Reitmans’ recovery continues, but investors are not yet getting everything they want, which may explain the volatility in the Montreal retailer’s stock.
The stock lost more than a quarter of its value on the Venture Exchange on Friday in much higher than normal trading volume after the release of a year-end financial performance showing a rise in sales, but a decline in profitability.
After a very strong rise in the action at the start of the year, followed by a decline, the stock had risen vigorously in recent weeks.
Behind the scenes, it is whispered that investors were hoping for an announcement surrounding a migration of the action to the TSX or the payment of a dividend.
“The title should [passer] on the Toronto Stock Exchange and we will push for it,” said portfolio manager Jesse Gamble of Donville Kent Asset Management.
This Reitmans shareholder does not believe, however, that the company should pay a dividend at this stage. “Not yet,” he says, but she would have to buy back shares, which would be hugely profitable at the current stock price, he says.
Additionally, it should explore ways to monetize its housing stock, he adds.
A “tonne of cash”
In a research report written during the winter, Jesse Gamble evaluated that the head office of Reitmans, located on rue Sauvé, is worth 118 million and that the distribution center on boulevard Henri-Bourassa is worth 123 million. He says the office space is currently underutilized and thinks the Reitman family could buy the buildings and then lease the space back to the company.
PHOTO JOSIE DESMARAIS, LA PRESSE ARCHIVES
The head office of Reitmans, rue Sauvé
“This would allow investors to invest only in retail businesses. »
Jesse Gamble notes that cash flow has been very strong and the company is now sitting on a “ton of cash”.
It was not possible to speak to Stephen Reitman, the big boss of the company. However, he sent us a few comments by e-mail, mentioning in particular that the arrival of the stock on the TSX “is not currently planned”.
Retail business is cyclical and cash positions fluctuate throughout the year. The company will continue to invest in its stores and in its technology to remain competitive.
Stephen Reitman, CEO of Reitmans, in an email to The Press
“The company buildings are critical to the success and smooth running of our business. The inherent value of our real estate assets due to market conditions does not alter our willingness to invest in these assets to improve and grow our business,” says Reitman.
Jesse Gamble also regrets that Reitmans does not organize presentations or conference calls to talk about the company, explain the results, and answer questions from investors. “There is not even an opening to hold meetings,” he underlines.
“There’s a lot of value to be realized if they focus more on shareholders. »
On this subject, Stephen Reitman indicates that the idea deserves to be considered and that the management is thinking about it.
Recession risks
The stock’s volatility can also be explained by investors selling in anticipation of a recession and its potential impact on the retail trade.
Jesse Gamble replied that Reitmans has done well and remained healthy and profitable during past recessions. He goes so far as to speak of a “dollar store” type effect, referring to the resilience of discount stores when the economy falters.
“An investor can hedge against recession risk by shorting shares of much more expensive retail companies and gaining exposure to a stock like Reitmans,” says Jesse Gamble.
Reitmans, which had appealed to the Companies Creditors Arrangement Act in May 2020 before emerging from this process at the beginning of last year, unveiled Thursday evening sales up 11% year on year to 212 million for the months of November, December and January.
Despite an increase in gross margin, net income from continuing operations fell by more than 70% to 27.5 million during the quarter. The decline in profitability is attributed in particular to one-off items and an increase in operating expenses.