The Facts (as of February 28, 2011)
Share price: $21.82. Book value per share: $8.95. Market cap: $181.5 million (small). Distribution: $0.117 per month or $1.40 per year. Current yield: 6.5%. P/E: 15.2. Debt/equity ratio: no long-term debt. Payout ratio has been around 100%.
A&W Root Beer. The Burger Family. Chubby Chicken – a powerful lineup of great food and beverages and established brands with nearly 700 restaurants in Canada. The fund owns and licenses the trademarks of A&W in return for royalty payments from A&W Food Services of Canada Inc. Royalty payments are used to provide regular distributions to Fund unitholders.
On Feb. 9, A&W Revenue Royalties Income Fund announced that a syndicate of underwriters will complete a bought deal offering of units at a purchase price of $23.35 per unit, which closes March 2.
The company has some very well known and well respected brands. There is no long-term debt, which should avoid operational shocks. The current price is below the price of the bought deal. A bought deal is a great vote of confidence in the quality of the investment. Management is apparently very capable.
The price doesn’t seem cheap at the present level, although the yield is still attractive. I am unclear how the taxation will affect the fund. It is unclear whether there is any room for growth.
This company seems like a good investment for someone looking for current income. Earnings are quite predicatable and should continue to support the income. Don’t expect much capital growth, however.