Lets look a A&W Revenue Royalties (AW.UN) today. It trades on the TSX, for discussion and to determine the entry and exit points. Using P/E, CF/S and D/S.
By using the 3 historical ratios one can determine what the entry and exit positions should be. AW.UN has been a publicly traded company for the past 10 years and provides a range of food and beverage products.

Over the past 3 years AW.UN has had an average P/E trading range of 12.6 (high) and 9.2 (low). Over a longer term AW.UN had an average P/E ratio of 12.66(high) and 8.69(low) over the past decade. AW.UN has also had some wild swings in the past, for example P/E values in 2010 AW.UN had a high P/E ratio of 14.90 and a low P/E ratio 3.1 in 2007. With a current P\E of 9.9 it looks like AW.UN is on the bottom end of the price range. AW.UN has over time had an average annual Earnings growth of 12.72% (9 years). For the purposes of this analysis I am using the average of a 12% increase to determine what AW.UN should be valued at.

Knowing how to estimate future earnings you can determine the future share price. In this case AW.UN should earn about $2.36 in 2012 and using the average P/E the estimated trading range should be $29.78 (high) and $21.74 (low).

AW.UN is a dividend payer which it started paying in 2002. Over that time AW.UN has increased its dividend by 4.81% annually. Lets hope that the increases continue however I don’t see AW.UN  increasing its dividend in 2012. The dividend will remain at 1.402 per share which is paid monthly.
AW.UN’s dividend yield for the past 3 years range from 7.3 (high) to 9.96 (low). The past 10 years AW.UN had a yield range of 7.95 (high) to 13.22 (low) Currently AW.UN is paying a 6.61% based on its current price $21.18 which is below its historical averages.

Looking at the math side for the dividends and working it backwards the dividend would support a share price of $19.23 (high) and 14.10 (low)
Which makes the current price, look like an expensive buy at todays price.

Looking at the price per cash flow ratio (P/CF). AW.UN has increased it’s average CF/S by 7.86% over the past 9 years. AW.UN’s 10 year P/CF ratio is 12.24 (high) and 8.49(low) however the three year average gives a different picture. The current 3 year average is a slightly higher ratio of 12.74 (high) and 9.3(low). I would be looking at AW.UN as a matured company with stable revenues not as a start up or some other fast growing company.
This gives AW.UN a share price based on a cash flow of $27.78 (high) and $20.30 (low). With todays price of $21.18 it appears to be at the lower end of value based on this price. CF/S for 2012 is estimated to be $2.18 per share.

To sum it up: current price $21.18
P/E bottom of the price range $21.74
D/S is over its top Price range $19.23
CF/S is above its lowest estimated price range $20.30

In short wait for the summer to pick up this stock or wait till it lowers its self so the the dividend yield is closer to 8.5% mark or more.

AW.UN is not option traded at this point and the Dividend is not favoured by the Canadian tax department (CRA) so look for adding this company to your RRSP or TFSA vs your standard trading account.

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