Pason Systems Inc

On my other blog I am today writing about taxes ...continue...

I do not own this stock Pason Systems Inc. (TSX-PSI, OTC-PSYTF). I read a report on this stock in the Buy and Sell Advisor in September 2013. I had not heard of this dividend growth company before. The article said that they did not advise buying at the present as the stock price was currently too high. However, stock prices will not always be too high, even on great stocks. See MPL Communications site if you want to get this email.

The first thing I looked at, of course, was the dividends. The company's site gave information on all dividends paid, so this made it easy. The dividends started in 2003, so the dividend growth in the last 5 and 9 years is at 21% and 29% per year. The last dividend increase was for 8.3%, however, for the year the increase is 18.2%.

There appears on my spreadsheet to be a dividend decrease in 2014, but this is not true. The problem was the company was switching from semi-annual dividends to annual dividends. In 2013 shareholders got one semi-annual dividend and 3 quarterly dividends. The company declares the dividends in December, but they are paid in January. My spreadsheet follows what is actually paid in a given year; it does not show what is declared in a given year.

The next thing I looked at was to see if the company has been making money for its shareholders. Over the past 5 and 10 years the total return is at 8.61% and 21.37% per year with 2.06% and 2.28% from dividends and 6.55% and 19.09% per year from capital gains. This is good and pushes for further investigation.

Next I updated my spreadsheet for the annual report of 2012, the second quarterly report of 2013 and what analysts gave for estimates for 2013 and 2014. The first impression is that the company has not done well in 2013. There was in loss in 2013 and the main reason was the payment of claims against the company regarding a patents infringement lawsuit. Without this payment, earnings would have increased rather than be negative.

The other thing to note is that this company has a fairly strong balance sheet. The current Liquidity Ratio is 1.62. The current Debt Ratio is 2.91. The current Leverage and Debt/Equity Ratios are 1.52 and 0.52. Another interesting thing is that the company has a lot of cash. The cash on hand, at $2.38 per share is around 11% of the current stock price.

I have finished the spreadsheet as I think that this is a reasonable company to invest in. What is noteworthy is that growth in revenue has been quite good with growth over the past 5 and 10 years for revenue per share at 9% and 19% per year.

Growth in earnings and cash flow has not been very good, in fact they have declined over the past 5 years, but the 10 year growth is good. The decline, using 5 year running averages, for earnings is at 1.8% per year and for cash flow much worse at 12% per year. Growth over the past 10 year is good at 16% per year for earnings and 20% per year for cash flow.

The Return on Equity is good for 2012 at 10.8% and the ROE on comprehensive income is not far off at 10.1%. There is a problem for 2013 and earnings will be hit because patent settlement. Some $61M will be taken from earnings because of this for 2013. See my spreadsheet at psi.htm.

This is the first of two parts. Second part will be posted on Thursday, October 17, 2013 and will be here.

Pason is the leading global provider of specialized data management systems for drilling rigs. Their solutions, which include data acquisition, well-site reporting, remote communications, and web-based information management, enable collaboration between the rig and the office. Its web site is here Pason.

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 or StockTwits.