DirectCash Payments Inc.

On my other blog I am today writing about stocks I looked at more closely in my monthly update continue...

Sound bite for Twitter and StockTwits is: Probably cheap, but risky. I think that the dividend is at risk as the company cannot cover the dividends with earnings, but can with cash flow. The current debt ratios make the company vulnerable. See my spreadsheet at dci.htm.

I do not own this stock of DirectCash Payments Inc. (TSX-DCI, OTC-DCTFF). I wanted to review stocks touted in the 2009 Money Show. There was a lot of talk at this show about some of the Unit Trusts being currently good buys with very good yield. This is one stock that was recommended.

This ex-income trust company is having a hard time. A lot of the ex-income trust companies are having a hard time. This is one of the ex-income trust companies that did not cut their dividend. However, they are currently not earning enough to cover their current dividend.

The dividend is currently quite high. The dividend growth has been quite low. The Dividend Payout Ratios are too high for EPS. The current dividend yield is 10.75% based on dividends at $1.44 and stock price of $13.40. Dividend yield has been growing because the stock price has been dropping. The 5 year median Dividend Yield is lower at 6.57%

The dividend growth over the past 5 and 9 years is at 0.3% and 4.1% per year. The last dividend raise was in 2014 and it was a 4.3% dividend raise. The DPR for EPS for 2014 was 667% and the 5 year median is 300%. Problem is that analysts expect an earnings loss this year and next year. The DPR for CFPS is better with the DPR for CFPS in 2014 at 37% and the 5 year median at 41%. So they still can cover dividend with cash flow.

The outstanding shares have increased by 7.1% and 5.8% per year over the past 5 and 10 years. Shares have increased due to share issues. Revenues growth is good. Earnings growth is non-existent to good. Cash Flow growth is good.

Revenue per share is up by 15.2% and 15.8% per year over the past 5 and 10 years. EPS is down by 29.4% over the past 5 years. EPS peaked in 2011 and has been low ever since. Ten years ago the company has had an earnings loss so EPS has grown at 7766%. Using 5 year running averages EPS has grown at 18.5% and 39.9% per year over the past 5 and 6 years. Cash Flow per Share is up by 11% and 11.2% per year over the past 5 and 10 years.

Debt ratios are not very good. The Liquidity Ratio is 0.75 for 2014. This means that current assets cannot cover current liabilities. If you add in Cash Flow after dividends the ratio is 1.29. The Debt Ratio is 1.33 for 2014. I prefer both these debt ratios to be at least 1.50. The Leverage and Debt/Equity Ratios are high at 4.03 and 3.03. When debt ratios are not good, this makes a company vulnerable, especially in the bad times.

There is some insider ownership with CEO owning shares worth some $51.5M and this would be around 15% of the outstanding shares. Over the past year there was mostly insider buying with net insider buying at $121K. This is 0.05% of the market cap and therefore relatively high amount.

The 5 year low, median and high median Price/Earnings per Share Ratios are 43.07, 48.91 and 54.76. The corresponding 10 year values are 51.62, 63.16 and 75.93. These ratios are way out of line for this stock. Also, the current and next year's P/E Ratios are negative. I cannot not use any of this to test stock's price.

I get a Graham Price of $4.90. The 10 year low, median and high median Price/Graham Price Ratios are 2.18, 2.46 and 2.85. These values are way out of line for such a stock as this. The current P/GP Ratio is 2.73 based on a stock price of $13.40. This is below the top 10 year ratio and suggests that the stock's price is in a reasonable range, but over the median price. This also is not a good test for this stock.

I get a 10 year Price/Book Value per Share value of 2.52. The current P/B Ratio is 2.63 a value only some 4.4% above the 10 year ratio. The P/B Ratio is based on BVPS of $5.09 and a stock price of $13.40. This stock price suggests that the stock's price is in a reasonable range, but over the median price. These P/B Ratios are also quite high. Of the stock that I cover, the median P/B Ratio 1.82 and 70% of the stocks have a ratio of 2.09 or below.

The current Dividend Yield is 10.75% based on dividends of $1.44 and a stock price of $13.40. The 5 year median dividend is 6.57% and some 63% lower than the current dividend. The historical median dividend yield is 7.56% and this is some 42% lower than the current dividend yield. This stock price test suggests that the stock price is reasonable.

This historical high dividend yield is 21% and this is 49% higher than the current dividend yield. So this just makes this high yield give a reasonableness rating. Also, I have a problem with this test because the company cannot afford the dividends it is paying and I think that the dividends are at risk.

The 10 year median P/S Ratio is 2.03 and the current P/S Ratio 0.87. The current P/S Ratio is based on 2015 Revenue Estimate of $272M and a stock price of $13.40. The current P/S Ratio is some 33% lower than the 10 years median ratio. This stock price testing suggests that the stock price is relatively cheap. I see no problem with this test. The 10 year P/S Ratio is high, but the current one is quite low.

The 10 year Price/Cash Flow per Share Ratio s is 7.36 and the current P/CF Ratio at 4.17 is some 43% lower. This ratio is based on cash flow over the past 12 months to the end of the first quarter and a stock price of $13.40. There are no estimates available. This stock price testing suggests that the stock price is relatively cheap. I see no problem with this test.

When I look at analysts' recommendations, I find Buy and Underperform recommendations. The consensus would therefore be a Hold. The 12 month consensus target stock price is $20.60. This implies a total return of 64.48% with 10.75% from dividends and 53.73% from capital gain. This does not really accord with analysts' recommendations.

I will have only one entry for this stock as I must do on some stock because I cover too many stocks to do double entries on all that I follow.

DirectCash is the leading provider of ATMs, debit terminals, prepaid phone cards and prepaid cash cards in Canada. They have built a substantial technological, sales and service infrastructure that enables them to offer convenient and secure revenue streams for businesses across the country. DirectCash operates in Canada, the United States and Mexico.. Its web site is here DirectCash.

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. I do research for my own edification and I am willing to share. I write what I think and I may or may not be correct.

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