Stingray Group (TSE:RAY.A), a Canadian music, media, and know-how firm that gives audio tv channels, radio stations, SVOD content material, 4K UHD tv channels, and extra, not too long ago rebounded from an earnings miss that noticed the inventory slip over 11% on November 9. Earnings per share (EPS) got here in at C$0.15, lower than the C$0.20 consensus. Additionally, income of C$77.6 million got here in C$2 million below expectations. Regardless of the inventory’s rebound, it nonetheless yields a really beneficiant 6%, and it appears like a comparatively protected 6% regardless of the corporate’s excessive debt stage.
Let’s analyze Stringray’s profitability, progress, and dividend security.
How Worthwhile is Stingray Group?
Up to now 4 quarters mixed, Stingray reported C$0.42 in EPS. For a C$4.95 inventory, that’s fairly good. Its free money circulate in the identical interval is C$67.4 million, or C$1.05 per share – much more spectacular. Moreover, administration famous that it expects the corporate to generate about C$70 million of free money circulate this 12 months, and Stingray has been persistently worthwhile on a free-cash-flow foundation since a minimum of 2013 (way back to the information goes).
Concerning its progress, Stingray’s income is anticipated to develop by 12.4% in Fiscal 2023 (ending March 2023) and by 4% the next 12 months. Earnings progress estimates for 2023 are -0.7% however are anticipated to rebound by 16.4% in 2024.
Is Stingray’s Dividend Protected?
Some high-yield shares are misleading as a result of these excessive dividends will be lower if the corporate in query is just not in fine condition. The great factor is that Stingray’s dividend does look protected. Its free-cash-flow payout ratio is a low 31.1%, which means that solely 31% of the corporate’s free money flows are paid out as dividends. This leaves loads of room for Stingray to lift its dividend if it desires to sooner or later.
On condition that the corporate is anticipated to nonetheless be worthwhile within the subsequent two years, we reckon that its dividend is wholesome. Nevertheless, there may be one factor to contemplate – its excessive debt stage.
Why Stingray’s Excessive Debt is Manageable
Buyers might change into cautious once they see a C$344 million firm with virtually C$394 million in debt (and solely C$15.4 million in money). Nevertheless, we imagine that its debt ranges are within the protected zone for just a few causes. First, the corporate’s trailing-12-months curiosity protection ratio is 3.4x, which means that it was in a position to cowl its curiosity funds 3.4x over. Additionally, administration said its intention to cut back its debt load utilizing its free money circulate.
Due to this fact, it’s attainable that dividend progress and buybacks are going to be placed on maintain till debt comes down. Nonetheless, it is a prudent transfer from administration, particularly in a higher-rate atmosphere.
Is Stingray Group a Good Inventory to Purchase, In accordance with Analysts?
In accordance with analysts, RAY.A inventory is available in as a Sturdy Purchase based mostly on three unanimous Purchase scores. The typical Stingray inventory value goal is available in at C$6.67, implying 34.75% upside potential.
Conclusion: Stingray Could possibly be a Stable Revenue Inventory
Stingray inventory may very well be stable for revenue buyers. The corporate even does buybacks, boosting shareholder returns. Its 6% dividend is properly coated and has room to develop after the corporate deleverages its stability sheet. The corporate is persistently worthwhile and makes sufficient cash to cowl its curiosity funds. To high it off, all three analysts that cowl the inventory are bullish, giving it excessive upside potential.
