After much searching I found a stock screener for Canadian stocks (more on this in another post). I was able to assemble a Graham style screener with the following criteria:
- Exchange TSX
- P/E <>
- Dividend Yield > 3.5
- Average EPS > 33%
- Revenue > $550M
- Current Ratio > 2
- Price/Book Ratio <>
Up popped two companies one of which is Methanex (MX-T). Showing up on the screener is not sufficient to merit my investment. So here is the abridged version of my analysis. Before diving in though I am compelled to say that I never analyze a company with the intent of buying and selling it within a few months. Also please, please this is my analysis any investment you make should supplement what I present here and possibly involve consulting your own investment consultant.
Company Intro
Methanex is in the business of extracting and shipping methane (surprise). Methane is the central component in natural gas (about 87% by volume). Its principal use therefore is in heating and energy production in addition to a number of industrial uses.
Company Fundamentals
- P/E ratio 3.12
- Yield 5.69%
- Average EPS Growth Rate 650%- only 6 yrs available here are the exact numbers:
- EPS 3.63 (2007), 4.4(2006), 1.39(2005), 1.95(2004), 0.06(2003), 0.18(2002)
- Growth Rate -17.5%(2007), 216.55%(2006), -28.72%(2005), 3150%(2004), -66.67%(2003)
- Avg EPS 5yr growth rate 86.3%
- Revenue $2250.99M (2007)
- Current Ratio 2.79 ($988.59M / $354.42M) See here for how this was calculated.
- Price/Book =.76
- Return on assets 12.92
- Return on Capital 2007 1.47 ($2266521 /($2869899 - $1335354))
Revenue Looks solid and continues to grow.
Interesting pattern here.
Analysis of General Market
As Methanex essentially trades in a commodity it is worthwhile to look at the overall health of the industry:
Data collected from: http://www.methanex.com/products/documents/MxAvgPrice_Dec232008.pdf
We see then that generally last year was a good year for the sales of methane with an average strike price of $1.65 compared to the year before of $1.42. There is some cause for concern though with the January prices receding back to $.70, a price not seen since December 2003.
Understanding How the Company Came to be Cheap
- Working with Argentina: Reading the company's financial statements one can see that a large part of the business in based in Chile. Chile has, in the past, been refining Argentinian gas. Argentina though has for the past few years blocked the export of gas due to concerns over a possible shortage within its own borders. As a result Methanex claims that its plants in Chile ran at around 60% of max production. Reading some more on this it appears Chile has made great efforts to make itself fully independent of Argentinian resources over the last few years and should continue to do so in the future. One news story quoted a senior Chilean government representative as saying they would be gas independent of Argentina by the end of 2008. As such we should expect that this 60% should grow steadily in the future closer to the company average of 87.1% it has been running over the last 10 yrs.
- Refinery in New Zealand: Methanex has a refinery in New Zealand after having fired it up earlier this year they appear to have shut it down again this quarter. This news appear to have scared off some investors but in my opinion this appears to be just a prudent business decision based on market conditions. In reviewing Methanex's financial statements starting and stopping facilities appears to be a regular activity with a plant in Canada currently offline.
- Softening in the Price: As we can see from the chart above the price of methanol has dropped off substantially for January of 2009.
- Global Downturn: Every area has seen a downturn over the last few months.
- Possible End of Year Capital Gains Losses: As we are at the end of the tax year investors tend to sell more than they buy so as to assume the necessary tax losses.
Other Opinions on Methanex
President Lincoln believed in surrounding himself with people who did not necessarily agree with his opinion. I believe this is one of the best ways to test your research. I would encourage you to read the following, please keep in mind that some of these links refer to the American stock, not the Canadian so prices targets will differ:
Summary Comments
Negative
- Methanex was incorporated in 1992- traditionally I like to see a company with a longer history.
- Methanex started paying a dividend in 2003 so the history of a long consistent dividend is not there.
- The Methane market has gone soft-like everything else.
- Methanex is likely to report negative results for the year 2008.
Positive
- Methanex has never decreased or canceled a dividend it has also raised its dividend each year since inception by an average of 21.2% (usually in the second quarter of the year).
- Methanex has been buying back its own stock since 2004.
- The issues in Argentina appear to be coming to a conclusion with the Chilean government stating it would not be dependent upon Argentinian gas by the end of 2008.
- While industry is the largest consumer of electricity and a global downturn will decrease residential energy needs will most certainly be a constant.
- Gas issues in the Ukraine appear to be driving up the prices of resources again- perhaps another good year?
Disclosure
At the time of writing the author is in the process of purchasing MX at $13.50
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After much searching I found a stock screener for Canadian stocks (more on this in another post). I was able to assemble a Graham style screener with the following criteria:
