Richelieu Hardware is the largest distributor and importer of specialty hardware in Canada. The company has more than 70,000 customers in North America, including 81% manufacturers and 19% retailers. To distribute its 90,000 products, the network has 61 centers in North America (Canada & United States), including two manufacturing plants and three e-commerce websites targeted in various markets. The company is made up of nearly 1,600 people, 70 of whom are Richelieu shareholders!
My blogger friend Pierre-Olivier Langevin wrote two excellent analyses of Richelieu in 2010 and 2011. Not being in the habit of reinventing the wheel, I invite you to read his articles. Here is a small excerpt:
Richelieu's customer base is widely distributed, with its largest customer representing less than 10% of its sales. The same is true of the company's suppliers, with its 5 largest partners representing only 32% of its total merchandise purchases for 2009. This company, which operates in a highly fragmented market, relies on the proximity of its customers and its vast national distribution network to generate high-performance synergy in its sales that its competitors cannot achieve. (...) The famous investor Warren Buffett said a few years ago that "quality companies don't need debt to make high profits." Following our analysis, we are led to believe that this quote perfectly sums up the situation of Quincaillerie Richelieu.
Indeed, the debt to equity ratio is tiny, at only 0.01! On the other hand, the liquidity ratio stands at 4.26! This means that the company is very financially solid.
From a dividend perspective, RCH is not very generous since it offers a average yield of 1.58%, with an even lower current yield, at 1.38%. One might believe, looking at Richelieu's share price performance, that this paltry yield is due to the strong appreciation of the stock since 2009. However, despite this, the price/earnings ratio still remains at acceptable levels, at 16.52. This means that the Canadian company is following a deliberate strategy of paying its dividend very prudently, which is supported by a distribution ratio of only 22.90. This confirms, with the almost zero debt and comfortable liquidity, Richelieu's particularly responsible management of its business.
The weakness of the yield is however balanced by a average annual growth appreciable of its distributions of the order of 12.89%.
On the risk side, the stock is not very sensitive to market variations, with a beta of only 0.47. Volatility is also reasonable, with 15.9% of relative standard deviation. Thanks to its reference currency, the CAD, and a not too significant exposure to the US market (15%), the $risk is almost zero. This means that the variation of the dollar against the CHF has practically no influence on the value in CHF of Richelieu.
Richelieu is part of my strategy Ex-US International ETFs and Dividend Stocks, which seeks to obtain a solid yield and good protection against monetary and market risks. On the latter point of view, it is well placed, with a low exposure to the US dollar and a low beta. As for the yield, it is solid in the sense that it is well covered by its profit, but still a little weak if one is looking for an annuity. For this reason, Richelieu is given only two stars, which is an average risk/return ratio. I would therefore keep it in my portfolio if I owned it, but I would not take a position in it at the present time.
Sources: http://www.richelieu.com/html/Fr/statique/profil.html http://www.journaly.com/2010/07/quincaillerie-richelieu.html http://www.journaly.com/2011/02/des-attentes-trop-elevees-pour.html http://finance.yahoo.com http://www.swissquote.ch/index/index_quote_f.html http://markets.ft.com http://www.dividendes.ch/Discover more from dividendes
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Also worth noting is the fact that Loewe is trying to buy Rona. If it succeeds, it could be a game changer in the Canadian market… For that reason alone, I would not risk buying this stock at the moment.
Thanks for your input Astyx 😉
I feel a sense of pride in seeing a Swiss investor interested in a company whose head office is right next to my home! I love Richelieu hardware and especially Richard Lord is one of the best business leaders in Quebec. However, what interests me most about this company is its US sales segment which is growing strongly thanks to the strong comeback of US real estate. Unfortunately, US sales only represent about 20% of the company's turnover and that is why I am not a shareholder. It is a good choice in the long term though.
Glad you like it Pierre-Olivier. Fortunately, quality companies are everywhere! I like to look at Canada because the CAD is historically relatively stable compared to the CHF, which is a big plus in my eyes. That's why, paradoxically, and unlike you, I think it's good that the company's turnover in the US is not too high. Even if it's true that the company will be forced to develop there sooner or later.
Furthermore, Lowe's has officially thrown in the towel regarding the acquisition of Rona and in any case, Richelieu counts both companies as its customers so I am not convinced that there would have been a major impact on RCH's results...
Ah? Thanks for that info. It's more interesting now. 🙂
A very good performance over the last few months and good results for 2012. Not having it in the portfolio, a correction would be welcome in order to accumulate some.
It's true that the price has skyrocketed recently. That's starting to make a lot of stocks go up in flames. How long the market will be able to keep up this pace is the eternal question...