Q: I'm looking at starting a position in OLY. But I saw an update yesterday from an investing site adding a new major risk that earnings are forecast to decline and avg of 6.1% for the foreseeable future. Also a high level of non cash earnings (23% accrual ratio). In the recent ER they stated that expenses had increased due to bonuses etc in their investment arm because of the strong performance of the company. I'm wondering if these things all point to a stock that got so high due to a few great quarters, but is now expected to normalize and pull back as earnings decrease? Which could maybe impact the div down the road also. Is the high performance behind them and the future looks to normalize? Thx
5i Research Answer:
OLY’s earnings experienced tailwinds in the last few years due to increasing interest rates, helping it earn higher interest income. This segment is expected to pull back somewhat as interest rates decline in the near term. And there is a moderate level of non-cash earnings. That said, OLY still generates more than enough cash flow to cover dividends over the years. OLY has been around for a while and been through multiple interest rates cycles in the past, but still managed to grow at a healthy pace over time. We think 10x Forward P/E is a cheap valuation for a capital-light dividend grower like OLY and we continue to like its prospects.