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ISC showing resilience as it spreads its wings

Friday, January 6, 2017 8:31
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ISC (TSE:ISV), which some of you may know better as Information Services Corp, continues to make the best of the hand it has been dealt.

It is a Saskatchewan-based business services provider that administers registries, such as land titles, as well as corporate and personal property (e.g. vehicles) registries, and it also maintains geographic databases.

All of this useful information is then made easily available to the general public.

If that sounds like the sort of service that is typically performed by local government, that’s because it is. The Province of Saskatchewan was ahead of the curve, however, in hiving off the organization responsible for maintaining all of these records, and thus ISC floated on the Toronto Stock Exchange in 2013.

A resilient business providing essential services

The company’s trading is closely hitched to economic conditions in Saskatchewan, which affect registry transactions and volumes, and to a lesser extent the economies of Ontario and Quebec, where recently acquired subsidiary ESC is strongly represented.

ESC provides law firms, corporations, financial service institutions and others with services across Canada and around the world.

It has offered these corporate services in Ontario since 2009 and in Quebec since 2014.

The acquisition of ESC continues to look a wise one.

ESC, which now forms ISC’s Services segment, was largely responsible for the group’s third quarter revenue rising to C$22.9mln from C$19.7mln in the same period of 2015.

The Services segment’s contribution was C$3.3mln, up from zero the year before but down some C$300,000 on the second quarter of 2016.

ISC’s core Registries business saw its top line head south a little, to C$19.5mln, from C$19.7mln the previous year.

Net income and total comprehensive income for the three months ended September 30, 2016, was C$3.8mln, or C$0.22 per share, compared to C$4.7mln, or C$0.27 share for the same period in 2015.

Adjusted earnings before interest, tax, depreciation and amortization (EBITDA) in the third quarter dipped to C$9.5mln from C$9.6mln a year earlier. The EBITDA margin fell to 41.5% from 48.6% a year earlier.

“Our Registries segment experiences moderate seasonality, primarily because Land Titles revenue fluctuates in line with real estate transaction activity in Saskatchewan. Typically, our second and third quarters generate higher revenue during the fiscal year when real estate activity is traditionally highest,” the company said.

“Our Services segment is sufficiently diversified with little seasonality to its revenue performance; however, some smaller categories of products or services can have some seasonal variation, slightly increasing during the second and fourth quarters,” it noted.

Increasing the range of services and geographical footprint

Diversification is important for the company, because although it has a solid revenue stream that comes from providing essential services individuals and corporations will always need, growth is undeniably easier when economic activity is rising.

In a Canadian economy that has been hit by the downturn in commodity markets, the importance of not relying too much on one sector has been underlined.

Saskatchewan’s gross domestic product, in real terms, was much the same in 2016 as it was in 2015, while, when the final end-of-year numbers are in, moderate growth is expected for the central Canadian markets.

As a result, in November ISC reiterated that its expected consolidated EBITDA margin for fiscal 2016 will be in the range of 32.0 to 34.0%.

”ISC is a strong company and it has a strong business model so we’re pleased with where we’re at. Again, it’s what we would’ve expected, but our company takes very seriously things like cost management and a strong, prudent approach to running the business and so we protect our margins and we run a very strong business”, president and chief executive officer Jeff Stusek told Proactive Investors.

“In our Services segment, we expect the growth of that business to continue in specific categories relating to the financial services and legal sectors in both its core markets of Ontario and Quebec. The expectation is that the growing base of new customers, as well as new mandates from existing customers, should continue to support overall revenue growth,” the company told investors in November.

Paying dividends

The board of directors of ISC declared a quarterly cash dividend of 20 cents per Class A limited voting share.

ISC ended the reporting period with cash of C$38.3mln and total debt of C$23.4mln.

“This has been another steady quarter with continued resilience shown by our Registry business, which is supported strongly by our Services segment,” said company boss Jeff Stusek.

“I have been pleased with our performance overall and as we move towards the end of the year, I expect that we are on course to meet our EBITDA guidance for 2016,” he added.

Story by ProactiveInvestors


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