November 14, 2015 Liquor Stores Shares and Debentures updated as Sell and Strong Sell

The report for Liquor Stores N.A. is updated and rated Sell at $8.55. The dividend appears to be running at double the earnings level which seems highly unsustainable. In addition, I have lost faith in management.

The report for their convertible denture is also updated and rated Strong Sell at $102.31. In the latest Q3 they noted in the management discussion that they have the right to pay out these debentures in common shares (as opposed to cash) anytime after April 30, 2017. Previously this right was disclosed in the annual financial statements notes but not in the management discussion. When I first added these debentures to this site I had read that note and I noted in my report their right to pay these out at par in 2017 but I had failed to notice that they could pay in shares or cash at their option. It seems to me that the option to pay in shares weakens the value of these because the very payment in shares would likely cause the share value to drop due to dilution concerns and also due to fixed income investors selling the shares. In some ways these debentures seem well protected in that company would have good cash flows if they suspended the common dividend. But overall, I would definitely hasten to sell these debentures if I owned them. I see no upside for them and plenty of possible downside and on top of that the yield is not particularly attractive.