back at ya, ngSure, I think you have to take third-party research for what it is - someone else's opinion - and certainly the credibility of the author matters. Like you, I always do my own research, including poking around on these boards for old hands in a name. And, also like you, I managed to completely avoid the tech-wreck because I just couldn't swallow the BS.
That said, I've 'lived & breathed' with SIF.UN for quite a while now as a unitholder and believe that I have a pretty good sense of the business. I could always be dead wrong, but I have a large enough position in SIF.UN to render me intensely interested in its results.
Again, I found your comments very interesting, even if I don't necessarily agree with your analysis. Here's what I would suggest: call or write SIF.UN IR and put your questions to them about your concerns. I have done this many times, and have always had questions answered to my satisfaction.
Regarding the return of capital: to my knowledge, all income and royalty trusts have an ROC component in their distros, but this doesn't mean it's a Ponzi scheme (believe me, I've asked). It's more like a quirk of trust accounting; there's all sorts of information online about this, but perhaps you're way ahead of me.
Regarding debt: given the market cap and cash flow of the trust, the debt you're talking about is pretty minor (and short-term). Yes, it grew in the last few quarters, as the trust expanded into new markets. Using short-term debt to grow the business makes complete sense to me, given the growing cash flow of the trust. Also, the trust has clearly indicated that because of its move into the US, the business is becoming much more seasonal; part of the debt may be related to financing marketing efforts during lower-cash-flow quarters (this is just a guess on my part, so ask the trust). The bottom line for me on this is that if the debt was becoming an issue, investors and analysts would be all over the trust, as it's had such a stellar record in this area and states very clearly that it does not employ leverage.
Regarding FCF: given the foregoing, perhaps we're defining this differently. From my perspecitive, if the trust didn't have unencumbered cash flow, it wouldn't be able to pay distributions, period. Since the purpose of the trust is to pay out FCF, by definition it must have huge FCF to pay out and continually raise distributions. In some quarters, the cost of distros and marketing (especially when taking on new markets) exceed the earnings; however, on balance, the trust grows its FCF (by my definition) year after year and its payout ratio is conservatively managed.
Well, that's my take, but for truly expert input I would encourage you to contact the trust and get your questions answered. And, please do us the favour of posting what you learn here.
Cheers,
beck
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thanks for your feedback. It is helpful in my due diligence. I have been investing in equities for 30+ years and have found it useful to do my own due diligence.
I survived the tech bubble largely unscathed by taking the comments of large brokerages on Nortel, JDSU and more recently Google with at least two pinches of salt.
That said I agree with your comment below about the growth performance of SIF.
After reading the Q3 report and the financials for that period [ the latter were drawn from the SIF website],I would disagree with you on two points.
a] lots of free cash flow.
The results show that the operating business is NOT generating enough free cash to pay the distributions
The financing section of the cash flow statement shows that [ in Q1 to Q3 of 2005 fiscal ] they paid over $70million in Distributions [$64.7 million to unit holders and $6.9M to class A preference shareholders].
During the same period their net indebtedness [ their term not mine] went from 0 to $35.7 million. That $35.7million was used to cover the difference between the cash from operations of $31.6 million and the distributions paid out.
Quote from yoru post
"The company has no meaningful (i.e., long-term) debt, generates a tremendous amount of FCF, and has higher organic growth than any other business trust I can think of"
b] the distributions have been increasing dramatically but they are being paid by the investor's own capital [ check the stockholder equity values in the balance sheet to verify this point if you wish.]