STUDENT TRANSPORTATION INC 5.25 PCT DEBS T.STB.DB.A

RE:payout ratio

[BlueCollar51]

d_trump wrote: lots of different views on this....here is mine:

fiscal year ending 6/30, cash flow from operations BEFORE changes in non-cash working capital = $59.6

Dividends paid = $33.6M
Capex = $33.5M

The key question is how much of CAPEX is for growth and how much is for sustaining capital.  I have no idea but conservatively, lets assume sustaining CAPEX is 50%.

Then all-in POR = ($33.6 + $16.8) / 59.6 = 85%
And since 6/30, there are plenty of tailwinds to suggest that this year's POR will improve:

• the equity raise @ $7.20 and corresponding debt paydown (happened in last fiscal but full benefit this year)
• the buyback of shares in the 4.50 to 5.50 range
• the strengthening of the USD
• the drop in oil prices
• the general business growth and positive tone from management (validated by significant insider purchases)

I think the market was unjustly spooked by the divestiture by one of the large institutional holders last summer.  Yet this transaction appears to be nothing more than a shareholder who is rebalancing their portfolio (they are still a significant shareholder).  Q1 is the seasonally weak quarter and it is behind us now. 

STB is a very small holding of mine, but I'm tempted to add more at these levels.  I don't expect huge long term appreciation, but possibly a 25% bounce in a relatively short time frame.  If not, then nice dividend and minimal downside.

d_trump; The way I calculated the POR resulted in 101% before any Capex and did not include the Cash Value of the DRIP shares issued.
 
I am not saying that your method is necessary wrong but in my experience an “All In POR” includes the Cash Value of the DRIP shares issued ($8.5m) which would result in an “All In POR” of abt. 98% with your method.
 
I agree that there are some “tailwinds” but in my opinion the 2016 Cash Dividends is the biggest “sustainability headwind”.
 
Based on the 96.5m Sept 30 2016 share count we can estimate the “total” 2016 Dividend obligation to be abt. $42.46m USD.
 
In Q1 2016;

1. $8.5m Cash Dividends
2. $2.0m Value of 492k DRIP shares issued (primarily to SNCF)
3. $0.6m Value of 140k NCIB shares bought

 
For Q2 the only verifiable info we have to date is what has been reported to SEDI

1. 83,640 DRIP shares issued to SNCF in Oct.
2. 149,906 NCIB shares bought in Dec.

 
When the Q2 results are released it will be possible to get a better handle on the DRIP
 
Based on a participation rate of abt. 5% for the last 3 quarters my “guesstimate” at this point for the 2016 Cash Dividend bill is abt. $40m. That is substantially more than the 2015 cash dividends paid.
 
As for the NCIB these guys have a bit of history of issuing a PR re. the NCIB c/w a short flurry of activity followed by a very long period of no activity.
 
I think that you would agree that if the DRIP participation has actually reduced to 5% they may as well discontinue it. That would result in a corresponding increase in cash dividends offset by reduced dilution. In that situation NCIB purchases funded by debt would make very good sense.
 
As I have said there are things about Student Transportation that I like. I keep digging into the Financial Reports to see if I can find a compelling reason to re-establish a position. Unfortunately, the more I dig the more I find that I don’t like.
 
There has been some debate on this board re. the Pros/Cons re. Buying/Leasing Busses.
 
We can debate the fine points until the cows come home. The consequences are laid out quite nicely in the MD&As.
 
In the 2016 Q1 MD&A they state that the “Total Debt” on Sept 30 2015 was $278.376m.
Then they go on and state this;
 
“If the operating leases for vehicles were treated as capital leases, the senior debt and total debt
would approximate $337.0 million and $453.0 million, respectively as at September 30, 2015.”
 
No matter how you “slice and dice” it appears to me that Student Transportation is a “very highly leveraged” Cash Flow operation.
 
In my opinion the current Share Price weakness is due to a combination of;

1. 11 years of underperformance
2. The SNCF sale
3. Concern re the sustainability of the dividend
4. Possible manipulation by short sellers
5. Overall weakness in the Canadian and US markets

 
Some overall strength in the Canadian and US markets c/w Good Q2 results could very well result in a decent short-term trade from the current Share Price. Personally I don’t currently view STB as a viable mid/long term “Investment”.
 
As Always; Do Your Own Due Diligence; It’s Your Money !!
 
PS; d_trump; In the MD&A they “portion” the Bought Busses (Capex) and Leased Busses to Replacement/Growth. Keep in mind that they can “massage” the numbers any way they see fit. Accounting “smoke and mirrors”. In my opinion it’s the Total that is important. Basically two pockets in the same pair of pants.
 
PPS; It seems that my posts have compelled some to actually do some Due Diligence. Regardless of their conclusions (different than mine) I view that as a GOOD THING!