Forum Archive Index - January 2003

["tennyson@caverock.net.nz" <tennyson@caverock.net.nz>]

Hi Pat,
 
>
> 
>I would've thought that Steel and Tube is reasonably cheap
>(undervalued) given its P/E, P/NTA, and Price/Sales ratio at today's
>price $3.23-$3.30.  Of course, it would be great it were a real
>"bargain."
> 
>(I do not hold STU).
> 
>

Don't get me wrong about STU Pat.  I think STU is an attractive 
income share.  But that published dividend yield of 8.6% isn't quite 
as good as it might superficially appear.  That figure includes 10c 
of special dividend that won't be repeated this year.  Take that out 
and the dividend yield drops to around 6%, based on an STU share 
price of $3.23.

Of course the STU share buyback will increase the per share 
earnings yield, even if the profit remains flat.  But it will also 
increase your beloved P/NTA ratio in the process.  

Let's say the yield for STU goes up to 6.6%.  That's good, but there 
are other shares out there that can offer you a much better 
dividend return.   For example, buy WRI and you can get a 15% yield.  
And WRI doesn't pay out all of its earnings as dividends, whereas STU 
does!

So is Steel and Tube "reasonably cheap" potentially yielding 6.6% on 
both earnings and dividends?  IMO, in the context of the New Zealand 
market - no.   

Is it expensive?   Not really.  It should be more expensive than, for 
example, a rural merchant company, like WRI, with such a chequered 
history of earnings.  In fact, on a dividend yield basis STU is more 
than twice as expensive as WRI.  If I want a good reliable share 
to fill out an income portfolio, I'd probably buy STU at $3.23.  So I 
stand by my original opinion that STU is fairly priced.   

My big question mark over STU as a growth investment is, where is the 
growth going to come from?   Of course as an 'income investor' the 
answer to this question doesn't matter.  So I leave Pat with a 
question to ponder.  If STU is 'fairly priced' IMO and 'reasonably 
cheap' in yours (on a yield of 6.6%), what does that say for WRI on a 
yield of 15%?

SNOOPY

disclosure: hold WRI


 
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