TSX Commentary » RONA Inc.

RONA Inc. RON There Is Light: Q4/09 Better Than Expected

admin — Fri, 26 Feb 2010 15:44:53 +0000

RONA Inc. (RON): $15.72 – There Is Light: Q4/09 Better Than Expected
Sector Perform, Average Risk, Price Target: $18.00
RONA reported Q4/09 EPS of $0.24 (-4%), above RBC CM’s forecast of $0.19 and consensus $0.20. Most notably, however, same store sales were positive in the quarter, a marginal +0.7% with trends building through the quarter and continuing into January/February of this year. While overall 2010 is looking to be a far better year than 2009, RBC CM remains somewhat cautious as consumer surveys, including an RBC-Ipsos Reid study done last fall, suggest that consumers moved forward longer term renovation plans to 2009 in order to take advantage of the tax credit, and that renovation intentions for 2010 were lower than in prior years. Subsequent to yesterday’s release RBC CM revised upward its forecasts on RONA to reflect the turnaround in same store sales; on average our 2010/11 forecasts increased by 5% to $1.30 and $1.42.

RONA RON Implications of the HRTC

admin — Wed, 03 Feb 2010 17:20:04 +0000

Veritas Research: RONA (RON) – $15.55 – Implications of the HRTC
Veritas believes that the Home Renovation Tax Credit had two major implications: reported revenue increases at home improvement retailers such as Rona are likely a result of a one time jump and, as such, are not sustainable. During Rona’s investor day on January 25, 2010, Rona reported that customers spent over $130 million on registered projects (under the Rona Advantage plan), approximately 2.8% of consensus 2009 revenue of $4,657 million. Rona also disclosed a 15% increase in ‘installed’ sales. According to a ResMor Trust Company news release dated April 2009, 70% of Canadian homeowners planned to renovate their homes prior to HRTC’s end. Of those, 39% claimed that their decision to renovate was driven by the HRTC program. This implies that of Rona’s $130 million in registered project, $51 million dollars represented an increase in spending as a result of the HRTC, approximately 1% of forecasted 2009 revenues. Excluding the impact of HRTC, this implies RONA’s sustainable growth rate is about 1.8%, in line with management’s expectation of 2% same store sales growth going forward.

RONA Inc. RON Outlines Its “New World” – Review of 2010/2011 Strategic Plan; Outlook unchanged

admin — Wed, 27 Jan 2010 17:59:06 +0000

RONA Inc. (RON) – $16.62 – Outlines Its “New World” – Review of 2010/2011 Strategic Plan; Outlook Unchanged
Sector Perform, Average Risk, Price Target: $17.00
RONA hosted a well-attended investor day in Toronto yesterday and provided details around Phase 2 of its 2008-2011 strategic plan. As we move into 2010/2011, RONA is focused on accelerating growth, although given the economic backdrop RBC CM expects growth to be back-end loaded. Management has set a target of increasing market share from its current estimated
17.5% to 20% over the 2010-2011 period, which implies over 100 bps of annual market share growth. Growth should come from a combination of improving sales from the existing network, along with modest new store additions, but the key element is likely consolidation of the 55% of the market that still lies with independents and private chains. While the step-up in dealer recruitment activities is anticipated to drive better return on capital employed, it is also likely to put downward pressure on consolidated profitability due to more rapid growth in profitability from the distribution function. But the impact of lower margin growth assumptions is offset by lower capex and D&A. RONA is currently trading at 13.5x RBC CM’s 2010 EPS forecast of $1.23, essentially consistent with the long-term 20% relative valuation discount to the average of LOW and HD. At this time, RBC CM is maintaining its 13x P/E multiple on RONA, in line with the current trading multiple but below the normalized range due to lack of visibility in forecasts related to uncertainty over the pace of the economic recovery. Applying this multiple to RBC CM’s mid-2011 EPS estimate of $1.29 generates a price target of $17 (unchanged). RBC CM maintains its Sector Perform, Average Risk rating.