Yesterday on BNN’s Market Call, one of my top picks was Arbor Memorial (ABO.B on Toronto). Arbor owns about 132 cemeteries and funeral homes across eight provinces. We like Arbor for a number of reasons. Its business is recession resistant, it pays a healthy dividend and recently raised it 600% and the company is trading at a deep discount to its historic price earnings multiple. On the show, the host, Howard Green, told me that he heard this story with the Loewen Group which famously tried to become the largest funeral home and cemetery operator in North America before filing for bankruptcy in 1999. There is a huge difference between Arbor and Loewen. Arbor has a pristine balance sheet while in its heyday Loewen was leveraged to the hilt.
A quick look at Loewen’s last balance sheet as of March 1999 shows a debt to equity level of 2.5 times. This means that Loewen’s debt was 250% greater than the value of its equity. Arbor’s current debt to equity ratio is .25 times. That means its current debt level is only 25% of the value of its equity. Arbor has a very conservative level of its debt on its balance sheet; some may consider Arbor to be under levered. As value investors, price earnings ratios and dividends matter but never ignore the balance sheet.
