
Downloadable PDF version of this valuation:
ModernGraham Valuation of TSE-LIF – September 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 | $1,620,000,000 | Fail | |
| 2. Sufficiently Strong Financial Condition | Current Ratio > 2 | 1.90 | Fail | |
| 3. Earnings Stability | Positive EPS for 10 years prior | Pass | ||
| 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 | -20.25% | Fail | |
| 6. Moderate PEmg Ratio | PEmg < 20 | 14.23 | Pass | |
| 7. Moderate Price to Assets | PB Ratio < 2.5 OR PB*PEmg < 50 | 2.88 | 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 | 1.90 | Pass | |
| 2. Sufficiently Strong Financial Condition | Debt to NCA < 1.1 | 0.00 | Pass | |
| 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 | Fail | ||
Stage 2: Determination of Intrinsic Value
| EPSmg | $1.78 |
| MG Growth Estimate | -2.03% |
| MG Value | $7.89 |
| Opinion | Overvalued |
| MG Grade | C+ |
| MG Value based on 3% Growth | $25.79 |
| MG Value based on 0% Growth | $15.12 |
| Market Implied Growth Rate | 2.86% |
| Current Price | $25.31 |
| % of Intrinsic Value | 320.74% |
Labrador Iron Ore Royalty Corporation is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the small size, low current ratio, insufficient earnings growth over the last ten years, and the poor dividend history. The Enterprising Investor is only concerned with the lack of earnings growth over the last five years. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.
As for a valuation, the company appears to be Overvalued after seeing its EPSmg (normalized earnings) decline from $2.06 in 2014 to an estimated $1.78 for 2018. This level of demonstrated earnings growth does not support the market’s implied estimate of 2.86% 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 Labrador Iron Ore Royalty Corporation revealed the company was trading above its Graham Number of $19.93. The company pays a dividend of $1 per share, for a yield of 4%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 14.23, which was below the industry average of 20.66, 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 $-1.75.
Labrador Iron Ore Royalty Corporation receives an average overall rating in the ModernGraham grading system, scoring a C+.
Stage 3: Information for Further Research
| Net Current Asset Value (NCAV) | -$1.75 |
| Graham Number | $19.93 |
| PEmg | 14.23 |
| Current Ratio | 1.90 |
| PB Ratio | 2.88 |
| Current Dividend | $1.00 |
| Dividend Yield | 3.95% |
| Number of Consecutive Years of Dividend Growth | 0 |
Useful Links:
| ModernGraham tagged articles | Morningstar |
| Google Finance | MSN Money |
| Yahoo Finance | Seeking Alpha |
| GuruFocus | SEC Filings |
Most Recent Balance Sheet Figures
| Balance Sheet Information | 6/1/2018 |
| Total Current Assets | $32,996,000 |
| Total Current Liabilities | $17,338,000 |
| Long-Term Debt | $0 |
| Total Assets | $707,453,000 |
| Intangible Assets | $0 |
| Total Liabilities | $145,268,000 |
| Shares Outstanding (Diluted Average) | 64,000,000 |
Earnings Per Share History
| EPS History | |
| Next Fiscal Year Estimate | $1.97 |
| Dec2017 | $2.46 |
| Dec2016 | $1.22 |
| Dec2015 | $0.85 |
| Dec2014 | $1.63 |
| Dec2013 | $2.33 |
| Dec2012 | $1.56 |
| Dec2011 | $2.80 |
| Dec2010 | $3.11 |
| Dec2009 | $1.18 |
| Dec2008 | $2.76 |
| Dec2007 | $1.27 |
| Dec2006 | $1.48 |
| Dec2005 | $1.35 |
| Dec2004 | $0.32 |
| Dec2003 | $0.92 |
| Dec2002 | $0.19 |
| Dec2001 | $0.49 |
| Dec2000 | $0.79 |
| Dec1999 | $0.52 |
| Dec1998 | $0.59 |
Earnings Per Share – ModernGraham History
| EPSmg History | |
| Next Fiscal Year Estimate | $1.78 |
| Dec2017 | $1.69 |
| Dec2016 | $1.37 |
| Dec2015 | $1.58 |
| Dec2014 | $2.06 |
| Dec2013 | $2.25 |
| Dec2012 | $2.23 |
| Dec2011 | $2.45 |
| Dec2010 | $2.17 |
| Dec2009 | $1.67 |
| Dec2008 | $1.75 |
| Dec2007 | $1.19 |
| Dec2006 | $1.05 |
| Dec2005 | $0.78 |
| Dec2004 | $0.51 |
| Dec2003 | $0.60 |
| Dec2002 | $0.46 |
Recommended Reading:
Other ModernGraham posts about the company
Labrador Iron Ore Royalty Corp Valuation – Initial Coverage $TSE:LIF
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.
