K-Bro Linen Inc (KBL.TO)

Earnings estimates were $1.59 for 2016, and dropped to $1.14 for 2017, and then goes to $1.39 for 2018. There is reasonable year-over-year growth from 2016 of 12%. It ranks 308 out of 720 stocks in his model. On a near term basis, year-over-year cash flow has declined by 16%, and year-over-year earnings growth is -12%. The upcoming quarter is even worse at -16%. Dividend yield of 3%. He would look elsewhere.

Some indicators are starting to turn up, which is pretty positive. Short-term, it is going to have a little trouble getting through the $41 level, before there is more acceleration. It could then get a push up to around $45.

Canadian leader in linen services to hotels and hospitals. There are high barriers to entry into the industry and they have limited competition. It is a duopoly in Canada. They have high margins and good cash flow. It has pulled back in the last year because they are in a large cap-x program. It is better valued now considering the future benefit of the cap-x program. Demographics are behind them. They have long term contracts with very high renewal rates. (Analysts’ target: $43.50).

(A Top Pick May 4/16. Down 3%.) They are doing everything that a good, long term business owner would do. Reinvesting in some of their plants and winning new contracts. Have had to build new facilities in Vancouver and Toronto. Extremely well-run. He is still buying on weakness.

Laundry services for hospitals, hotels, institutions. There have been some pretty lacklustre quarters recently as competition is increasing. The company is adding plants throughout Ontario to add to their logistical efficiencies, giving lower costs. You will have to hold for another year to get a leg up, but in the meantime, the 3% dividend is nice.

Laundry company for hospitals. He regrets not going after it. The contracts are long term and get renewed automatically. He may start looking at it again. It is very chunky in terms of contracts. Don’t expect huge organic growth.

This company is planning for 10 years, not just one quarter. They are shifting operations to more efficient facilities. That causes disruptions and causes uncertain earnings while they make that shift. But when they make that shift, it is by far the right move to make, and their margins go up. There were 2 new contracts that they didn’t win this year, and the stock took a pretty big hit. The stock has gone way down and he thinks it is very attractive. They sign 10, 20 year contracts, and the new facilities will kick in and improve margins over time.

Launders hospital and hotel linens. About 70% revenues are from hospitals and the rest from hotels. The largest player in Canada. About a year ago, they made a bid for Booth Centennial, but lost it to a financial player. Currently building new facilities in Toronto and Vancouver that will lower their costs. They continue to win contracts. Has debt to EBITDA of about 0.2X, and trading at about EBITDA of about 9X. very well-managed. Dividend yield of 2.93%.

Provides laundry services to hotels and hospitals. Have 10 year contracts, and are able to pass inflation on to them. Recently dropped 10%, which is funny because this is a very stable company. Loves this for the stability and the dividend that it supplies. Competition recently beat them out of 2 pretty big contracts. However, they still have their long-term contracts and are generating cash flow and paying dividends.

It is a very good business, he used to own it, but doesn't anymore. Very well run. He thinks the recent sell off is just the market evaluation because it did have a pretty rich evaluation at one point. A very good company. He wouldn't worry too much about it though and thinks it will be fine. It still pays a nice dividend and they tend to increase it. They do have avenues of growth. As a longer term hold it should be fine.

They have done a tremendous job but it got pushed to a ridiculous value. There is nothing fundamentally wrong with management or the business.

Industrial laundry. He likes the business longer-term. Feels it is trading at the higher end of its valuation. If you own, consider taking a little bit of profit.

(A Top Pick in June 21/13. Up 20.16%.) They get 10 year laundry contracts from government agencies, hospitals, prisons, etc. They build a facility, get the contract and run that through, and just take a cut of the profits along the way. Likes the long-term stability of the company. If the economy is going to roll over you want to own this company for their dividend and revenue visibility. 3.1% dividend yield.

On his radar screen and has been for a long time. Likes the business. Good revenue stream. There are possibilities for them to add ancillary services, such as food or janitorial services and continue to get more contracts and more growth. However, you are paying a high price for a good quality company. Another 10% pullback and he would be very interested.

Laundry and linens. About 70% of their business comes from servicing hospitals and 30% from hotels. Recently announced a new growth initiative in Saskatchewan where they will have to build a new central Laundromat to facilitate some of the laundry from the provinces. Analysts’ estimates may have factored in further acquisitions. There are other areas of growth for this company including the Maritime provinces.