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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: Prasad who wrote (39443)	9/28/2010 11:50:04 AM
From: Paul Senior	Respond to of 78572

CSUWF.pk. Welcome to the thread, Doctor. CSUWF.pk - interesting business model. Looks like they should have a moat -- gas lines to water heaters -- no competition there. Otoh, disconcerting that company has had to cut distribution. One wonders how conservative they are or were with their financials if a reduction had to be made. I guess company revenue growth going forward depends on growth in apartment/housing units and general inflation. For holding for the good distribution yield, I'll guess this small, sedate company with its niche business might work out okay. I'll pass though. For me, I just don't believe I have the patience now to stay in this just for the yield. (Yield being the attraction, I presume.) I continue to hold ENDTF.pk. Less yield, broader diversification, maybe just as dull. enervest.com (Aside: Small, sedate, niche, dull can be very good. My lack of patience and/or my lack of insight into the company could be the problem here.)

To: Prasad who wrote (39443)	9/28/2010 1:27:59 PM
From: E_K_S	Read Replies (1) \| Respond to of 78572

Hi Prasad Re: Consumers' Waterheater Income Fund (CWIF) cwif.ca This is an interesting business. The company trades on the Toronto stock exchange under the symbol CWI-UN.TO finance.yahoo.com The company makes monthly distribution which reflect 97% income (& 3% return capital for 2009) generated from the fund. 2010 monthly distributions are $0.054/month vs $0.10750/month paid in 2009. (NOTE: The Payout Ratio, after capital expenditures (excluding acquisitions and Sub-metering capital investment) was approximately 52% for the second quarter of 2010 compared to 117% for the same period in 2009.) Enbridge Services Inc. (The waterheater rental division) was spun off of Enbridge Inc. (ENB) and sold to Centrica Canada Limited in 2002. Long Term debt has been sold by The Consumer Waterheater Operating Trust w/ rates that range from 6%-7% to finance the operation of the waterheater rental business. The Consumer Waterheater Income Fund (CWIF) owns 100% of the Trust on behalf of fund unit holders. This structure appears to be a private venture (no guarantee by any governmental entity) but closely managed by an independent board of Trustees that overseas the investments and distributions made by CWIF. The stock is trading near it's lows at $5.00/share down from a high of $17.00/share in 2005. In September 2010 The Trust purchased the "smart metering" business Enbridge Electric Connection for $23.7 million . The Consumers' Waterheater Income Fund Announces Agreement to Acquire Enbridge Electric Connections Inc. finance.yahoo.com The new subsidiary will provision equipment and services under long-term contracts with customers to allow "smart" "sub-metering and remote measurement of electricity and water in multi-unit condominium complexes and apartment buildings in Ontario. The Fund expects the acquisition to be accretive to EBITDA(1) in 2011. They make a margin on services billed for "smart meters" installed (and as allowed by the utility regulators). The transaction approximately doubles the Fund's sub-metering business by combining the two largest non-utility sub-metering businesses in Canada. ======================================================================= The one big problem I have with this fund is that for foreign unit holders (ie U.S. owners) will have a 15% withholding placed on their distributions. Here is their most recent quarterly financials (Q2 2010): cwif.ca My back of envelope calculations shows a PE of 25x, 20% of expenses are interest expense and amortization of equipment reflect 55% of revenues. I assume that the meters and waterheaters have a short depreciation period maybe 7-10 years. Therefore EBITDA is actually pretty good at 80% of total revenues. This is still a debt intensive business with large notes due in 2013 and 2014 that will have to be rolled over. Not too sure how to value the company but they should be able to maintain their lower 2010 income distribution amounts of $0.054/month ($0.64/year) which reflects a yield of just under 13% at a market price of $5.01/share. There is growth potential in their new metering business which in 2011 will have regulations requiring "sub metering" for apartment buildings and condominium complexes in Ontario. Finally, a convertible debenture was funded in June 2010 providing more capital to the business. Debenture holders have the option to covert to units at a price of $6.48/share which is 30% higher from the current market price of $5.01/share. This conversion price would reflect a 10% yield for the income fund. EKS