Tag Archives: dividend

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.

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Corby Spirit and Wine Limited (tse: $CSW/A.to & $CSW/B.to)

As I continue on my full time investor journey, I have decided to start working toward having more passive income. I think it makes sense to dedicate a portion of my portfolio toward dividend paying companies. The goal would be to have 50% of my living expenses coming from dividends as well as having several months of living expenses set aside. I’ve been working through a list of small and microcap dividend paying companies that I think warrant further investigation. I like to stick to small companies because I have a tough time getting comfortable with large complex businesses.

Enter Corby Spirit and Wine

Chart courtesy of TIKR. Check them out here https://app.tikr.com/register?ref=smob7c

Quick Notes

  • Slow and consistent top line growth with strong brands
  • Consistent profitability
  • The company has a conservative balance sheet and runs a net cash position
  • Dual class share structure (A – voting, B – non-voting)
    • 24 mil A shares, 4 mil B shares
  • B class shares trade at slight discount
  • They pay a consistent dividend of 5.5% (for the B class shares)
  • 90% of revenue comes from Canada

Covid-19

I’m not going to spend a bunch of time going over the risks with this business and Covid-19. First of all, the business is pretty much recession resistant. Second of all, I have no idea how the whole Covid thing plays out. They have the balance sheet to survive and any hit to earnings should be viewed as temporary in my opionion.

They actually switched some production capacity to produce hand sanitizer.

Business Background

From their website:

Corby Spirit and Wine Limited is a leading Canadian manufacturer, marketer and distributor of spirits and imported wines. Corby’s portfolio of owned-brands includes some of the most renowned brands in Canada, including J.P. Wiser’s®, Lot 40®, and Pike Creek® Canadian whiskies, Lamb’s® rum, Polar Ice® vodka and McGuinness® liqueurs, as well as the Ungava® gin, Cabot Trail® maple-based liqueurs and Chic Choc® spiced rum and Foreign Affair® wines. Through its affiliation with Pernod Ricard S.A., a global leader in the spirits and wine industry, Corby also represents leading international brands such as ABSOLUT® vodka, Chivas Regal®, The Glenlivet® and Ballantine’s® Scotch whiskies, Jameson® Irish whiskey, Beefeater® gin, Malibu® rum, Kahlúa® liqueur, Mumm® champagne, and Jacob’s Creek®, Wyndham Estate®, Stoneleigh®, Campo Viejo®, and Kenwood® wines.

The Corporation’s activities are comprised of the distribution of owned and represented spirits, liqueurs and imported wines. More specifically, 80% of Corby’s revenue is derived from sales of the Corporation’s owned spirit brands, while commissions earned from the sale of represented brands totaled 18% in 2019. The Corporation also supplements these primary sources of revenue with other ancillary activities incidental to its core business, such as logistics fees and miscellaneous bulk whisky sales to rebalance its maturation inventories

Many of the brands I recognize, some I don’t.

Business Performance

As mentioned, this is not a high growth company. This is a (slow and) steady grower with seasonality, but consistent annual margins.

 

Consistent top line growth from the trough in 2015 and consistent margins as well.

The company has been able to earn a good return on the existing brands of the business.

Honestly, I think it’s worth taking a moment to appreciate that the company hasn’t done anything foolish with the business. They seem focused on consistent ROIC over low quality growth at any cost. It’s not sexy, but it’s appreciated.

Valuation

For the valuation, I’m using the price of the B class shares.

Not mind blowing cheap, but not overly expensive. Given the equity-bond nature of the business, one could make the case that this should trade at a higher valuation should be higher. One could also make the case that given the slow growth of the business, shares should trade at a cheaper valuation.

Management, Ownership & Board

The current CEO (Patrick O’Driscoll) will be retiring in June this year and a new CEO from outside the business has been announced. I always find it interesting when an established company hires from outside the business for a C-suite position.

Compensation for the CEO position has averaged 1.5mil for the last 3 years. The company lists a fair amount of senior leaders in the management information circular. Here is what compensation looks like as a percentage of the income statement and cash flow.

The CFO (Edward Mayle) has been with the business for about 1.5 years.

No one from the executive owns a large amount of shares. The CEO (leaving in June) owns about 1/5th of his annual comp in common shares.

A subsidiary of Pernod Ricard (HWSL) owns over 50% of the A shares and essentially controls voting decisions for the company. Pernod Ricard is considered Corby’s parent. So far, this seems like a symbiotic relationship as Corby sources over 90% of spirits from them in Ontario, while Corby outsources various admin to the parent. They have a supply agreement with HWSL for another 6 years.

From AIF:

Corby engages in a significant number of transactions with its parent company, its ultimate parent and various affiliates. Specifically, Corby renders services to its parent company, its ultimate parent, and
affiliates for the marketing and sale of beverage alcohol products in Canada. Furthermore, Corby outsources the large majority of its distilling, maturing, storing, blending, bottling and related production
activities to its parent company. A significant portion of Corby’s bookkeeping, recordkeeping services, data processing and other administrative services are also outsourced to its parent company. All of these
transactions are in the normal course of operations and are measured at the exchange amount, which is the amount of consideration established and agreed to by the related parties. Transactions with the
parent company, ultimate parent and affiliates are subject to Corby’s related party transaction policy, which requires such transactions to undergo an extensive review and receive approval from an Independent Committee of the Board of Directors.

Some Risks

  • Even if you purchase the A shares, HWSL controls the votes for this business
  • New CEO coming on may take the business in a direction that isn’t conducive with generating wealth for stakeholders
  • Executive team does not own many common shares
  • Intertwinement with HWSL is deep and would be disruptive to the business if that changed

Closing

Given that HWSL owns the majority of the A shares, I would purchase the B shares to get a slightly higher dividend.

What do you think of Corby? And what are you favorite dividend paying companies in Canada?

I don’t own shares in Corby, but may initiate a position soon.

 

Dean

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