The stock of the former Crown corporation, which specializes in land and company registration services in its home province, has returned nearly 22 per cent this year, including a robust dividend that currently yields 4.7 per cent.
Perhaps we aren't that worried about Saskatchewan any more.
That's the lesson we might take from Regina-based Information Services Corp. The stock of the former Crown corporation, which specializes in land and company registration services in its home province, has returned nearly 22 per cent this year, including a robust dividend that currently yields 4.7 per cent.
Or perhaps it's evidence that the company's plan to expand beyond its Prairie roots, first declared when Information Services went public three years ago, is finally coming together. In the company's fiscal second-quarter results, released this week, it was its "services" segment – which consists mainly of ESC Corporate Services, a Toronto/Montreal company that serves law firms and other clients with public-records research – that provided all of the company's growth. By contrast, the Saskatchewan business was flat.
This investor enthusiasm has pushed the forward price-to-earnings multiple of Information Services' stock, which closed Thursday at $17.11, up to about 16. That's higher than it's consistently been in a couple of years – but still below the levels when the shares debuted in the summer of 2013. And it suggests the Information Services story may be ready to go nationwide.
It was not always thus. Upon its initial public offering, I wrote a not-terribly-nice column that suggested "its shares are probably best left to the people of Saskatchewan." In 2013, that was a fair comment, I think. The company's sole business was operating a number of electronic databases for the province, including the land titles, personal property and corporation registries. While it had a 20-year exclusive deal to do so, all its plans of growth – signing up customers, both in the public and private sectors, elsewhere in Canada and in other countries – were just that: plans. "If you want to bet on the province's future, this is about as pure a play as you can get," I said.
Well, the ESC results are coming at a pretty good time. Saskatchewan posted negative GDP growth in 2015 and is poised to do the same in 2016, economists at Royal Bank of Canada's economics group say. Information Services' land registry revenue, which makes up the bulk of its legacy business, was up just 0.5 per cent in the most recent quarter. Revenue for all registries gained about $500,000, or 2.4 per cent, year-over-year.
The company's overall $24.7-million in sales, however, included $3.6-million in services sales from ESC that it simply didn't have one year ago, prior to the acquisition. That meant top-line growth of nearly 23 per cent in the quarter.
The overall sales, analyst Steve Arthur of RBC Dominion Securities wrote, were meaningfully above expectations, with the "strong result" driven by the services segment. (ESC isn't the only bit of diversification: Information Services also acquired a 30-per-cent stake last year in OneMove Technologies Inc., a maker of software to manage property transactions in British Columbia, Alberta and Ontario.)
The next big news for the stock will be the rebound of the Saskatchewan economy. But when will that be? At the end of June, the RBC economics group cut its 2016 GDP forecast from 1.2-per-cent growth to a 0.2-per-cent decline, citing rising unemployment, a lack of capital spending and low oil prices. Saskatchewan is better diversified than other oil-producing provinces, such as Alberta and Newfoundland, and gains in agriculture are expected to help this year. But 2017 depends in large part on oil – and with the RBC forecasters expecting better news on that front next year, they have a 1.8-per-cent gain in GDP in their forecast.
You may not agree, of course, and that may make Information Services shares too pricey, in your view. Mr. Arthur, who has a target price of $18 and a "sector perform" rating, writes that "the shares are approaching fair value considering the current economic climate in Saskatchewan."
They are also, however, a piece of "a strong long-term business with high barriers to entry, strong free cash flows, a steady dividend" and the possibility of continued growth, Mr. Arthur says. And CIBC World Markets analyst Stephanie Price, who raised her target price to $19 from $16.25 this week, says in her Information Services report that the current low interest-rate environment means investors "will continue to search for yields in stable defensive business models such as Information Services." (She, too, has a "sector performer" rating.)
The caution about valuation is understandable. However, Information Services has now shed the label of Saskatchewan pure play, offering investors a little bit of protection from Prairie province problems. And investors who wait for clear signs of a Saskatchewan rebound before buying will have to pay more, and get less yield, to watch the company prove that it's an investment suitable for all corners of Canada.
David Milstead