Information Services Corp ($ISV.to)

I came across Information Services Corp when looking at stocks yielding about 5%, with no/low debt, 3 year sales growth, and less than 10x ebit.

Background (pasted from TIKR)

Information Services Corporation, together with its subsidiaries, provides registry and information management services for public data and records in Canada and internationally. It operates through three segments: Registry Operations, Services, and Technology Solutions. The company provides land titles registry services that issues titles to land and registers transactions affecting titles, including changes of ownership and the registration of interests in land; land surveys directory, which plans and creates a representation of Saskatchewan land parcels in the cadastral parcel mapping system; and geomatics services that manages geographic data in relation to the cadastral parcel mapping system. It also offers personal property registry, a notice-based public registry in which security interests and other interests in personal property are registered; and corporate registry, which is a province-wide system for registering business corporations, non-profit corporations, co-operatives, sole proprietorship’s, partnerships, and business names. In addition, the company provides search and registration services through an online workflow platform for the Ontario business information system; know-your-customer services; and corporate supplies for companies to organize and maintain corporate legal documents. Information Services Corporation serves law firms, financial institutions, accountants, non-profit and co-operative associations, and entrepreneurs, as well as lending, leasing, and credit issuing businesses and institutions. The company was formerly known as Saskatchewan Land Information Services Corporation and changed its name to Information Services Corporation in November 2000. Information Services Corporation was founded in 2000 and is headquartered in Regina, Canada.

Sounds pretty boring on the surface, and really it’s kind of boring mundane stuff. Let’s dig a little deeper.

Here’s a quick table on the revenue mix from the AIF as well as a chart of the various segmented information.

 

As you can see the “growth” segments are the Services and Technology division.

Some interesting tidbits of info from the AIF and Annual Report (emphasis mine)

Registries

Land Registry includes Land Titles Registry, Land Surveys and Geomatics.

Because the Land Titles Registry revenue is comprised of both residential and non-residential activity, mortgage rates and business lending rates may affect revenue. Changes in land values, provincial population and mortgage qualifying requirements also affect the housing market which, in turn, influences changes of ownership and revenue.
Revenue for the Land Titles Registry is earned through registration, search and maintenance fees. Registration fees are either a flat fee or value-based, calculated as a percentage of the value of the land and/or property being registered. We typically charge a flat fee per transaction for search and maintenance transactions. However, in certain instances, we may charge a negotiated fee for a customized search or maintenance transaction such as certain mineral certification or bulk data requests.

Approximately 80.4 per cent of all Land Titles Registry registration transactions were submitted online in 2019.

In July 2016, the Corporate Registry began using the Company’s RegSys platform, thereby providing customers with a more convenient service to search, register and maintain corporate entities in Saskatchewan. In addition, RegSys also offers customers access to digitally verified registry documents and options to self-manage staff access. Approximately 90.8 per cent of all registrations in the Corporate Registry were submitted online in 2019.
A number of permanent changes to the services and fee structure were implemented with the launch of the system.

Services

In our Services segment, our core legal and financial services revenue has little seasonality; rather, it fluctuates in line with the general economic drivers. Our collateral management services revenue experiences seasonality aligned to vehicle and equipment financing cycles, which are generally stronger in the second and fourth quarters. Some smaller categories of products or services can have some seasonal variation, increasing slightly during the second and fourth quarters.

Technology

Our Technology Solutions segment provides the development, delivery and support of registry (and related) technology solutions. We generate revenue through the following:
• Sale of software licences related to the technology platform;
• Provision of technology solution definition and implementation services; and
• Provision of monthly hosting, support and maintenance services.

Through our wholly owned subsidiary ERS, we offer RegSys — a complete registry solution that provides a readily transferable technology platform capable of serving a wide range of registry needs. RegSys is a multi-register platform that delivers the flexibility, scalability and features that enable public sector organizations to deliver enhanced services to businesses and citizens.
With a full suite of integrated modules which provide core functionality for submission, enforcement and enquiry processing, RegSys delivers solutions enabling the provision of core services to citizens in a user-friendly, efficient manner across multiple access points. The RegSys solution has also been used to manage other legal registers such as intellectual property, securities, licences, charities, Uniform Commercial Code and pension schemes. Our customers include governments and regulatory organizations, such as chambers of commerce, that have responsibility to authorize, license, maintain and revoke the function of a registry.

Competitors include other registry software providers that develop and provide software platforms to manage registries. On the technology services side, our competitors include all technology services organizations that provide application development, systems integration and/or application management services. This includes large multinationals or local niche players, both of which we partner with to complement our offering depending on the clients’ needs.

Consolidated Results

The company has acquired a good portion of their growth. You can see that the top line has took off as gross margins have been compressed. Operating profit and margins have continued to tick up as they have scaled into their acquisitions in Services and Technology and have seen some organic growth. Both revenue and profitability continues to improve on a per share basis as well (although not as quickly as revenue per share).

Compensation

Here is a quick chart on compensation.

The MIC has lots of detail on how they derive the compensation for executives. The CEO’s total comp is 800-900k per year with 350k in salary.

Share Structure and Ownership

There are 17.5mil class A shares and 1 (Golden) class B share. The Golden is held by the Crown Investment Corp of Saskatchewan. It limits the sale of assets outside of Saskatchewan and transfer of head office outside of Saskatchewan. The same entity owns 31% of the A shares.

Another 14% of the A share are held by CI Investment.

Management and the board don’t own many shares.  The CEO owns about a years worth of salary in A shares (give or take).

Summary

ISV has a very close relationship with Saskatchewan. The registry business is somewhat economically sensitive, but is essentially a toll bridge on certain activities. They are producing cash consistently, have decent ROIC and manage to cover dividend payments several times over. However, there are limited growth opportunities and I would like to understand the Technology side of the business a bit better before grading management’s capital allocation strategy.

I think this would be a good fit in a dividend focused portfolio for income with some potential capital appreciation. It is modestly priced with a little over 5% yield. They have are in a net cash position and focused in a province that has seemed to manage the lockdowns and reopening well (so far).

This is assuming that the impact from covid will be temporary and somewhat minimal.

Anyone look at ISV before? Or will let me crash on their couch if I go visit management?

 

Thanks,

Dean

 

*the author does not own any ISV at time of writing.

2 Comments

Filed under Company Analysis

2 responses to “Information Services Corp ($ISV.to)

  1. I looked at it a while ago, and wrote my thoughts here: http://www.canadianvaluestocks.com/information-services/

    I wish they would just milk the registries business, maybe shoot for some contracts with other jurisdictions (they have a few) and return excess cash (Saskatchewan would prefer dividends over buybacks I’m sure). They have one of the strongest moats you’ll ever see – the government is the largest shareholder and also determines who gets the registry contracts. Why they would move from this great business to others that aren’t as protected and in which they likely have no special proficiency.

    But ultimately as a shareholder you’re going to get your free cash flow yield (~8-9% right now?), you’re going to get probably 1% from Saskatchewan GDP growth, and you’re either going to benefit or lose out from management’s di-worse-ification efforts. If ISV kills it and becomes a great services/tech company, you could make out like a bandit. If management screws up, you’ll suffer middling returns. If it comes out somewhere in between, as it probably will, you’ll end up with like a 8-9% total return.

    For what I see as a pretty safe company, that’s not too bad. If I were a dividend investor and didn’t care about total return or beating the market or anything, there would be a spot for ISV in my portfolio. Or if I had some reason to think management could pull off this pivot. But given my hurdle rate and my doubts about the diversification, I stay away.

    • Yeah agreed. And thanks for the comment.
      I think the diversification is a fairly big risk or at least unproven at this point. I think their options are more limited than it appears on the surface. Returning some excess cash would be shareholder friendly.
      I think an income focused investor (mainly from dividends) could put this in a portfolio of 8-10 stocks. Since I am not this type of investor (at least not at the moment) then I will pass.

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