Rating Update: Stock Rating A-Highest (3/27/19)-Northfield Capital Corp (NFD.A).

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BUSINESS

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INVESTMENT RATING

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Reflecting future returns on capital that are forecasted to be above the cost of capital, NFD.A is expected to continue to be a modest Value Builder.

Northfield Capital has a current Value Trend Rating of A (Highest Rating).
The Value Trend Rating reflects consistent signals from PTR’s two proprietary measures of a stock’s attractiveness. Northfield Capital has a good Power Rating of 74 and a very high Appreciation Score of 97, and the Highest Value Trend Rating results.

Northfield Capital’s stock is selling well below targeted value. The current stock price of $27.75 compares to targeted value 12 months forward of $135.
Northfield Capital’s very high appreciation potential results in an appreciation score of 97 (only 3% of the universe has greater appreciation potential.)
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Northfield Capital has a Power Rating of 74. (NFD.A’s good Power Rating indicates that it has a higher likelihood of achieving favorable investment performance over the near to intermediate term than all but 26% of companies in the universe.)
Contributing to this good Power Rating: recent price action has been favorable. An offsetting factor is is currently in an unfavorable positi.

INVESTMENT PROFILE

NFD.A’s financial strength is average. Financial strength rating is 60.
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Relative to the S&P 500 Composite, Northfield Capital Corp has slightly more Value than Growth characteristics; its appeal is likely to be to Capital Gain-oriented investors; the perception is that NFD.A is normal risk. Relative weaknesses include: low forecasted profitability, low historical profitability, low financial strength, low historical growth, and high earnings variability. NFD.A’s valuation is low: low dividend yield, low P/E ratio, and low price/book ratio. NFD.A has unusually low market capitalization.

CURRENT SIGNALS

Northfield Capital’s current operations are eroding. Return on equity is falling, reflecting: falling asset utilization; declining pretax margin; and falling leverage.

Northfield Capital’s current technical position is very strong. The stock price is in a 33.6 month up move. The stock has appreciated 87.1% from its prior low. The stock price is above its 200 day moving average which is in an uptrend.

ALERTS

Recent exceptional negative changes in investment behavior have affected Northfield Capital Corporation (CVE: NFD.A): negative upside/downside volume developed, and its shorter term price trend turned down.
Northfield Capital Corporation (CVE: NFD.A) suffers from minimal negative changes in fundamentals: significant quarterly earnings deceleration occurred.
The stock is currently rated A.
On 3/27/19, Northfield Capital Corporation (CVE: NFD.A) stock enjoyed a major increase of 16.0%, closing at $0.05. However, trading volume in this advance was exceptionally low at 0% of normal. The stock has been exceptionally strong relative to the market over the last nine months but is unchanged during the last week.

CASH FLOW

In 2017, Northfield Capital generated a significant increase in cash of +$3.03 million (+17%). Sources of cash were larger than uses. Cash generated from 2017 EBITDA totalled +$12.26 million. Non-operating sources contributed +$2.66 million (+22% of EBITDA). Cash taxes contributed +$0.10 million (+1% of EBITDA). Re-investment in the business amounted to -$13.34 million (-109% of EBITDA). In 2017, debt investors had no impact on cash while equity investors contributed +$1.36 million (+11% of EBITDA).
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Northfield Capital’s Non-operating Income, %EBITDA has enjoyed a volatile overall uptrend over the period. This improvement was accompanied by stability for the Northfield Capital Corp Peer Group. In most years, Northfield Capital was in the top quartile. Currently, Northfield Capital is upper quartile at +22% of EBITDA (+$2.66 million).

Northfield Capital’s Cash Taxes, %EBITDA has experienced a downtrend over the period. This downtrend was accompanied by stability for the Northfield Capital Corp Peer Group. (Since 2015 Cash Taxes, %EBITDA has experienced a very sharp recovery.) In most years, Northfield Capital was in the lower quartile. Currently, Northfield Capital is slightly above median at +1% of EBITDA (+$0.10 million).

Northfield Capital’s Business Re-investment, %EBITDA has enjoyed a volatile overall uptrend over the period. This improvement was accompanied by a similar trend for the Northfield Capital Corp Peer Group. (Since 2015 Business Re-investment, %EBITDA has sharply accelerated.) In most years, Northfield Capital was in the third quartile. Currently, Northfield Capital is substantially below median at -109% of EBITDA (-$13.34 million).

Northfield Capital’s Debt Investors, %EBITDA has experienced a very strong overall downtrend over the period. This downtrend was accompanied by an opposite trend for the Northfield Capital Corp Peer Group. In most years, Northfield Capital was in the second quartile. Currently, Northfield Capital is upper quartile at 0% of EBITDA ( $0.00 million).

Northfield Capital’s Equity Investors, %EBITDA has suffered a volatile overall downtrend over the period. This downtrend was accompanied by a similar trend for the Northfield Capital Corp Peer Group. (Since 2015 Equity Investors, %EBITDA has accelerated very sharply.) In most years, Northfield Capital was in the top quartile. Currently, Northfield Capital is upper quartile at +11% of EBITDA (+$1.36 million).

Northfield Capital’s Change in Cash, %EBITDA has experienced a volatile overall uptrend over the period. This improvement was accompanied by a similar trend for the Northfield Capital Corp Peer Group. In most years, Northfield Capital was in the second quartile. Currently, Northfield Capital is above median at +25% of EBITDA (+$3.03 million).
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Northfield Capital’s Cash, %Revenue has suffered a volatile overall downtrend over the period. This downtrend was accompanied by stability for the Northfield Capital Corp Peer Group. (Since 2015 Cash, %Revenue has experienced a very sharp recovery.) In most years, Northfield Capital was in the lower quartile. Currently, Northfield Capital is slightly above median at +135%.

PROFITABILITY

Northfield Capital’s return on equity has eroded very significantly since 2012.
This very significant erosion was due to very strong negative trend in pretax operating return and small positive trend in non-operating factors.
The productivity of Northfield Capital’s assets declined over the full period 2008-2018: asset turnover has suffered a very strong overall downtrend that accelerated very sharply after the 2016 level.
Non-operating factors (income taxes and financial leverage) had a minor positive influence on return on equity.
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Northfield Capital’s return on equity is substantially above median (0.6%) for the four quarters ended September, 2018.
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Operating performance (pretax return on assets) is at the upper quartile (0.6%) reflecting asset turnover that is lower quartile (0.01X) and upper quartile pretax margin (37.4%).
Tax “keep” rate (income tax management) is at the upper quartile (105.8%) resulting in after tax return on assets that is substantially above median.
Financial leverage (leverage) is lower quartile (1.01X).

GROWTH RATES

There are no significant differences between Northfield Capital’s longer term growth and growth in recent years.
Northfield Capital’s historical income statement growth and balance sheet growth have diverged. Revenue growth has fallen short of asset growth; earnings growth has paralleled equity growth.

Annual revenue growth has been -22.4% per year.

Total asset growth has been -1.6% per year.

Annual E.P.S. growth has been 1.5% per year.

Equity growth has been 1.7% per year.
No consensus growth rate forecast is available for Northfield Capital.
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Relative to the Northfield Capital Corp Peer Group, Northfield Capital’s historical growth measures are generally lower quartile. E.P.S. growth (1.5%) has been at median. Total asset growth (-1.6%) has been lower quartile. Revenue growth (-22.4%) has been lower quartile. Equity growth (1.7%) has been lower quartile.

Consensus growth forecast is unavailable.
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PRICE HISTORY

Over the full time period, Northfield Capital’s stock price performance has been highly stable and below market. Between October, 2013 and March, 2019, Northfield Capital’s stock price rose +26%; relative to the market, this was a -21% loss.
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TOTAL INVESTMENT RETURNS

Current annual total return performance of 20.8% is upper quartile relative to the S&P 500 Composite.
In addition to being upper quartile relative to S&P 500 Composite, current annual total return performance through January, 2019 of 20.8% is upper quartile relative to Northfield Capital Corp Peer Group.

Current 5-year total return performance of 5.6% is substantially below median relative to the S&P 500 Composite.
Through January, 2019, with substantially below median current 5-year total return of 5.6% relative to S&P 500 Composite, Northfield Capital’s total return performance is at the upper quartile relative to Northfield Capital Corp Peer Group.
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VALUATION BENCHMARKS

Relative to S&P 500 Composite, NFD.A’s overall valuation is high. The highest factor, the ratio of enterprise value/assets, is lower quartile. Price/equity ratio is lower quartile. Ratio of enterprise value/earnings before interest and taxes is unavailable. Price/earnings ratio is unavailable. Ratio of enterprise value/revenue is unavailable.
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VALUE TARGETS

Reflecting future returns on capital that are forecasted to be above the cost of capital, NFD.A is expected to continue to be a modest Value Builder.
Northfield Capital’s current Price Target of $136 represents a +390% change from the current price of $27.75.
This very high appreciation potential results in an appreciation score of 97 (only 3% of the universe has greater appreciation potential.)
Reinforcing this high Appreciation Score of 97, the high Power Rating of 74 contributes to an Value Trend Rating of A.
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Northfield Capital’s current Price Target is $136 (+11% from the 2017 Target of $122 and +390% from the 03/27/19 price of $27.75). This slight rise in the Target is the result of a +32% increase in the equity base and a -16% decrease in the price/equity multiple. The forecasted decline in return on equity has a very large negative impact on the price/equity multiple and the forecasted increase in cost of equity has a large negative impact as well. Partially offsetting these Drivers, the forecasted increase in growth has a very large positive impact.
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PTR’s return on equity forecast is 9.8% — slightly below our recent forecasts. Forecasted return on equity enjoyed a dramatic, erratic increase between 2012 and 2017. The current forecast is well above the 2015 low of 4%.

PTR’s growth forecast is 15.0% — above our recent forecasts. Forecasted growth erratic but little changed between 2012 and 2017. The current forecast is significantly above the 2016 low of 3%.

PTR’s cost of equity forecast is 6.9% — above recent levels. Forecasted cost of equity exhibited a modest, steady increase between 2012 and 2017. The current forecast is well above the 2015 low of -0.0%.
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At Northfield Capital’s current price of $27.75, investors are placing a negative value of $-6 on its future investments. This view is not supported by the company’s most recent performance that reflected a growth rate of 6.0% per year, and a return on equity of 12.3% versus a cost of equity of 6.3%.
PTR’s 2019 Price Target of $136 is based on these forecasts and reflects an estimated value of existing assets of $33 and a value of future investments of $103.

About John Lafferty 49646 Articles
During his career, John has developed valuation and stock rating methodologies, managed institutional portfolios and mutual funds, and provided equity research to institutional investors on thousands of companies. He has been Director of Research at PTR since its inception in 2004.

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