Skip to main content
gordon pape

It's impossible to keep track of all the investment opportunities out there. That's why I welcome questions from readers asking my opinion on securities that I haven't reviewed in the past.

One such e-mail came in last week. Reader Alex S. asked: "Any opinions on Richelieu Hardware Ltd.? It looks like a well-managed Canadian firm but I'm not certain on its stock value."

I had heard of Richelieu but I had never researched it in detail. When I did, I was impressed by what I learned.

The Montreal-based company is an importer, distributor and manufacturer of specialty hardware products. It sells a huge range of products, from kitchen cabinets to lighting supplies to power tools. Think of walking into a Home Depot store – that gives you some idea of the variety Richelieu offers. The entire inventory consists of more than 110,000 items.

The company has 37 distribution centres in Canada and 31 in the Eastern and Southern United States. It has two manufacturing plants in Canada. One is Cedan Industries Inc., which specializes in making of a wide variety of veneer sheets and edgebanding products (carpentry trim). The other is Menuiserie des pins Ltée, which manufactures components for the window and door industry and a broad selection of decorative mouldings.

The company has two revenue streams, selling both to manufacturers (80,000 customers) and to retail customers.

This may not be a glamorous business, but the numbers are solid. First-quarter 2017 results (to Feb. 28) showed sales of $195.9-million, up 3.7 per cent from the same period in the prior year. Of that, $164.9-million was sales to manufacturers.

Net earnings attributable to shareholders came in at just less than $12-million (20 cents a share, fully diluted), compared with $10.9-million (18 cents) in 2016.

In Canada, sales grew by 4.5 per cent. That represented a 2.8-per-cent increase in the manufacturers market and an 11-per-cent gain in the retailers and renovation superstores market. In the United States, sales went up 7.7 per cent in U.S. dollar terms, with the manufacturers market showing a 7.9-per-cent increase and a 3.6-per-cent increase in the retailers and renovation superstores market.

One of the attractions of this business is its pristine balance sheet. As of the end of February, the company had cash reserves of $36.4-million, while total debt was only $3.8-million. Of that, $300,000 was in long-term debt and $3.5-million in short-term debt representing balances payable on acquisitions and financing contracts for equipment.

Equity attributable to shareholders totalled $401.5-million as at Feb. 28, compared with $394.3-million on Nov. 30, 2016, the year-end for fiscal 2016. That was an increase of $7.2-million. As at Feb. 28, the book value per share was $6.93, up by 1.8 per cent over Nov. 30.

Richelieu grows by acquisition. Its latest deal was to acquire Weston Premium Woods Inc. of Brampton, Ont. Weston distributes a range of materials, decorative products and hardwoods targeted to a customer base of kitchen and bathroom cabinet, storage and closet, home furnishing and office furniture manufacturers, as well as residential and commercial woodworkers. This acquisition represents additional sales of approximately $60-million on an annual basis. No terms were disclosed.

During 2016, the company completed four acquisitions in the United States.

The stock pays a dividend, although not a very hefty one. The quarterly payout is 5.67 cents a share (22.68 cents annually) for a yield of 0.7 per cent. On the plus side, the company has a recent history of raising its dividend every year.

Richelieu is also buying back stock, purchasing just more than one million shares at a cost of $23.1-million in 2016.

About the only negative is the share price. The price-to-earnings ratio is 27.9 on a trailing 12-month basis, which is not cheap. The stock hit an all-time high of $31.16 on April 24 before pulling back slightly.

Given the high share price, I suggest purchasing half your position now and waiting for a pullback to add the balance. Ask your financial adviser if it is suitable for your account.

====

Gordon Pape is editor and publisher of the Internet Wealth Builder and Income Investor newsletters. For more information and details on how to subscribe, go to buildingwealth.ca.

Want to interact with other informed Canadians and Globe journalists? Join our exclusive Globe and Mail subscribers Facebook group.

Report an editorial error

Report a technical issue

Editorial code of conduct

Tickers mentioned in this story

Study and track financial data on any traded entity: click to open the full quote page. Data updated as of 28/03/24 4:15pm EDT.

SymbolName% changeLast
RCH-T
Richelieu Hardware Ltd
-0.91%42.6

Follow related authors and topics

Authors and topics you follow will be added to your personal news feed in Following.

Interact with The Globe