RE:RE:RE:Reopened a position at 2.81 I agree with most of what we are discussing here...
I think that the market trying to price this is flawed in many areas.
It's not really an institutional stock because it's rather small at 500-550M market cap at its higher end value potential at the moment, the shareprice is sub $5, liquidity is decent but not great and it's pretty much a royalty on Private Equity. I don't know there there is a lot of similar buisnesses out there, most private equity names hold a chunk of the buisness, fund loans and pull fees for services, where we don't do much of those extras.
For us, retailers it's rather unknown and somewhat difficult to value, we are pretty much buying dividends here and hopeful capital gains when it appears discounted. To me it is mostly about: What are you willing to pay to get the current yeild? at any given time.
With interest rates so high you have to consider that you can get a bond with no concernable risk for 3.5-4%+ or take risk in the stock market for 8.25-8.5% currently. For those that play on margin or loans there is not that much of a spread, today I pay 8.8% on margin lending (Wednesday it might be 9.05%) but I am on the edge of hitting a new level with my bank due to value of my holdings that the rate I'm charged should move to 8.45% (8.7%) and my line of credit rate is much higher (but it's not at its best rate due to high personal use). So borrowing to invest here doesn't make a ton of sence at the moment for myself and the small percentage for retailers that play that game. (That said, I'm still looking at putting a buy order in based on metrics further below)
As far as adding new royalties the Stratus acquisition added about 15-20% to the distributable income right away (which seems at the higher end of what something new could do off the bat) but it seems while the payable amount grows over time it will have less torque overall to our numbers as time passes. I don't believe funding new deals is much of an issue, the Stratus deal and others seem to really be funded by lending abilities, but to get that lending capacity for this deal they did seem to need/want to move the underlying value goal posts and make an share offering which was done for a little less than the value purchase of the deal (also keep in mind very gradual dilution from the DRIP program). While our payout ratio is below 100% theoretically we are banking future funding, mind you currently it's around a measly $2.5-3M/year which is not that big for making deals regularly. I think the bigger issue on new deals is just getting them done. A single addition in a few years seems like it's not a great rate of portfolio growth, but I believe we did get upgrades to a couple existing deals in the past few years also.
I agree that the downside seems limited outside of a major event. I've discussed before 'value indications using dividend rate' before, which doesn't rub most people here that well, while it may not be a great methodology, it's kinda worked and been a good indicator in my opinion on potential. But if I were to tie the maths to Distributable Income rather than Dividend Rate it might be mildly more accurate and acceptable.
We currently have a rate of 27.44 cents/year of distributable income depending on the rate that you feel you should value distributable income we can get a value attachment.
@ 6% = $4.57
@ 6.5% = $4.22
@ 6.75% = $4.07
@ 7% = $3.92
@ 7.25% = $3.78
@ 7.5% = $3.66
@ 7.75% = $3.54
@ 8% = $3.43
@ 8.25% = $3.33
@ 8.5% = $3.22
@ 8.75% = $3.14
@ 9% = $3.04
@ 9.25% = $2.97
@ 9.5% = $2.88
Most of the time the dividend yeild of the stock is between 7.25 - 8.25% if we leave room for a less than 100% payout ratio, that would equal a rate on distributable income of between 7.5 - 9%, the maths would say, in normal circumstances the price of the stock should be trading between $3.04-3.66, which I believe means we are currently undervalued and based on the last quarter the upside is $3.66 maybe $3.92 if the market was very favourable on this name like it was back in February.
To extend this further out for those interested, it's likely next quarter we see around or just under 28 cents in distributable income, so playing the maths above...
@ 7% = $4
@ 7.25% = $3.86
@ 7.5% = $3.73
@ 7.75% = $3.61
@ 8% = $3.50
@ 8.25% = $3.39
@ 8.5% = $3.29
@ 8.75% = $3.20
@ 9% = $3.11
@ 9.25% = $3.02
@ 9.5% = $2.94
I would project the normal trading range would likely be between $3.11-3.73 with possible $4 touched if things turn hot.
But going back to the above I mentioned, How much are you willing to pay for the current payout and the windows shown above? & Does it make sence for your current situation on where your pulling money from and how much safety you feel you need for your investments?