Q: I am an income investor. Can you please explain, with falling interest rates, the risks associated to making a significant bet on Superior Plus Company (SPB). From my reading, the 9% dividend is well covered by earnings and the debt, though significant, is coming down. The company is making money with a largely captive audience and the day to day share price is largely irrelevant to me. With a 5 year, plus, horizon, I don’t get the low share price. Is this a poor man’s Enbridge?
Thanks for the help!!
Thanks for the help!!
5i Research Answer:
We have further comments on SPB posted today. Lower rates should help the shares, but the company needs to improve growth and execution. Debt is high, which is a risk, and it is fairly small. But the payout ratio is fine, Brookfield owns 15% (through preferreds) and can serve as backup, and growth is expected (based on consensus). Cash flow is decent, but estimates have been ratcheting down. But market share is solid and yes, it is somewhat of a captured market. It is tough to strongly endorse it (risk, size, debt, execution), but we consider it OK at current levels.