On today’s TSX Breakouts report, there are 29 stocks on the positive breakouts list (stocks with positive price momentum), and just one security is on the negative breakouts list (stocks with negative price momentum).
Discussed today is a security that has never appeared on the Breakouts list as it is a micro-cap stock with a market capitalization below the screening threshold. For investors seeking income, it has an attractive yield of over 8 per cent and a history of providing stable monthly distributions with two distribution increases announced in 2018. The security highlighted today is SIR Royalty Income Fund (SRV.UN-T).
A brief outline is provided below that may serve as a springboard for further fundamental research.
Ontario-based SIR (Service Inspired Restaurants) Corporation owns a portfolio of 62 restaurants and one seasonal retail outlet (Abbey’s Bakehouse) under the banners Jack Astor’s Bar and Grill, Scaddabush Italian Kitchen & Bar, Canyon Creek, Reds Wine Tavern, Reds Midtown Tavern, and The Loose Moose. The restaurants are corporately owned, not franchised, and located primarily in Ontario. SIR’s flagship brand is Jack Astor’s. During the first three quarters of 2018, revenue from Jack Astor’s Bar and Grill represented 72.5 per cent of pooled revenue, followed by Scaddabush with a contribution of 13.7 per cent, 7.5 per cent from Canyon Creek, and 6.2 per cent from Reds and the Loose Moose. SIR Royalty Income Fund receives distribution income from its investment in SIR Royalty Limited Partnership.
After the market closed on Nov. 12, the Fund reported its third quarter financial results that ended Sept. 30. Pooled revenue increased 6.3 per cent year-over-year to $79.3-million. Overall same store sales growth expanded 0.6 per cent compared to the prior year. Jack Astor’s same store sales increased 1.3 per cent year-over-year. Same store sales at Scaddabush rose 1.1 per cent year-over-year. However, Canyon Creek’s same store sales declined 3.5 per cent year-over-year, and management indicated that they are seeking options to improve this performance. Distributable cash per unit came in at 34 cents, up from 31 cents reported during the same period last year. The unit price was relatively unchanged the following trading day, up 1 cent.
On Dec. 20, SIR Corp., the operating entity from which the Fund earns income, filed its first quarter fiscal 2019 results that ended on Nov. 18. Overall same store sales were disappointing, declining 1.4 per cent. Same store sales at Jack Astor’s fell 1.6 per cent during the quarter. A tornado in the Ottawa region closed three Jack Astor’s restaurants for up to three days and two Jack Astor’s locations were closed for a total of 20 days during renovations. Same store sales increased 0.6 per cent at Scaddabush. Same store sales declined by 3.1 per cent at Canyon Creek and fell 1.5 per cent at Reds and the Loose Moose.
The Fund pays its unitholders a monthly distribution of 10.5 cents per unit, or $1.26 per unit on a yearly basis. This equates to an annualized distribution yield of 8.2 per cent. The Fund increased its distribution twice in 2018, totaling an increase of 10.5 per cent. In the third quarter Management’s Discussion and Analysis, chief executive officer Peter Fowler remarked about the distribution hikes stating, “This reflects strong revenue growth from the restaurants in our Royalty Pool, driven by our successful ongoing Jack Astor's renovation program and the continued solid performance of our Scaddabush brand.”
Management targets a payout ratio averaging 100 per cent over the long-term. For the first nine months of 2018, the payout ratio stood at 91.6 per cent.
There is just one analyst who covers this micro-cap security with a market capitalization of approximately $129-million, Elizabeth Johnston from Laurentian Bank Securities. She has a ‘hold’ recommendation and a $14.75 target price, implying the Fund is fully valued. Looking back to 2016, she has maintained her “hold” recommendation on the Fund.
In the third quarter, distributable cash per unit was 34 cents and 97 cents for the first nine months of 2018. In 2017, distributable cash per unit was $1.18.
Insider transaction activity
Since the beginning of Sept. 2018, one insider has reported steady buying activity in the Fund. Between Sept. 7, 2018 and Jan. 3, 2019, Mr. Irvine, with an ownership position exceeding 10 per cent, acquired a total of 64,400 units across two accounts.
During the market volatility over the past several months, the unit price climbed higher except for a brief four day period between Dec. 24 and Dec. 31, when the unit price dropped below $15 on high volume.
For several years, the unit price has been steadily climbing higher from approximately $10 at the beginning of 2016 to its current level above $15, providing investors with attractive capital appreciation along with income.
This consumer discretionary security is thinly traded, which can increase price volatility. The three-month historical daily average trading volume is approximately 13,000 units.
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, financial forecasts, 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.