The Facts (as of Sept 6, 2012)

Share price: $21.38. Book value per share: $7.27. Market cap: $240 million (small). Distribution: $0.12 per month or $1.44 per year. Current yield: 6.7%. Debt/equity ratio:0.73. Payout ratio 120%. P/E: 17.82.

The Story

A&W Revenue Royalties Income Fund owns the A&W trade-marks used in A&W quick service restaurants in Canada and  licenses these trade-marks to A&W Food Services of Canada Inc. in exchange for a royalty of 3% of the sales of 700 A&W restaurants in Canada

Pros

The company’s stock chart is impressive. It hardly lost value during the 2008 crash, after which it climbed steadily. The fact it retained its value implies a small group of devoted shareholders. The share price has been relatively flat lately, with a reasonable yield.

Cons

The accounting for this type of company is unlike many operating businesses. There are no tangible assets, so debt/equity ratio is less helpful. Book value is also based on intangibles, so it’s tricky to determine a margin of safety.

Impression

I don’t understand the company well enough to feel comfortable making an investment. I also don’t like the idea that the trade marks were spun off into a separate company (to take advantage of the income trust fad) from the operating restaurant business. Now that most income trusts have converted back to corporations, it will be interesting to see if A & W royalties merges with the restaurants.

A & W Revenue Royalties Income Fund AW.UN

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