Wednesday, August 10, 2016

DirectCash Payments Inc.

Sound bite for Twitter and StockTwits is: Probably reasonable, but risky. I must admit I am not enamored with this company. They support Payday Loan companies which I do not like. I think that you need more than just cash flow and revenue. Call me old fashioned, but I do like to invest in companies that can make a profit. See my spreadsheet on DirectCash Payments Inc.

This company has been suited because they enabled The Cash Store Financial Services to charge more on loans that than is lawful. Since the lawful interest rate is 60% per year as I understand it, I would not want to invest in a company than charges such rates.

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.

I would not buy this stock. Some of its larger customers in the Prepaid Card business are involved in the payday loan business. I do not like payday loan companies. I do not want to make money off the backs of the poor. The company does not seem to make money directly from Payday loans. Maybe I am overly sensitive about this subject, but there are lots of companies to invest in for dividends besides this one.

There are two things to worry about this company right off the bat. The Long Term Debt/Market Cap Ratio is 0.99 and the Intangible and Goodwill/Market Cap Ratio is 1.20. When either of these ratios get close to 1.00 it is time to worry. If the long term debt is the same as the market cap it could be a sign that the company is in financial difficulties. Often when the Intangible and Goodwill assets is at 1.00 or better it is a sign that the company probably should be doing write-offs.

I might as well talk about other things I do not like. The Liquidity Ratio is below 1.00 at just 0.85. This means that current assets cannot cover the current liabilities. You can muck around with this figure and add in cash flow after dividends whereby here it gets to 1.28. Having to find ways of getting a good ratio is not in itself good. Also, 1.28 is not a good ratio as it needs to be at least 1.50 for safety's sake. Also, the Book Value per Share is declining by 7.3% and 4.6% over the past 5 and 10 years.

They started to pay dividends 10 years ago. The 5 and 10 year dividend growth is at .09% and 4% per year over the past 5 and 10 years. The problem is that there were no dividend increases from 2007 to 2013 inclusive. They did increases in 2014 and 2015. The dividend yield is very high and is currently at 10.97% based on dividends of $1.44 and a stock price of $13.34.

Another problem is that they cannot afford their dividends because of lack of EPS. The 5 year median Dividend Payout Ratio for EPS is 300%. The 5 year averages is 405%. I prefer companies that have good DPR for EPS, not just for CFPS.

The one possibly positive thing about this company as written in Seeking Alpha below is the company's ability to generate cash flow. Cash Flow has grown at 18% and 16.4% per year over the past 5 and 10 years. CFPS has grown at 12.6% and 12.5% per year over the past 5 and 10 years. In 2015, the CFPS covered the dividends with a Dividend Payout Ratio of 34%. Also, the Current Liability Coverage Ratio (or coverage by CF) has been over 1.00 over the past 3 years and for 2015 was 1.16.

However, the company is not so good at EPS. EPS dropped in 2012 and have not recovered. There was an earnings loss in 2015 and losses are expected to continue into 2016 and 2017.

You cannot check the status of the stock price using Price/Earnings per Share Ratios because of very low earnings in 2013 and negative earnings for 2015 and possible negative earnings for 2016 and 2017.

That best I can do for a Graham Price is one of $4.10. The 10 year Price/Graham Price Ratios are 2.18, 2.46 and 2.85. These are very high because of the very high P/GP Ratios for 2013 where ratios were in the 20's and 30's. For example, the closing P/GP Ratio was 25.15. For this ratio a good stock price is when the ratio is 1.00 or below, so 25.15 is unbelievable high. The 10 year Ratios are also quite high. However, the current P/GP Ratios is even higher at 3.25 based on a stock price of $13.34. This all suggests that the stock price is relatively expensive.

The 10 year median Price/Book Value per Share is 2.81. The current P/B Ratio is 3.75 a value some 33% higher. The current P/B Ratio is based on BVPS of $62.40 and a stock price of $13.34. This suggests that the stock price is relatively expensive. Part of the problem with this testing is that BVPS is dropping.

The 10 year median dividend yield is 7.75%. There is not historical yield as dividends have only been paid for 10 years. The current dividend is 10.79% based on dividends of $1.44 and a stock price of $13.34. The current dividend yield is some 39% higher than the median value. This stock price testing suggests that the stock price is relatively cheap. However, note that the 10 year high dividend yield is over 20% and we are nowhere near that presently. Also, when dividend yield gets so high, it is usually a sign that the market expects dividends to be cut.

When I look at analysts' recommendations I find Buy and Hold recommendations. The consensus is a Buy, but there are only 3 analysts following this stock. The 12 month stock price consensus is $14.83. This implies a total return of 21.96% with 10.79% from dividends and 11.17% from capital gain.

Lee Farnam in December 2015 wrote an interest review of this stock on Seeking Alpha. What he liked was the ability of this company to generate cash flow. The company announced results for the first 3 months of 2016 on Market Wired. They have reached agreement to settle all class action lawsuits filed against the Company relating to the Cash Store Financial Services Inc. This is part of the reason for the earnings loss of 2015. See what analysts say about this stock at Stock Chase . Some worry that the dividends are not sustainable.

I will have only one entry for this stock this year. However, I did a more complete report on this company in 2015 and you can see that report here.

The last stock I wrote about was about was Ballard Power Systems Inc. (TSX-BLD, NASDAQ-BLDP)... learn more . The next stock I will write about will be Loblaw Companies Ltd. (TSX-L, OTC-LBLCF)... learn more on Friday, August 12, 2016 around 5 pm. Tomorrow on my other blog I will write about 5 Year Running Averages... learn more on Thursday, August 11, 2016 around 5 pm.

Also, on my book blog I have put a review of the book The Language Animal by Charles Taylor learn more...

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 Payments Inc.

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.

See my website for stocks followed and investment notes. I have three blogs. The first talks only about specific stocks and is called Investment Talk. The second one contains information on mostly investing and is called Investing Economics Mostly. My last blog is for my book reviews and it is called Non-Fiction Mostly. Follow me on Twitter or StockTwits.

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