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Is Coast Wholesalers An Indicator Of Housing Starts?

07/23/09 08:22:54 AM
by Koos van der Merwe

Coast Wholesale Appliances Income Trust has been a disaster almost from the start of its listing, and yet it is a viable profitable business. Why then its poor performance?

Security:   CWA.UN-T
Position:   Accumulate

Coast Wholesale Appliances Income Fund (referred to as the fund) indirectly owns 65% of Coast Wholesale Appliances LP (referred to as Coast), a leading independent supplier of major household appliances based in Vancouver, BC. Coast sells to developers and builders of multifamily and single-family housing, and to retail customers across western Canada and in the greater Toronto area. It does not sell into the United States, yet a look at its chart since its initial listing does tell us something.

The fund was listed as an unincorporated, open-ended limited purpose trust, via an initial public offering of 6,525,000 trust units, completed June 23, 2005. The listing price was $10, with cash distributions dependent on the performance of Coast Wholesalers, paid monthly. It trades on the Toronto Stock Exchange under the symbol CWA.UN

FIGURE 1: CWA, WEEKLY. This chart shows an RSI buy.
Graphic provided by: AdvancedGET.
Figure 1, a weekly chart, shows how the price opened at $9.99 on June 24, 2009. It shows the price immediately fell to $6.50 and then rose to $11.25 by June 2007 as sales improved when the company opened branches in Ontario. The stock price fell dramatically to a low of $1.65 by March 2009 as the construction of new homes fell.

Do note how the relative strength index (RSI) gave a sell signal at the high of $11.25, and a divergence buy signal at $1.65. This suggests that sales or the expectation of improved sales by investors is increasing.

Interest paid monthly has been cut as the price dropped, but at the current price, the yield is a whopping 18.7%. Of course, the risk is that the company has the right to cut the dividend at any time, but with housing starts improving, resulting in improved sales, this could be unlikely.

FIGURE 2: CWA, DAILY. This chart suggests a future buy.
Graphic provided by: AdvancedGET.
Figure 2, a daily chart, shows the price bottoming at $1.65, with a rise to $3.86 and the present fall to $2.56. At this level, the price is testing the 38.2% Fibonacci level, and the RSI is close to giving a buy signal. With the present high yield and the share price looking interesting, one could risk a buy.

Of course, the tax implications on income trusts in Canada in 2011 has affected the share price of all income trusts and probably added to the fall of Coast Wholesalers Income Trust, but for its present high yield; then, of course, there's the fact that the housing market is stabilizing with new construction.

Koos van der Merwe

Has been a technical analyst since 1969, and has worked as a futures and options trader with First Financial Futures in Johannesburg, South Africa.

Address: 3256 West 24th Ave
Vancouver, BC
Phone # for sales: 6042634214
E-mail address:

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