Richelieu Hardware Ltd.
Wednesday’s close : $38.09, up 9 cents
52-week trading range : $27.24 – $39 a share
Annual dividend : 48 cents for a yield of 1.3 per cent
Analysts’ ratings : There were two “buys” and one “hold,” according to Bloomberg data. Target prices ranged from $38 a share from Leon Aghazarian at National Bank Financial to $40 from Anthony Zicha at Scotia Capital.
Recent history : Shares of the Canadian manufacturer and distributor of specialty hardware have surged 41 per cent over the past year. The stock, which hit a 52-week high this month, has been climbing steadily since falling below $14 a share during the financial crisis in 2009. Last year, quarterly earnings beat analysts’ expectations and the stock has attracted attention from investors jumping onboard to play the rebound in the U.S. housing market. The company continued to make acquisitions last year, including the purchase of U.S.-based CourterCo. Inc. Richelieu Hardware reports fourth-quarter results on Thursday morning. Analysts expect it to report 58 cents a share, according to Bloomberg.
Manager insight : Richelieu Hardware currently gets 80 per cent of its revenue from Canada and 20 per cent from the United States. Fourth-quarter results will provide a window on how it is managing to expand south of the border. “I definitely view this earnings release as kind of a proxy on the U.S. housing recovery,” said David Barr of Vancouver-based PenderFund Capital Management Ltd., which has owned the stock since early 2012.
The company should beat expectations again, and announce another dividend hike, Mr. Barr said. There is potential for growth in the United States where the specialty hardware business is “highly fragmented,” he noted. “These guys, over the past 10 years, have proven to be shrewd acquirers of businesses, primarily in Canada. They have spent over $170-million on acquisitions since the company was launched in 1987.
“I think people are starting to wake up to the fact that this is a fantastic business with strong management, really great cash-flow generation and is very shareholder friendly [for a small-cap company]because it pays out a dividend,” he said. “Certainly, there is a lot of room to continue that growth as the U.S. comes out of its housing bust...Over the next five years, I think they have a shot at getting it to 50-50 [in revenues from Canada and the United States].”
The risk for Richelieu Hardware is always a potential bad acquisition, he said. “Canada does represent a large part of revenues so a dramatic downturn in the Canadian housing market would definitely have an impact.”
Mr. Barr has taken some profits as the stock has become “fairly valued” at 18 times earnings and 10 times EBITDA [earnings before interest, taxes, depreciation and amortization]. “I am looking to see how their U.S. growth plays out before I increase my weighting again,” he said. “I will add to this position on weakness – below $36 a share.”