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Connors Bros. Income Fund announced yesterday that it is resuming monthly distributions to unit holders.
“As the uncertainty surrounding the recall dissipates and the fund is permitted to start making regular distributions again in March 2008, we believe unit price could increase…While it may prove overly optimistic to conclude that the fund returns to paying 11.25 cents per month in March, the mathematics are attractive even with half this amount” 2008 Wish List
With the fund targeting an annualized distribution rate of C$0.80 per unit (or a monthly rate of C$0.0667 per unit), the ‘mathematics’ of the business and the forward distribution yield of 10.7% are attractive. However, exactly how unitholders will respond to the distribution cut is not entirely clear. Moreover, it may be important to note that the company officially announced yesterday that a ‘strategic review of meats brands’ is underway, and that the costs associated with last years recall may not be fully booked just yet:
“The cost of the product recall, which is expected to be slightly higher than our initial estimate of US$35 million, is largely behind us…”
With distributions back in the picture the return profile for Connors Brothers is now considerably more attractive. The flipside is that the return of distributions means that there is no longer any potential catalyst for outsized unit price appreciation.
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