Vicwest Corporation VIC.UN

The Facts (as of September 30, 2010)

Unit price: $14.29. Book value per unit: $3.60. Market cap: $250 million (small – medium). Distribution: $0.13 per month or $1.56 per year. Yield: 10.8%. P/E: 9.3x. Debt/equity ratio: 0.48. Payout ratio: 114%.

The Story

Vicwest has a history spanning over 100 years. They are one of Canada’s leading manufacturers and distributors of building construction products, and steel containment products for agricultural grain, fertilizer and liquid storage through two divisions: Vicwest Building Products and Westeel Storage Solutions

In 2006, the unit price peaked over $18.50, while the distribution increased from $0.09 per month to $0.13. Since then, the distribution has remained constant at $0.13 per month, although the unit price fell to $10.00. In 2008, during the worst of the crash, the unit price fell as low as $6.00, before recovering to $19.00 in late 2009. It has again fallen back, probably in anticipation of conversion to a corporation. The company has already announced their plan to convert to a corporation with a dividend yield of 6%. This gives them plenty of room to pay their taxes and retain some earnings for future growth.

Pros

This stock looks relatively cheap by all measurements (except book value). The yield is attractive and the outlook is fairly stable. It was spoken of very highly by Dave Taylor, a (the?) premier value manager in Canada. He owns 20% of the company, which is a huge vote of confidence. There also seems to be plenty of room for price growth, given that it is about 40% lower than a year ago. Further, it should benefit from continued growth in agriculture.

Cons

The company is not large, and volume is fairly thin. Earnings are down from last year. The company will incur a cost with the conversion to a corporation.

Impression

What’s good enough for Dave Taylor is good enough for me. I’ve looked at this one previously, but couldn’t get excited about a company that manufactures metal sheds and grain silos. I guess that was a mistake, because the units performed very well, coming out of the market crash. It looks like very good value, as long as the company remains healthy. There is a good chance the units will increase in value when the conversion is complete. Even though the income will be reduced, a 6% yield is very attractive.

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