Opinions
Stephen Takacsy, B. Eng, MBA
Keg Royalties Income Fund
KEG.UN-T
HOLD
Sep 25, 2017
Stock price when the opinion was issued
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Not widely followed and not very liquid. Overall this is a decent story. You would have to evaluate some of the story to Alberta and whether that is significant. A lot of these restaurant royalty funds have done quite well, because the consumer has proven that they are overspending like a drunken sailor on a shore leave.
This Vancouver based restaurant royalty has emerged thriving following the pandemic shut-downs. The company is prudently managing cash reserves to retire debt and support a strong dividend. Latest reported earnings showed a 14% increase in sales for the year to date. We recommend placing a stop-loss at $11.75, looking to achieve $16 -- upside potential of 18%. Yield 8.4%
With an ROE of 24% and a solid dividend that is supported by cash reserves, we reiterate KEG.UN as a TOP PICK. A steady performing income fund that returns its cash as a dividend. We continue to recommend a stop at $13.50, looking to achieve $17.00 -- upside potential of 17%. Yield 7.8%
Our PAST TOP PICK with KEG.UN has triggered its stop at $13.50. To remain disciplined, we recommend covering the position at this time. This will result in a net investment loss of 3%, when combined with our previous recommendations.
The Keg Royalties Income Fund (KEG.UN) is a $240M fund that invests in the Keg Rights Limited Partnership in connection with the operation and franchising of Keg steakhouse restaurants. It has a distribution yield of around 8%. Sales growth has mostly been flat over the past several years, cash from operations has shown a steady growth rate, but still quite modest. It pays around $14M each year in distributions, and its free cash flows have been around $28M. We would consider the distributions sustainable, and while its unit price has declined, its total return CAGR over the past 20 years is 8%.
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It has been very well managed and has been one of the better performers. He is staying away from restaurants as they are expensive and have very little growth. This is one of the better ones, however. If you are happy with the dividend then hold on to it.