On Monday, major North American stock markets all closed the trading session with sharp gains.
In the U.S., the Dow Jones Industrial Average increased 0.90 per cent, the S&P 500 index gained 0.86 per cent, and the Nasdaq composite index advanced 0.89 per cent.
In Canada, the S&P/TSX composite index rallied 149 points, or 0.96 per cent. There were 175 securities in the TSX Index that advanced, 70 securities declined in value, and six stocks closed the day unchanged. Only one sector, health care, closed with a loss with shares of marijuana producer, Canopy Growth Corp. (WEED-T) tumbling 3 per cent.
The TSX Index is up 2.60 per cent year-to-date.
On today's TSX Breakouts report, there are 42 stocks on the positive breakouts list (stocks with positive price momentum), and 19 stocks are on the negative breakouts list (stocks with negative price momentum).
As always, I try to feature a variety of securities that may appeal to a wide range of investors. Featured today is an income fund with an attractive yield of 7.7 per cent. The unit price has increased 4.6 per cent so far in 2017, and rallied 10 per cent in 2016. With a market capitalization of $124-million, the Fund is below the $200-million market cap screening threshold and as a result has never appeared on the breakouts list. The security I am referred to is SIR Royalty Income Fund (SRV.UN-T).
A brief outline is provided below that may serve as a springboard for further fundamental research.
The Fund
Ontario-based SIR (Service Inspired Restaurants) Corporation owns a portfolio of 60 restaurants located primarily in Ontario under the banners Jack Astor's Bar and Grill, Alice Fazooli's, Scaddabush Italian Kitchen & Bar, Canyon Creek, Reds Wine Tavern, Reds Midtown Tavern, and The Loose Moose. The restaurants are corporately owned, not franchised. SIR Royalty Income Fund receives distribution income from its investment in SIR Royalty Limited Partnership and interest income from the SIR Loan.
SIR's flagship brand is Jack Astor's. In 2016, revenue from Jack Astor's Bar and Grill represented 74.2 per cent of pooled revenue, followed by Canyon Creek with a contribution of 9.9 per cent. Jack Astor's same store sales declined 0.2 per cent, pooled revenue from 40 Jack Astor's restaurants totaled $206.3-million, up from $199.7-million reported in 2015. In 2016, six Jack Astor's location were renovated resulting in lost revenue due to restaurant closures for a brief period of time.
In 2016, pooled revenue increased 3.9 per cent to $278-million. Same-store sales increased 1.6 per cent
There is seasonality in its operations with higher revenues typically generated in the summer months.
In the recent Management's Discussion and Analysis, a cautious outlook was provided for 2017, "Restaurants Canada estimates that total sales in the full-service category, the category in which SIR competes, will grow at a 1.0% higher rate in 2016 than it did in 2015, but that rate of growth will slow by about 0.5% in 2017 compared to 2016. The Canadian full-service category has become increasingly competitive in recent years. While SIR believes it is well positioned to compete in this category, it will continue monitoring the economy and consumer confidence and their effects on the full-service category."
Distribution policy
The Fund pays its unitholders a monthly dividend of 9.5 cents per unit, or $1.14 per Trust unit on a yearly basis. This equates to an annualized distribution yield of 7.7 per cent. The Fund has maintained its distribution at this level since 2013.
Management targets a payout ratio to average 100 per cent over the long-term. In 2016, the payout ratio was 99.1 per cent, and in 2015, the payout ratio was 100.5 per cent.
Analysts' recommendations
There is just one analyst who covers this micro-cap security, Elizabeth Johnston from Laurentian Bank Securities. She has a 'hold' recommendation and a $13.50 target price, implying the security is overvalued. She has maintained this recommendation on the Fund for the past year. The Fund is trading at an enterprise value-to-earnings before interest, taxes, depreciation and amortization (EV/EBITDA) multiple of approximately 9 times Ms. Johnston's 2018 forecast.
Financial forecasts
Analyst Elizabeth Johnston is forecasting EBITDA of $16-million in 2017 rising to 17-million the following year, and distributable cash per unit of $1.16 in 2017, up from $1.13 reported in 2016.
Insider transaction activity
On April 12, Kim van Nieuwkoop, who sits on the board of trustees, purchased 2,350 units at a price of $14.78 per unit, lifting her portfolio's position up to 3,850 units.
Chart Watch
Year to date, the unit price is up 4.6 per cent. In 2016, the unit price increased 10 per cent to $14.20 from $12.90.
The unit price for this micro-cap security can be volatile given it is thinly traded. The three-month historical daily average trading volume is just under 10,000 units. The unit price periodically experiences dips in its unit price, allowing for more favorable entry points. For instance, on March 13, the unit price closed at $14.80, and just days later, on March 23, closed 3 per cent lower at $14.35. Investors can patiently wait for attractive entry points.
The unit price is approaching overhead resistance around $15. Should the unit price retreat, there is downside support around $14, which is close to its 200-day moving average (at $14.33). Failing that, there is support around $13.50 and then around $13.
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The Breakouts file is a technical analysis screen intended to identify companies that are technically breaking out. In addition, this report highlights a company's dividend policy, analysts' recommendations, and provides a brief technical analysis for a security to provide readers with more information.
If a stock appears on the positive breakouts list, this indicates positive price momentum, and that a company may be worthwhile for investors to look at the fundamentals in order to determine if the recent price strength is warranted and will continue. If a security appears on the negative breakouts list, this indicates negative price momentum, and may be indicative of either deteriorating fundamentals or perhaps indicates a buying opportunity.
Securities screened are from the S&P/TSX composite index, the S&P/TSX Small Cap index, as well as Canadian small cap stocks outside of these indexes that have a minimum market capitalization of $200-million.
A technical analysis screen does not replace fundamental analysis, but can help identify companies worth having a closer look at.