Sir Royalty Income Fund T.SRV.UN

RE:RE:RE:Even the best is coming down now too

[logicandinertia]

I wouldn't be too concerned about the recent volatility.  For thinner stocks with considerable retail ownership, it only takes an undisciplined seller or lazy trader to knock it down a few percent and vice-versa.  It should be of no concern to long-term investors as this equity has been consistent and rewarding for shareholders.

The R-squared (correlation) of SIR ROYALTY with the TSX has been very very low over past several years.  Why?  Because the ownership is pretty tight so you don't see a lot of selling and therefore not much liquidity.  Over 2018, SIR has really just oscillated between a 7.8 and 8.3 percent yield (there were two dividend bumps, totalling 10.5%).  It didn't see the speculative pop of Pot stocks and doesn't have the Commodity exposure that some equities have, so expect more of the boring same.  

The TSX is made up of essentially two sub-groups - Financials (about 40% of index) and Resources (close to 30%), with a mish mash of other smaller sectors.  Having SIR provides almost no index correlation and steady income for investors looking for low correlation additions to their portfolio.  

Importantly, look at how well the business performed in 2018.  This can be seen looking at the recently filed SIR CORP annual statement.  In order for the ROYALTY to be paid, the CORP has to do well.  And while the COSTS don't influence the ROYALTY payment, one would have to be short-sighted to think FOWLER would grow if CORP wasn't performing well.  So how did CORP perform in 2018? (found on company web site)

Revenues were up 6% on + same store sales growth
EBITDA was up 21% to $23.1 million (margin of 8.8% bettered last year's 7.8%)
That EBITDA margin exceeded the KEG, despite having no franchise stores (KEG has over half franchise).
Free cash flow (cash from operations less capex) was up 64% to $13.6 million.  

In general, pretty darned good. 

The difference between this company and many "resource" trusts is the underlying stability, with SIR not dependent on Commodity Prices to determine results.  It is little wonder there is such a variance in volatility between differing Trusts.  

This stock has outperformed the TSX in simple terms and total (including dividend) over 1, 3, 5 and 10 years.  Reasonable optionality given the lack of franchising done to date (could be insituted by a buyer) and cost savings that would be realized by a larger restaurant chain looking to further consolidate the market.  

Good luck in 2019...