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A&W: Watch for a pullback Add to ...

Hi Lou,

What is it with AW.UN ? I can’t get enough of it. Just like overeating at a fast food joint, I’m scared to eat there three meals a day. However, the units keeps on rising. Are they really selling enough hamburgers to maintain this trend?


Hi Ryan,

The A&W Revenue Royalties Income fund earns its revenue from the stream of income flowing from 3 per cent of the sales at the 700 A&W Restaurants across Canada. Anytime you can get a gross royalty to any income stream, you should seriously take a look at the opportunity.

One of the factors that is driving growth and enthusiasm for AW.UN has been the introduction of their Multi Site Development Program. The program allows new and existing franchise owners to develop multiple sites in a given area. The initiative moves the development cycle from a single-location focus to a regional development strategy. Currently 77 new locations are scheduled at be opened in the next three to five years in Ontario, Quebec, and British Columbia.

The charts will add another level of analysis to consider.

The three year chart depicts the advance from the October 2008 lows in the $10.00 range to the current high of $21.05. The RSI is showing that the stock is currently overbought and that the units have perhaps gotten ahead of themselves. The current leg up started in October of 2010 just ahead of the Q3 announcement when the board announced a special distribution. As we say in my family, people in the know – know.

At $21.05 AW.UN yields 6 per cent and the board has declared that they will maintain distributions at the current level through 2011 but it was clear that there are no plans for any special distributions. There has been a restructuring that has been approved by unit holders that is designed to meet the new tax rules that come into play at the end of the year.

The six-month chart illustrates the move in October from $19.00 to $21.05 which represents an 11 per cent lift. Not bad for three weeks' exposure. However, it looks like AW.UN has gotten ahead of itself and will need to pull back. It's not that the units have broken the uptrend but simply that there will have to be some adjustment when the special distribution is paid out.

The trend is your friend until it ends. So feel free to head to the drive through and place your order. But like all investments make sure to look at the chart every day to see if the trend is about to end.

Happy Capitalism!

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

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