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Monday’s stock market rally was short-lived and on Tuesday the S&P 500 was down 1.0% and Toronto was down 0.4%.
AutoCanada was down 2.5%. Toll Brothers was up 0.9% despite the negative day on the markets. Toll Brothers reports earnings on August 25 and I expect they willreport further progress in revenues and profits as the housing recovery continues in the U.S.
Melcor came out with earnings that were markedly lower than Q2 last year. But they still made a profit. There are lots of moving parts and so the earnings are somewhat hard to interpret. This company does not do conference calls and generally does not say much at all about the outlook. I will update the rport after I see where the stock price heads on this news.
Melcor’s results included:
Revenues down 30% – They indicated this was partly due to timing of getting subdivisions registered to sell lots but also due to softer markets in land sales. (There was no break-out tot he two factors.
There was strong growth of 22% in revenues from income-producing properties.
They sold 202 single family lots to house builders. This was down 17% from the prior year. That does not seem like such a big decline given the oil price in Alberta. But the average price was also down 16% and there was little discussion of whether this was due to a different mix. They did say that gross margin (for the entire company) declined from 49% to 46% due to mix of lot sales and also due to targeted “programs” (read price reductions) to increase sales in select communities.
There were apparently no market value declines in its portfolio of income properties.
Overall the report indicated that the company is being cautious and reducing its risks and is well prepared to get through a period of lower economic activity in Alberta.
The company reports its book value per share as $27.67. This reflects income property marked to market and reflects the book value of the investment in land held for future development and for sale as lots (This includes the cost of developing the land).
With the units trading at a recent $16.57, they are trading at 60% of book value. In my experience, it is rare for profitable and strong companies to trade below book value. However, Melcor has a history of usually trading somewhat below book value although usually not to this extent.