Priszm Q2-2008

July 21st, 2008 by Potato

Well, I mentioned that a distribution cut was priced into QSR.UN, and now that their Q2 results have been released that’s indeed what has happened. The cut was towards the steeper end of what I figured, down to $0.60/year going forward (5 cents per month), and 90 cents for 2008 (including the 63 cents already paid for the year) even that is still at about a 90% payout ratio, so the cashflow looks to be managed. The stock jumped ~5% on the news, but closed up just 2% after a fall in the last minute or two of trading. At $3.50, that’s still a yield of 17%, and I think it will probably move up over the next few days on the news, and my new price target is $4 (going to a yield of 15%). I’m somewhat tempted to buy more, especially if it stays down at $3.50 tomorrow. It would be over-concentrating in a mediocre company to an uncomfortable degree, but I think it could possibly jump 10% or more in a few days as the news percolates out — and if not, I can live with a 17% yield; the question being of course, how sustainable that will be going into the future.

There are some big questions raised here. The world does not look to be ending for Priszm, and the fundamentals, from what I see, indicate that it is a value at this price. However, there is an issue of trust and faith in the management raised now. Just a few months ago they were fairly bullish in raising their distributions back up to $1.20/year — to a level that was immediately recognized by the analysts as being unsustainable. Then they cut it down, to about a 50% payout, far beyond what the analysts were calling for and what the cash flow would dictate, surprising investors. They over-promised, and under-delivered.

We’ll see what the analysts have to say in the morning.

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