The Facts (as of June 19, 2010)

Unit price: $8.40. Book value per unit: $7.52. Market cap: $100 million (small). Distribution: $0.0655 per month or $0.786 per year. Yield: 9.36%. P/E ratio: 5.3. Payout ratio of 60%. Debt to equity: 0.63.

The Story

The Fund owns 85% of Richards Packaging Inc. the leading packaging distributor in Canada, and third largest in North America. Richards Packaging is a full-service packaging distributor targeting small- and medium-sized North American businesses. Richards Packaging has operated for over 95 years and currently serves over 10,000 regional food, wine and spirits, cosmetic, specialty chemical, pharmaceutical and other companies from 20 locations throughout North America.

Since issue at $10.00, the unit price was relatively stable between $8.50 and $12.00. Then, in the crash of 2008, the distributions were stopped and the unit price fell to under $3.00. Since then, the unit price has recovered to over $8.00 while distributions were reinstated at a reduced rate. It seems that management was prudent with the company’s resources and that they have prepared for the new taxation to begin in 2011. Earnings have been strong, as customers are replenishing inventory. Management has invested cash on hand into production, which is expected to result in even stronger sales.

Pros

Not widely followed by investment analysts. Trades at a valuation consistent with a private company. Low payout ratio will probably allow it to maintain distributions after it becomes taxable in 2011. Distributions were stopped during the market crash, then restarted at $0.07 instead of $0.09. Debt is being reduced and sales are stronger than last year.

Cons

Very illiquid. Less than $100,000 trades in a typical day and there are very few transactions. Earnings are vulnerable to exchange rate fluctuations, since approximately half of operations are in the US.

Impression

The company seems to be positioned to recover along with the economy. With a yield over 9%, an investor is paid to wait. There is also potential for gains, if the units recover to $10.00.

Richards Packaging RPI.UN

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