It’s almost been a year since I kicked off dedicating more time to blogging since the covid lockdowns. I have toyed with the idea of having a dividend paying portfolio cover more and more of my living expenses. To be honest, I’m still on the fence. I have debating creating a 10-12 stock dividend portfolio for tracking purposes. Anyways, here’s a quick update on Corby.
Since posting about Corby in May 2020, shares have underperformed the TSX and several dividend focused ETFs. Also, everyone was getting rich off bitcoin except you and me. The performance below doesn’t include dividends.
As expected, Corby has weathered Covid well. Surprise surprise but people kept drinking throughout the (various degrees of) lockdowns. Revenue has been maintained and profitability hasn’t been impacted.
I went over the business in more detail in the previous post so I won’t repeat myself here. Basically, I view the business as very stable and long term demand for their products to grow with GDP. The CEO has been in place for a year and has done well (in my opinion) navigating the pandemic.
I’m going to spend some additional time looking at their dividend payouts and policy.
The dividend policy is to pay out 90% of earnings in the previous fiscal year. They have also paid some special dividends out over the years.
In the last 5 and 10 years they have paid out 30 mil and 112 mil ($1.06 and $4.07 per share) in special dividends.
With a little more visibility on the (eventual) reopen in Canada, I would expect the dividend to increase and potentially pay out a smaller special dividend.
A quick look at absolute valuation is below. Forward numbers are my estimate for fiscal 2021 which is over in a few months.
Relative to where Corby has traded, it’s a slight discount to mean for P/S and EV/EBITDA.
valuation is not cheap
there could be an issue with one of the brand’s they market
people could drink less in the future compared to today (perhaps increase their consumption of cannibis)
the B shares are non-voting
Not ridiculously cheap and not expensive. Perhaps dividend paying stocks will have a tougher time if/when interest rates move up. Corby is not a debt heavy company that has a large portion of operating earnings going towards servicing debt.
Anyone own or have an opinion on CSW?
*the author does not have a position in $CSW/A.to or $CSW/B.to
Once a month I write in my investment journal to attempt to capture my current thoughts on the public markets. It’s not a forecast and I am not a macro guy. It is a quick snapshot of what is happening in real time and how I’m processing it.
This month I made note of how the broader market seems to continue to rotate out of “what worked in 2020”/SaaS/lockdown names and into “recovery” companies. The S&P ended up 7.4% YTD, while the TSX ended up 6.7%. The Russel 2000 has now outperformed the Nasdaq comp over the ttm. The disordered pace of covid vaccine distribution seems to be creating lots of noise. As well, there are many that are very concerned about variants and their implications on the healthcare system. It is interesting to experience in real time. This goes without even mentioning NFT, crypto, EVs, etc. Such things I have no business commenting on.
I continue to find some interesting opportunities in more cyclical companies, although these usually amount to more and smaller positions. As always looking for businesses with long term potential, with incentivized management and a reasonable valuation is the main goal and will constitute the largest amount of my energy. Of course, building positions in such businesses takes continuous effort on the bid as they tend to be illiquid.
Building wealth in the most reasonable way for me is not always the optimal way in the short term.
After a big bounce from the covid lows, shares are down 15-20% since I posted. Follow my ideas at your own risk.
And here is the performance of other things you could have purchased if you followed all the smartest accounts on Twitter. If your timeframe is 6 months, you probably are reading the wrong blog.
Although I’ve sent out a few updates on Viemed on the monthly updates, I think Viemed warrants some additional conversation.
VMD Adds Value to Stakeholders
Service to Patients
The high touch service model makes them very valuable to patients. The use of ventilators can be overwhelming, confusing and hard to keep up with. Recall that the vent patients are likely elderly and the use of a ventilator may not be the only treatment they are receiving. Having respiratory therapists (RTs) in the home with the patient increases compliance. The RTs are available around the clock to assist patients. The RTs are their to educate patients and build a trusting relationship. They are the first point of contact and face of Viemed for the patient.
Extending patient life
Proper patient education and compliance leads to higher quality of life. The patient also uses VMD products (likely a ventilator) longer. Use of non-invasive ventilators has been proven to extend patient life. A few years ago they stated that the average time the patients use a ventilator is 17 months. They have released data that every 6 patients they get on a vent saves a life.
Treating patients at home rather than at hospital removes cost from the healthcare system. Treating patients at home where they can be around their loved ones is one thing, but there is also a reduction hospital readmissions. Hospital stays are expensive and consume valuable resources.
The company has always provided more than NIVs to patients. The oxygen portion of the business has grown 100% in 2020 (albeit from a lower base). They expect it to grow quicker than the ventilator side of the business. Though margins are not as strong as NIV, the incremental cost is low and leads to high incremental ROIC.
They have also been able to provide specific product sales and support from COVID. Though this will eventually unwind, it demonstrates their ability to capitalize on opportunities.
They are currently in 38 states and have the opportunity to expand into new states. They could also penetrate further into the existing states they have a presence.
Though somewhat muted in the immediate term, the company has been investing heavily in technology to assist RTs in treating patients. They have also invested in systems to improve workflow for their employees. They have purchased 5% in VeruStat, a company focusing on remove patient monitoring.
There is always the chance that VMD acquires another business or product(s). Previously they had mentioned that they were looking at pediatric patients.
Partnership and Payor Diversification
They announced an alliance with Commonwealth Primary Care ACO in Arizona in February. There could be more partnerships like this with ACOs in the future.
They also have been approved to provide care for the VA (Veterans Affairs). They are working on demonstrating the savings that VMD will provide. This was delayed due to covid and is picking up again in April 2021.
The competitive bidding process for CMS services was paused due to the pandemic. In 2016 they took a 35% cut in reimbursement from Medicare. It took them several quarters to outgrow the cut. Home medical equipment was removed from the competitive bidding process in 2021.
Lower than expected growth
whether it’s from covid or other reasons, a slower growth rate could cause the share price to re-rate into “deep value” territory.
Casey Hoyt (CEO) was one of the founders of the company. He has been there since day one and has a material amount of his net worth tied up in the business. If he left, I would view it as a negative event.
Bad debt expense
As their patients are at end of life, there can be some significant swings in bad debt expenses. They have guided for 9-13% range. They could have a instance of greater than 13% of revenue spent on bad debt. Thought I feel it’s unlikely as they have gotten better at collections and monitoring patients, it’s a risk to monitor.
What needs to happen to make money
In my opinion, VMD is a company that you need some patience with. If they have growth opportunities, they will take the opportunity to invest via the income statement and cash flow statement. This could hurt profitability in the short term. I do think that the business could outperform the stock over the next few years. To me, VMD is not a company to trade but to own.
Given all the growth levers, VMD is looking to get back to pre-covid growth levels. If they can return to that rate (or even close to it) of growth, I think the current share price is a bargain. The company is trading around 10x forward EV/EBITDA today.
I feel that VMD is a high quality business providing a valuable service to it’s customers, has lots of TAM, incentivized owner-operators, and is not at the valuation where I would sell it.