Boston Pizza Royalties Income Fund is updated and rated (lower) Buy at $22.64
Here is some history on this one. In 2013 when it got up around $23 I indicated I was not a buyer at that price. The stock then slipped back to $20 to $21. It got back to $23 in April and May of 2015. On February 8, 2015 I rated it a Buy at $21.80. In March it announced a transaction that would increase the distributions by about 9% and that they would sell new units at $22.10. I thought this was good news and bought in several accounts at $22.10. The price then nose-dived all the way to briefly under $16 in early 2016. I believe part of what happened was that a lot of new investors bought at $22.10 and then as it started to dip they increasingly bailed. In any case about 21 months later the price is back above $22. So, those who bought at $22.10 got what they should have expected which was the monthly distributions. AND the market gave us a golden opportunity to add more shares at what was clearly a bargain price and I pointed that out many times in 2016. These units are up 26% this year and paid an attractive cash distribution as well.
With the units back near $23 and with Alberta just starting to crawl back out of recession I now view these units as being fairly priced but not compelling. I would not be surprised if the distributable cash flow is flat or down a percent or two in Q4 and I suspect they will have difficulty increasing the distributable cash flow per share in 2017. In recent quarters there was an added boost in distributable cash flow per unit caused by share buybacks. But they have not bought back any shares since last February and the share count is only down 0.8% from last year’s Q4 and will be about unchanged in Q1 2017. If there is a little drop in distributable cash flows then the unit price could drop. And there is the new headwind caused by higher interest rates. Still, they may be able continue to achieve small gains in distributable cash flows due to strong sales in Ontario and B.C. The bottom line is that these units are reasonable priced but not compelling at this time.
I may decide to reduce my position since about 11% of my portfolio is in these units and I don’t see much reason for the price to rise much.