Pason Systems Inc. (TSX: PSI) is a leading global service provider of specialized data management systems for drilling rigs. Its solutions include data acquisition, wellsite reporting, remote communications, web-based information management, and analytics, enable collaboration between the rig and the office. 

Key Highlights

• Robust growth in financials: In the first quarter of 2022, the business produced CAD 74.5 million in revenue, a 75% increase over the CAD 42.6 million generated in the first quarter of 2021, as drilling activity improved dramatically across Pason's operational territories. With this rise in sales, it achieved CAD 33.4 million in Adjusted EBITDA, or 44.8% of revenue, compared to CAD 13.2 million in pcp, or 30.9% of revenue in the same period. Finally, the Company earned CAD 18.6 million in net income vs CAD 4.3 million in pcp.

• Elevated cash from operations and free cash flows: The company generated CAD 28.1 million in net cash from operations in the first quarter of 2022, compared to CAD 11.1 million in the previous equivalent period, principally owing to stronger operational performance and the receipt of CAD 12.5 million in withholding taxes. During the same reporting period, free cash flows were also greater at CAD 23.5 million against USD 9.1 million in pcp.

• Strong balance sheet: The company’s balance sheet remains strong, with no interest-bearing debt and CAD 172.1 million in cash and cash equivalents as on March 31, 2022, compared to CAD 158.3 million on December 31, 2021.

Stock recommendation

The firm reported solid financial results in the first quarter of 2022, reflecting its strong competitive posture, solid balance sheet, and operating leverage. The figures also reflect the improving industrial circumstances, which is critical. The North American business unit outpaced the improvement in industry activity, generating CAD 62.0 million of revenue in the first quarter of 2022, a 79% increase, as industry conditions in North America continued to improve in the first quarter of 2022, with a 57% increase in industry activity compared to the comparative prior year period. The similar type of elevation was seen in the other portions as well.

All these positive factors fueled the stock price and at present the stock is trading at premium valuations on multiple factors. Furthermore, we believe the stock is perhaps overbought and due for a price correction or a consolidation. Therefore, based on the above rationale, we recommend a “Watch” rating at the current market price of CAD 15.90 at 10:20 A.M Toronto time on May 2, 2022.

One-Year Technical Price Chart (as on May 2, 2022). Source: REFINITIV, Analysis by Kalkine Group

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