Thursday, January 19, 2012

DirectCash Payments Inc

I do not own this stock (TSX-DCI). I started to follow this stock as it was one that was recommended at the Toronto Money Show of 2009. A number of speakers were talking about Income Trust and ones that will do well when they were converted to corporations. It was again recommended at the Toronto Money show of 2010. This company converted to a corporation in 2011.

This company has done quite well. First on the dividend front, they have not decreased or increased their dividends since 2007. The dividend yield has been coming down, which was expected for old income trust companies. The dividend yield is still good at 6.77%, although the 5 year median dividend yield is higher at 10%.

They are also bringing down their Dividend Payout Ratios, which is important now that they are a corporation. The DPR ratios for 2010 were 76% and 60% for earnings and cash flow. Unfortunately, the EPS is expected to be lower this year and the DPR for earnings is expected to be over 100%. However, the DPR for cash flow is expected to be fine. (See my site for information on Dividend Payout Ratios).

This company was just stated as an income trust in 2004. I only have financial information going back 5 years. Since the final financial statements are not in, I have growth figures only to the end of 2010. Most of the growth figures are very good. This is especially true of revenue per share which has grown at the rate of 16.6% per year over the past 5 years.

The EPS growth is also good, having grown at the rate of 81.5% per year over the past 5 years. Please note that EPS is expected to be lower in 2011 than it was in 2010. Growth in cash flow is at 9.4% per year over the past 5 years. The only one that is not good is Book Value growth and that has been a negative 2% per year over the past 5 years. However, little or no growth in book value occurs often on income trust companies, so this is not surprising. They had their first increase in book value in 2010.

I have total return to the end of 2011 as information on dividends paid and stock price to the end of 2011 is available. The total return on this company over the past 5 years is around 14% per year, with 8.5% of this total return attributable to dividends.

The current Liquidity Ratio at 0.99 is ok, but this ratio has a 5 year median of just 0.71. The Asset/Liability Ratio has always been very good at a current ratio of 2.12 and 5 year median ratio of 2.06. Both the Leverage and Debt/Equity Ratios are fine with current ones at 1.89 and 0.89.

When I look at insider trading reporting, I find some insider buying and some insider selling. However, over the past year there has been net insider buying of $1.1M. There is little insider selling. There are no stock options. The CEO owns some 17% of the company, worth some $48M. There are 12 institutions that own around 26% of this company. Over the past 3 months they have increased their holdings by 14%. There have been no sales of shares by institutions over the past 3 months.

I get 5 year median low and high Price/Earnings Ratios of 15.83 and 19.18. The current P/E Ratio of 17.26 is around the 5 year median and so shows a reasonable price. I get a Graham Price of $12.65, so the current stock price of 20.37 is some 60% higher. However, the low difference between the Graham Price and the stock price is the stock price being 103% higher. This also shows a relatively reasonable stock price. Fast growing companies often trade above the Graham Price.

The 5 year median Price/Book Value Ratio is 2.07 and the current one of 3.32 is some 63% higher. Also a Price/Book Value Ratio of 3.32 is rather high. However, this is to be expected as book value has been falling. The last test is the dividend yield test. The current yield of 6.77% is good, but it is lower than the 5 year median of 10%. However, this is also to be expected as the dividend yield has been coming down on all companies going from Income Trusts to corporations.

Until 2009, the Return on Equity for this stock was very low. The one for 2010 is 29.2%, but the 5 year median is 3.2%. The ROE for 2011 is expected to be very good also. The reason it was low in prior years is that they were not make much money before 2009.

When I look at analysts’ recommendations, I find Strong Buy, Buy and Hold. The consensus would be a Buy. One analyst with a buy recommendation says that the company is not a desk pounder at this point, but it has a nice distribution and Payout Ratios are not that high. Another analyst says it is the largest operator of independent ATMs.

DirectCash does not seem to be in the payday loan business, but they have customers in this business. The majority of the customers for DirectCash's prepaid cards are payday loan and cheque cashing companies. DirectCash has a payday loan customer which accounts for over 29% of DirectCash's overall revenues. This is a risk factor. Losing one big customer or client can severely damage a company’s finances. This is what happened to Cinram that I reviewed yesterday.

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. Over 40% owned by Gallacher family. Its web site is here Metro. See my spreadsheet at dci.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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