Rating Update: Stock Rating A-Highest (6/4/19)-Northfield Capital Corp (NFD.A).

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BUSINESS

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INVESTMENT RATING

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With future capital returns forecasted to be above the cost of capital, NFD.A is expected to be a Value Builder.

Northfield Capital has a current Value Trend Rating of A (Highest Rating).
This rating combines complementary signals from two proprietary PTR measures of a stock’s attractiveness. Northfield Capital has a slightly positive Power Rating of 64 and a very high Appreciation Score of 96, resulting in the Highest Value Trend Rating.

Northfield Capital’s stock is selling well below targeted value. The current stock price of $31.00 compares to targeted value 12 months forward of $142.
Northfield Capital’s very high appreciation potential results in an appreciation score of 96 (only 4% of the universe has greater appreciation potential.)
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Northfield Capital has a Power Rating of 64. (This slightly positive Power Rating indicates that NFD.A’s chances of achieving attractive investment performance over the near to intermediate term are only average.)
Factors contributing to this slightly positive Power Rating include: recent price action has been slightly favorable; and is currently in a modestly favorable positi.

INVESTMENT PROFILE

NFD.A’s financial strength is average. Financial strength rating is 42.
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Relative to the S&P 500 Composite, Northfield Capital Corp has significant Value 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; and falling tax keep rate.

Northfield Capital’s current technical position is very strong. The stock price is in a 35.9 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

Northfield Capital Corporation (CVE: NFD.A) has recently enjoyed meaningful positive changes in investment behavior: positive upside/downside volume developed.
Slight negative changes in fundamentals have recently occurred for Northfield Capital Corporation (CVE: NFD.A): significant quarterly earnings deceleration occurred.
The stock is currently rated A.
Northfield Capital Corporation (CVE: NFD.A) stock closed at $0.31 on 6/4/19 after a major increase of 24.0%. The stock has risen 6.9% during the last week and has been strong relative to the market over the last nine months.

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 provided +$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 a similar 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 +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 top quartile. Currently, Northfield Capital is at the upper quartile 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 top 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 an opposite trend for the Northfield Capital Corp Peer Group. In most years, Northfield Capital was in the top quartile. Currently, Northfield Capital is upper quartile 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 a similar trend 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 very minor 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 volatile overall downtrend that accelerated very sharply after the 2016 level.
Non-operating factors (income taxes and financial leverage) had a very small positive influence on return on equity.
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Northfield Capital’s return on equity is slightly above median (-9.1%) for the four quarters ended December, 2018.
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Operating performance (pretax return on assets) is below median (-11.0%) reflecting asset turnover that is lower quartile (0.03X) and lower quartile pretax margin (-351.%).
Tax “keep” rate (income tax management) is at median (82.0%) resulting in after tax return on assets that is below 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 -15.8% per year.

Total asset growth has been -1.6% per year.

Annual E.P.S. growth has been 1.5% per year. (More recently it has been -2.0%.)

Equity growth has been 1.9% per year. (More recently it has been 14.0%.)
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 (-15.8%) has been lower quartile. Equity growth (1.9%) 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 slightly below market. Between October, 2013 and June, 2019, Northfield Capital’s stock price rose +41%; relative to the market, this was a -12% loss. Significant price move during the period: 1) April, 2016 – June, 2019: +100%.
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TOTAL INVESTMENT RETURNS

Current annual total return performance of 16.0% is substantially above median relative to the S&P 500 Composite.
In addition to being substantially above median relative to S&P 500 Composite, current annual total return performance through May, 2019 of 16.0% is upper quartile relative to Northfield Capital Corp Peer Group.

Current 5-year total return performance of 3.0% is substantially below median relative to the S&P 500 Composite.
Through May, 2019, with substantially below median current 5-year total return of 3.0% relative to S&P 500 Composite, Northfield Capital’s total return performance is 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

With future capital returns forecasted to be above the cost of capital, NFD.A is expected to be a Value Builder.
Northfield Capital’s current Price Target of $140 represents a +353% change from the current price of $31.00.
This very high appreciation potential results in an appreciation score of 96 (only 4% of the universe has greater appreciation potential.)
Reinforcing this high Appreciation Score of 96, the moderately high Power Rating of 64 contributes to an Value Trend Rating of A.
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Northfield Capital’s current Price Target is $140 (+311% from the 2017 Target of $34 and +353% from the 06/04/19 price of $31.00). This dramatic rise in the Target is the result of a +24% increase in the equity base and a +230% increase in the price/equity multiple. The forecasted increase in growth has no impact on the price/equity multiple and the forecasted increase in cost of equity has no impact either. However, the forecasted increase in return on equity has a very large positive impact.
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PTR’s return on equity forecast is 10.4% — above our recent forecasts. Forecasted return on equity enjoyed a dramatic, erratic increase between 2012 and 2017. The current forecast is significantly below the 2015 peak of 21%.

PTR’s growth forecast is 12.0% — above our recent forecasts. Forecasted growth suffered a dramatic, erratic decline between 2012 and 2017. The current forecast is well above the 2016 low of 3%.

PTR’s cost of equity forecast is 6.6% — above recent levels. Forecasted cost of equity exhibited a modest, erratic 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 $31.00, investors are placing a negative value of $-7 on its future investments. This view is consistent with the company’s most recent performance that reflected a growth rate of 5.0% per year, and a return on equity of 4.0% versus a cost of equity of 6.2%.
PTR’s 2019 Price Target of $140 is based on these forecasts and reflects an estimated value of existing assets of $35 and a value of future investments of $106.

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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