Monday, May 9, 2011

Enghouse Systems Ltd

This company (TSX-ESL) is another small tech firm. This stock has been recommended by Keystone Financial Publishing as a good Small Cap tech stock with dividend. For their website, see Keystone Publishing. As far as I can see, Keystone Publishing tends to recommend stocks for the short term, rather than for long term buy and hold investors.

This company has just started to pay dividends in 2008 and the yield is quite low at 1.98%. This is the highest yield so far for this stock. The other thing to say about the dividends is that they have increased them quite nicely so far. The latest increase, which was in 2011, was for 25%. The other good thing about the dividends is the payout ratios. The Payout Ratio on Earnings has been around 37.5% and the Payout Ratio on Cash Flow has been around 17.3%. Both these ratios are low and therefore quite good.

The best growth for this company is in revenues and cash flow. The 5 and 10 year growth in revenue per share is 14.5% and 11% per year, respectively. The 5 and 10 year growth in cash flow has been 13% and 8% per year, respectively. Both these are important for the company’s long term growth.

However, other growth has not been as good. The 5 and 10 year growth in EPS is 13% and 2.6%. The 5 year growth is good, but the 10 year growth is quite low. The 5 and 10 year growth in Book Value is 3.2% and 6.7%. Most importantly, this stock has not earned its investors much money. The 5 and 10 year growth in total return is 2.4% and 5% per year, respectively. I do not expect much for the last 5 years, but I would think that over the past 10 years the return would be better than 5% per year. Dividends would be less than 1% of the total return, so they do not factor into this much.

The one area that this stock shines is in debt ratios. The current Liquidity Ratio and Asset/Liability Ratio are very good at 2.28 and 2.92 respectively. For these ratios, a good ratio is 1.50 and above. The other debt ratios of Leverage and Debt/Equity are also good, and currently are at 1.52 and 0.52. The company does not have much debt.

I guess the last thing to talk about is the Return on Equity. The ROE has been quite low over the past few years and has recently increased to a decent 8.5% at the end of the last financial year end at October 2010. The ROE over the past 12 months, ending in the first quarter of 2011 in January 2011, is a bit better at 8.7%. The 5 year median ROE is rather low at 5.8%.

This also looks like an interesting stock. Tomorrow, I will look and see what the analysts say about it.

Enghouse Systems Limited is a global provider of enterprise software solutions serving a variety of distinct vertical markets. Its strategy is to build a large diverse enterprise software company through strategic acquisitions and managed growth. Its web site is here Enghouse. See my spreadsheet at esl.htm.

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. See my website for stocks followed and investment notes. Follow me on twitter.

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