A file photo of the Saskatchewan prairie.
Saskatchewan, which has long held on to assets other provinces have sold off, is looking at selling the provincial property and corporate registration database operator in what could be a very attractive initial public offering in current markets.
The province has hired RBC Dominion Securities Inc. to review the value of the company, known as Information Services Corp. of Saskatchewan. The provincial government says that the business could grow more, and do more work in other provinces, if it was not government owned.
It will be interesting to watch the reaction in the province to the idea, given that selling off government-owned corporations in Saskatchewan has long been politically toxic. As a result, the province still owns a telephone company, a gas distribution business, and an insurance company. If a sale of Information Services doesn't raise too many hackles, that might open the door to at least considering the idea of selling others.
Information Services is an easy place to start because it's not very big, and it is not covered by the legislation that severely limits a government's ability to sell larger crown assets. And, it's the kind of business that can give investors what they currently seem to want over all else: yield.
The bulk of revenue comes from land registry, with corporate and personal property registry services making up most of the rest. In other words, it's a smaller version of Ontario's Teranet system, which went public as an income trust in 2006 and was taken over by a pension fund in 2008.
Information Services is not a fast growing company, but it does generate relatively steady profits. The company is expecting revenue to rise by 20.5 per cent in the five years from 2012 to 2016, according to its most recent annual report.
Net income has risen from $15.1-million in 2009 to $15.6-million in 2010 to $17.2-million last year. In 2010, it paid the province a dividend of $14-million. In 2011, the dividend rose to $15.5-million.
There's some capital expenditure coming up, and the forecast for the 2012 dividend is lower at $12.5-million, with payouts totalling $70.6-million over five years "while leaving adequate funding for capital and other reinvestment."
The big risk is that the fortunes of the company are going to be closely tied to a very small market and economy – Saskatchewan and its one million people. So far so good in recent years, but it's something to keep in mind.
So what would a buyer pay?
Assuming investors demand something in the range of a 7 per cent to 9 per cent yield, and taking that $12.5-million dividend forecast, that suggests a valuation of about $139-million to $180-million.