Stock prices skyrocket in 2001 for five Canadian furniture companies
By Michael J. Knell -- Furniture Today, April 14, 2002
TORONTO — Led by Quebec retailer BMTC, five of Canada's eight publicly traded furniture companies saw share values skyrocket in 2001, thanks to solid performances — despite a few signifcant drops in net income among the eight — and perhaps to an investment community soured on high-tech and such high-profile failures as Enron.
And share prices for the five have continued on an upward track so far this year.
A year ago, senior furniture executives and financial analysts were saying these companies were undervalued and were not being rewarded for their top- and bottom-line performances.
"With the Enron scandal, the market started to look for two things," said Terry Leon, senior vice president and chief financial officer of Leon's Furniture, Canada's third-largest furniture retailer. "First, they looked for consistency in growth — even if it was 'old economy' instead of 'new economy'— and then they started to look at the integrity of the financial statements. And we shine in both of those areas.
"We're the type of company you can invest in with confidence over the long haul," he said. "And 18 months ago, the words 'long haul,' 'integrity' and 'conservative' weren't important to the analysts."
"The so-called new economy wasn't really an economy at all," said Jeff Schwartz, CFO of ready-to-assemble furniture powerhouse Dorel Inds. "There were a couple of years where, no matter how good you did, it didn't matter."
Andrea Harbour, research analyst with Sprott Securities of Toronto, also noted a change in attitude on the part of investors. "They're looking for value; they want the statements to show constant earnings," she said.
"Investors also know the (furniture) sector is tied to a strong housing market, and housing has remained robust," Harbour said. "What people are looking for is a release of pent-up demand."
Anthony Zicha, a senior analyst with Montreal-based Scotia Capital, said, "People are more cautious; they're investing in those things that they understand…. Investors are focused on the quality of management and on the quality of the product. Those are the factors that drive growth.
"In the case of Dorel, for example, they have a strong upside potential because of their product development and leadership," he said. "At the end of the day, Canadian companies such as these will continue to gain market share."
BMTC, Quebec's largest full-line furniture retailer, saw shares jump 82.5% in value during 2001, from C$9.45 to C$17.25 on Dec. 31, far exceeding its 9.4% increase in revenues and 2.7% rise in net income. It operates 23 stores under the Brault & Martineau and Ameublesment Tanguay banners. Earlier this month, its stock was trading at C$21.60.
Dorel's stock last year leaped 70.2% from C$18.95 to C$32.25 as net income soared 47.4%. The Quebec RTA maker has maintained its stock price this year despite major customer Kmart's Chapter 11 bankruptcy filing.
The third high flyer is Shermag, the Quebec contemporary upholstery and case goods maker. Its shares went from C$6.05 to C$9.70 last year, a 60.3% jump. Its shares closed recently at C$12.50.
Shermag's share price has held up despite recent dips in revenue and income, which President and Chief Executive Officer Jeff Casselman attributed to one-time charges and shifts in internal priorities. Furniture sales have held up and a growth strategy is in place, he said.
Casselman strongly believes that share price is the last thing he and his management team should concern themselves with. Doing what it takes to improve the top and bottom lines eventually will be rewarded, he said.
Also being rewarded for the strength of its new management team and the potential of its business plan is RTO Enterprises of Edmonton, Alberta. Its share price jumped 51.6% in 2001 from 31 Canadian cents to 47 cents, and the upward trend is continuing.
David Ingram, president and CEO of Canada's dominant rent-to-own home furnishings merchant, admitted the company went through a couple of rough years. "By the end of 2001, we had turned the company around," he said. "We got sales moving in the right direction and we got growth in our margins."
Among the actions taken at RTO were the closing of unprofitable stores, taking tighter control of receivables, and ensuring that stores were adequately supplied to meet consumer demand.
While Leon's shares advanced a relatively modest 15.6% in 2001, that has accelerated in recent weeks. CFO Leon believes this shows the market will reward consistent performance if management is patient. "If you have a good product year after year —and I consider our shares to be a very good product — after a while you won't be ignored," he said.
Even the two manufacturers whose shares lost value in 2001 have made up ground this year.
Amisco of L'Islet, Quebec, a metal furniture maker, saw its shares drop 12.3% in 2001 from C$5.70 to C$5. But by April 8, the price had climbed to C$5.65.
The stock of Bestar, the RTA specialist based in Lac Megantic, Quebec, fell 16.7% from C$1.50 to C$1.25 during 2001, but climbed to C$1.60 last week. Paulin Tardiff, chairman and CEO, said the recent introduction of its Signature line of home office and entertainment furniture has received wide acceptance from retailers partners and should put Bestar back into a solid growth mode.
Bedding producer Simmons Canada is a wholly owned subsidiary of SCI Income Trust, an open-ended, limited-purpose trust. Although its trust units can be traded like shares, unit value doesn't vary to the same extent as the shares issued by the other seven furniture companies.
The units have been valued consistently in the C$10 to C$11 range for the past three years. Unit holders aren't paid dividends but receive compensation based on distributable cash flow. The return has been as high as 17%.
All eight companies are traded on the Toronto Stock Exchange.
| Year ended | Revenues | Revenues % change | Net income | Net income % change | |
|---|---|---|---|---|---|
| Dorel Inds. | 12/30/01 | $916.8 | 21.0% | $25.5 | 47.4% |
| BMTC | 12/31/01 | 643.8 | 9.4 | 21.7 | 2.7 |
| Leon's Furniture | 12/31/01 | 425.7 | 5.8 | 36.3 | -1.0 |
| Simmons Canada | 12/31/01 | 120.1 | -1.9 | 6.6 | -33.5 |
| RTO Enterprises | 12/31/01 | 67.8 | 0.6 | (1.9) | —-- |
| Bestar1 | 12/31/01 | 59.2 | -23.1 | 0.7 | -80.4 |
| Amisco | 11/30/01 | 45.2 | -11.8 | 2.1 | -47.4 |
| Shermag2 | 12/28/01 | 110.1 | -2.4 | 4.3 | -57.2 |
| * All dollars are Canadian, except for Dorel, which reports in U.S. dollars. | |||||
| 1. Gross revenues | |||||
| 2. For the nine months ended Dec. 28. Fiscal year ends in March. | |||||
| Source: Company reports | |||||
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