Is Noront Resources Ltd’s (CVE:NOT) CEO Salary Justified?
Leading Noront Resources Ltd (TSXV:NOT) as the CEO, Alan Coutts took the company to a valuation of CA$123.77M. Recognizing whether CEO incentives are aligned with shareholders is a crucial part of investing. This is because, if incentives are aligned, more value is created for shareholders which directly impacts your returns as an investor. I will break down Coutts’s pay and compare this to the company’s performance over the same period, as well as measure it against other Canadian CEOs leading companies of similar size and profitability. See our latest analysis for Noront Resources
What has NOT’s performance been like?
NOT can create value to shareholders by increasing its profitability, which in turn is reflected into the share price and the investor’s ability to sell their shares at higher capital gains. Most recently, NOT produced negative earnings of -CA$15.72M , which is a further decline from prior year’s loss of -CA$9.98M. Furthermore, on average, NOT has been loss-making in the past, with a 5-year average EPS of -CA$0.076. In the situation of unprofitability the company may be facing a period of reinvestment and growth, or it can be a signal of some headwind. Regardless, CEO compensation should be reflective of the current state of the business. From the latest financial report, Coutts’s total remuneration dropped by a minor -0.79%, to CA$568.16K.
Is NOT overpaying the CEO?
Though no standard benchmark exists, since remuneration should account for specific factors of the company and market, we can gauge a high-level yardstick to see if NOT deviates substantially from its peers. This outcome can help direct shareholders to ask the right question about Coutts’s incentive alignment. Generally, a Canadian small-cap is worth around $345M, produces earnings of $24M, and pays its CEO circa $770,000 per year. Normally I would use earnings and market cap to account for variations in performance, however, NOT’s negative earnings lower the effectiveness of this method. Looking at the range of compensation for small-cap executives, it seems like Coutts is remunerated sensibly relative to peers. On the whole, even though NOT is unprofitable, it seems like the CEO’s pay is reflective of the appropriate level.
Next Steps:
Board members are the voice of shareholders. Although CEO pay doesn’t necessarily make a big dent in your investment thesis in NOT, proper governance on behalf of your investment should be a key concern. These decisions made by top management and directors flow down into financials which impact returns to investors. If you have not done so already, I urge you to complete your research by taking a look at the following:
Governance: To find out more about NOT’s governance, look through our infographic report of the company’s board and management.
Financial Health: Does it have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
Other High-Growth Alternatives: Are there other high-growth stocks you could be holding instead of NOT? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned.
