DirectCash Payments Inc.
Wednesday’s close: $24.70, unchanged
52-week trading range: $20.25 - $25.31 a share
Annual dividend: $1.38 a share for a yield of 5.6 per cent
Analysts’ ratings: There was 1 buy, 2 holds and no sells, according to Bloomberg data. Targets ranged from $24.50 to $28.65 a share.
Recent history: Shares of the Calgary-based provider of automated teller machines gained nearly 29 per cent [including dividends] over the past year. [It went public in late 2004 as Direct Cash Income Fund, but converted into a corporation in 2011.] The stock’s momentum began to build last year with two acquisitions aimed at international expansion. DirectCash acquired Australian-based Customers Ltd. as a launching pad for growth in the Asia-Pacific region, and bought the ATM business of British-based InfoCash Holdings Ltd. to expand into Europe. The company now operates more than 19,000 ATMs globally.
Outlook: The acquisitions are the largest by far and a “company changer,” said Jean-François Tardif, a portfolio manager and founder of Timelo Investment Management Inc. “DirectCash did make lots of acquisitions in Canada, but they were small ones...They have grown every year [since going public], and the company generates a lot of cash flow.”
Revenue at DirectCash is expected to climb to nearly $300-million in 2013, according to Bloomberg consensus estimates, from about $112-million in 2011, said Mr. Tardif, who has owned the stock since last summer. “I personally think it will be a bit higher versus what analysts have in their forecasts.”
The company has almost tripled the size of their business, and management has said it sees a lot of potential in Australia because the penetration of the number of machines per capita are half of that in Canada, Mr. Tardif added.
When the company released third-quarter results, it reported a loss of nearly $2.5-million versus a profit of nearly $4.4-million a year earlier. But “the accounting earnings don’t reflect the true economic earnings because of the amortization of intangible assets” that amounts to an annualized $2.28 a share based on the third-quarter, he said. “There could be a lot of free cash flow once the company has done all the cost-cutting, and starts its international growth. On top of this, the company is still willing to make acquisitions in the future.”
There is little coverage of the stock, but “I am convinced that the stock will be around the $30 a share within the next 18 months,” he suggested. “The company has a lot of debt because they made this acquisition...When the debt level is low enough [because the company generates a lot of free cash flow], they will be able to increase their dividend, but I don’t think it will be before 2014.”