# Alaris Royalty (TSX:AD)



## leeder (Jan 28, 2012)

I would like to get CMF members' opinion on Alaris Royalty Corp. I decided a while ago to allocate 5% of my investment portfolio to buy high quality small to midcap names after performing thorough research, especially those that may be unfairly beaten up. 

This name has come across a number of my screens, as YTD performance is about -29%. Based on valuation metrics, this is trading at about 13x forward PE, 1.5x book value. It has little debt on its balance sheet. It consistently generates strong cash flow. It also consistently raises its dividend every year. There's risk with the health of underlying businesses that borrow money may negatively impact Alaris. Recent news have indicated there are some concerns with a few of these private businesses; however, nothing jumps out at me at this point that would affect Alaris's business and cash flow. 

I'd like to get thoughts about this company and, specifically, from any current shareholders. To me, this company at this price level seems extremely attractive.


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## tkirk62 (Jul 1, 2015)

I started into this sector with DIV (Diversified Royalty Corp). IT seems like an early stage Alaris with a much higher yield, more beaten up price and only three royalties to worry about from large companies I know lots about. If you like Alaris I would suggest you also give DIV a look. It's the same business plan but I think you're getting in on a growth story very early but still getting a great yield to wait.

But getting to AD, after I discovered DIV and everyone was calling it an early Alaris I gave Alaris a look. I liked it and started a position (much smaller though than DIV). I like how many royalty streams they have, like you said any one company getting into trouble won't hurt them that much. I think the price weakness is partly because of the market, partly because of fear of some of the companies. But at this price I have been watching it and consider it on my buy list (that list far exceeds the money I can invest though).


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## doctrine (Sep 30, 2011)

Alaris is in the doghouse because one of their investments, KMH, in which they put $50M, hasn't paid a cent in nearly a year. A quarter ago, they wrote it down by $2M and then last quarter they wrote it down by $20-30M which caught a lot of people by surprise. Their dividend is sustainable without the KMH, but I think some investors aren't pleased they dumped that much money down the drain. It remains to be seen how much of their $50-60M investment they recover. Again, while the dividend looks sustainable without it, the company would be doing that much better otherwise. They need to put it behind them.


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## jaybee (Nov 28, 2014)

doctrine said:


> Alaris is in the doghouse because one of their investments, KMH, in which they put $50M, hasn't paid a cent in nearly a year. A quarter ago, they wrote it down by $2M and then last quarter they wrote it down by $20-30M which caught a lot of people by surprise. Their dividend is sustainable without the KMH, but I think some investors aren't pleased they dumped that much money down the drain. It remains to be seen how much of their $50-60M investment they recover. Again, while the dividend looks sustainable without it, the company would be doing that much better otherwise. They need to put it behind them.


This ^

Myself, I bought a bunch today. I like the management, and I like the royalty model.


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## leeder (Jan 28, 2012)

doctrine said:


> Alaris is in the doghouse because one of their investments, KMH, in which they put $50M, hasn't paid a cent in nearly a year. A quarter ago, they wrote it down by $2M and then last quarter they wrote it down by $20-30M which caught a lot of people by surprise. Their dividend is sustainable without the KMH, but I think some investors aren't pleased they dumped that much money down the drain. It remains to be seen how much of their $50-60M investment they recover. Again, while the dividend looks sustainable without it, the company would be doing that much better otherwise. They need to put it behind them.


Yeah, I saw this story in their earnings release. Still feel it doesn't deserve the doghouse. That said, they may need to strengthen its due diligence processes to avoid future KMH incidents.


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## CPA Candidate (Dec 15, 2013)

I think the main issue is the quality of some of their investments. They invested in Sears Home Services and they went bankrupt quickly, and as mentioned, KMH is in trouble.

As an investor, you really don't know about these things until it is too late. Prefer DIV - you actually get to see the financial statements of the companies they get royalties from.


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## namelessone (Sep 28, 2012)

I have 2% of portfolio in AD.TO. It has good track record and good management. Small mistake is not a long term problem. Even Warren Buffett made mistakes. 
As for DIV.TO, I don't have 15 years to waste.


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## londoncalling (Sep 17, 2011)

namelessone said:


> As for DIV.TO, I don't have 15 years to waste.


Not sure what you mean by this. Care to expand?


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## tkirk62 (Jul 1, 2015)

namelessone said:


> I have 2% of portfolio in AD.TO. It has good track record and good management. Small mistake is not a long term problem. Even Warren Buffett made mistakes.
> As for DIV.TO, I don't have 15 years to waste.


I would also like to know why DIV is going to waste 15 years of your life?


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## namelessone (Sep 28, 2012)

RE: DIV.TO

I am believer of history likely to repeat itself. Its stock went nowhere for the past 15 years. It's like a business hiring new employee. They want to know the employment history for a reason. They want employee with good history.


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## tkirk62 (Jul 1, 2015)

DIV is a completely different business now. They switched their business model to the royalty business back in September(?) I think. Whenever the stock chart takes that big jump last year. To say the company has done nothing for 15 years is to be seriously misinformed.

The CEO of DIV has been very successful in this sector for a long time. The three companies they have royalties for you and I can go to the businesses tomorrow because they are large, successful in Canada and we have access to their financial information. I'm not saying it's better than Alaris (although I do believe that) but you're writing it off for a terrible reason. The history of Diversified is about one year long. To use your analogy you are not using their employment history, your using their parent's employment history when everyone else knows that it's irrelevant.


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## namelessone (Sep 28, 2012)

I am extremely picky because I try to limit total numbers of stocks to 30 to 40. I already have 30 stocks. 
I am not saying DIV won't succeed in the future. 
If a business didn't go anywhere for more than 5 years and suddenly explode, I still won't buy it. e.g. Linamar Corporation(TSE:LNR)
I like to own businesses which consistently grow for the long term because I want to buy and forget. This method generates predictable and satisfactory return in the long term.


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## tkirk62 (Jul 1, 2015)

I had typed a long response to try to show you Diversified is not what you think it is and you need to do better research, but I can see there's no point. And I apologize for making this Alaris thread about DIV too much. I figured you liked the royalty business model and were interested in what others thought was an excellent opportunity with the same model as Alaris. My apologies for the misunderstanding. 

I wish you luck with your Alaris investment.


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## kbwcan (Dec 30, 2015)

*I like both companies*

I became unemployed about three months ago. Explored putting my 401 into an annuity, but thinking if I can get a few of these Canadian dividend companies into my portfolio will have what I need with a reasonable potential to grow. I'm going to double my DIV to 5,000 shares and probably open a small position in Alaris. I like healthcare alot and see where Alaris's income and holdings are 43% healthcare.


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## new dog (Jun 21, 2016)

This stock has taken a good beating in the last few days after earnings. I have bought a small position in it a day ago. Maybe they are thinking cutting the dividend thus the hammering has continued longer then I expected it to. They have had the failure of KMH described upthread as well as this latest earnings concerns.


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## doctrine (Sep 30, 2011)

I've owned Alaris a few times off and on, but I wouldn't go back in now. In addition to KMH, they have several other companies who have not paid revenue this quarter - thus their cash flow is down. But revenue isn't, since it's in accounts receivable. However, they also wrote down the Kimco investment - despite actually investing into Kimco this year. That means they've invested money then written it off right away. This is potentially to give them money to solve problems that allow them to pay back later - after they've already given them money for other problems. 

Their business model may not be sustainable, given how much they demand for their money - usually 15% a year. High quality companies can get money for less than 15% a year. Their original investment in LifeMark was a screaming success, but there just might not be 15-20 companies similar to them.

Meanwhile, KMH has been hanging over them since last year and they still haven't gotten any money back. Their debt has crept up as well and they need the KMH money to avoid having to issue equity this year. Management has some issues to sort out and that comes with a re-pricing of the stock.


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## new dog (Jun 21, 2016)

Price is down and concerns are up, for sure so it is a risk, reward scenario in the short term.


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## hollyhunter (Mar 10, 2016)

ALARIS ROYALTY CORP. (AD.TO) Technicals are showing great signs of upside potential. Six months target: 32.29.


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## gibor365 (Apr 1, 2011)

Some time ago I was debating between AD and DIV ... at the end bought DIV... Watching AD now...may buy into different account or add to DIV instead...


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## GalacticPineapple (Feb 28, 2013)

gibor365 said:


> Some time ago I was debating between AD and DIV ... at the end bought DIV... Watching AD now...may buy into different account or add to DIV instead...


I've been looking at AD and DIV for a little while. With DIV you're buying Sutton, Mr Lube and a mountain of cash. With AD you're buying 15 active revenue streams with the KMH already written down. Thinking I might start a small position in AD and then wait and see what DIV does with their cash.


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