Stock price when the opinion was issued
SPB has been very disappointing. It has a shareholder yield of 16% (11% dividend yield, 4.4% debt paydown, and a 0.5% buyback yield). Analyst estimates have largely been trending lower, but forward earnings growth is expected to be strong, but some of this is reflected in its forward earnings multiple of 17X. It is a cyclical business, and we will be watching the earnings release next week very closely to further assess at that time our full review of the company going forward.
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It is hard to like a stock that has cut it dividend by 75%. Weather (milder winters) is an issue for companies involved in the heating business. Its revenue base is not growing as fast as before. The stock has done nothing for a long time. It's interesting that15% is owned by Brookfield. Propane is a very necessary product.
The shareholder base has probably rotated by now away from yield investors. The problem is that it has high debt and a high valuation, yet growth is not that great. Weather is also a factor and competition has increased somewhat. Yes, EPS is expected to show good growth in 2025, but even with a good bounce EPS will be lower than it was in 2013. We think management did the right thing with the dividend, but we still think buyers can wait here.
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Strategy was to get bigger in Canada and US propane distribution, and he liked that. Didn't like the payout ratio of 80-90%. Certarus acquisition wise. Balance sheet couldn't support all its big plans. Dividend cut a positive, and should free up capital.
Widespread team turnover since the acquisition, so it'll take him some time to get familiar with new management. Some reasons to be optimistic.