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Teenburger, Onion Rings and A&W Rootbeer is served at the new Urban Concept A&W located at 1158 Alberni Street, Vancouver, B.C. (LAURA LEYSHON/GLOBE AND MAIL)

Teenburger, Onion Rings and A&W Rootbeer is served at the new Urban Concept A&W located at 1158 Alberni Street, Vancouver, B.C.

(LAURA LEYSHON/GLOBE AND MAIL)

Schizas’ Mailbag

No end in sight to A&W's advance Add to ...

Hi Lou:

I’m interested in your thoughts and comments on A&W Revenue Royalties Income Fund.

Thanks in advance,

Greg

Hey Greg,

This will be the fourth time that I investigate the case for A&W Revenue Royalties Income Fund.

The last study was conducted on Aug. 10, 2011 when the units were trading at $19.00. Simon wanted to know what my thoughts were after the price of the units took a sharp drop. What was evident at the time was that after a significant advance the units were pulling back but had begun to build a base at $18.00 and were bracing to break above resistance at $19.00. It was advised to be be patient and to wait for signals confirming a new uptrend. By October of 2011 the MACD and the RSI indicated that buyers were taking control of trading which pushed the price up to $21.00 by the spring of 2012.

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Another examination of the charts will provide the basis for my comments as to the opportunities and risks associated with AW.UN.

The three-year chart illustrates the recent bounce off of $20.00 in November of 2012 that has taken the unit price just above $22.00. The MACD and the RSI generated a buy signal in November that astute investors would have utilized as part of their decision making process. In December the trust reported the net addition of 23 stores over the period October 2011 through September 2012. Adding stores drives the top line at AW.UN as they capture a 3 per cent royalty on all sales for the use of the A&W trade marks. In addition, management reported an improvement in their term loan facility that reduced interest payments.

When management grows the top line and reduce costs they have achieved the ultimate business objective of increasing profits which ultimately increases unit holder value.

The six-month chart outlines the value of getting comfortable using the MACD and RSI as a tool to identify changes in direction of investments that you own or are thinking of buying. As the units hit resistance at $21.50 in October the indicators generated sell signals. Then in November they signalled a reversal of the selling leading to an advance through $22.00.

There are no signals suggesting that the current advance is about to top out. The all-time high is $23.99 which could prove hard to overcome. What is clear is that the payout yields 6.33 per cent and if you want to sweeten your returns you can trade this one for additional gains. One thing to keep in mind is that the average daily trading volume is 13,811 shares which has to be considered in evaluating a trading strategy.

Make it a profitable day and happy capitalism!

Have your own question for Lou? Send it to lschizas@globeandmail.com.

 
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