Savvy Trades and Investments

[gilead23]

RTMAF/RTMNF thinking about use of capital

Any normal sane management team is going to be looking to do something with that cash hoard. These guys did used to carry a dividend, and historically they have done NCIB share buybacks.

They did about 40 million dollars in operating cash flow this quarter and less than a million in capex. I think the capex is on the low side but assume say 4 million is normal. That gets them to about 36 million of free cash flow or over 70 cents a share, and that's with some inventory build. Q3 under normal circumstances is likely to be as strong or stronger than Q2. They have no debt to pay off.

So they could be sitting on 1.25 or 1.50 in cash by then which could just about buy the whole company. Certainly something has to happen with that money.

I think they could easily support both a share buyback and a dividend. An NCIB to buy back 10% of the shares at current prices would leave you with enough cash to easily pay a 5 cent quarterly dividend. Over the next year they could do both and it would only cost them 15 million dollars of their current 40 million dollar cash hoard.

To that end I noticed they have a history of declaring share buybacks, and those are usually about 2 weeks after an earnings report. Here are the last 3 I found. Note the 2019 announcement for 15 million at 3 dollars a share. That would be even better, and with shares at half the price it was then would actually be a good use of capital as opposed to the stupid one in 2019.

Jun 17, 2019
Reitmans (Canada) Limited announces the repurchase of up to 15 million Class A non-voting shares at a purchase price of $3.00 per Class A non-voting share pursuant to a substantial issuer bid
Jun 3, 2019
Reitmans (Canada) Limited announces its results for the 13 weeks ended May 4, 2019

Dec 14, 2017
Reitmans (Canada) Limited - Press Announcement - Normal Course Issuer Bid
Nov 30, 2017
Reitmans (Canada) Limited announces its results for the three and nine months ended October 28, 2017

Dec 13, 2016
Normal course issuer bid
Dec 1, 2016
Reitmans (Canada) Limited announces its results for the three and nine months ended October 29, 2016

In all of these previous instances they announce a share buyback for the class A non-voting shares about 2 weeks after quarterly results. I have a hunch we will see some kind of similar pro-shareholder announcement in the next couple weeks. I just don't see any rational way you can't allocate some of that capital, and I think its more likely than not some of it goes to shareholders, and I think that would ignite the stock. It literally seems to be the cheapest thing I've ever seen. I've also preferred RTMAF over RTMNF. The A shares in Canada seem to have a lot more liquidity than the voting shares, and had been trading at a steep discount to the voting shares up until recently.