Pason Systems Inc.

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

Key highlights

• The Company declared a quarterly dividend of CAD 0.05 per share to the common shareholders, to be paid on December 30, 2020, with a record date of December 16, 2020.

• The Company is focused on reducing the capital intensity of its business, as they brought down total capital expenditures to CAD 807 thousand in Q3 2020, decreased by 80% as compared to 2019 levels.

• The management has appointed Ms Celine Boston as the Company’s Chief Financial Officer (“CFO”) effective November 30, 2020.

Financial overview of Q3 2020

Source: Company

• Total revenue posted by the Company in Q3 2020, decreased by 68% to CAD 23 million, as against CAD 72 million in the previous corresponding period. The decrease was attributable to the low drilling activities in the North American and International operating segments, partially offset by an increase in revenue from the Solar and Energy Storage business unit.

• In Q3 2020, Adjusted EBITDA decreased to a loss of CAD 1.1 million, as against a profit of CAD 31.4 million in Q3 2019. Primarily due to the reduction in gross profit on account of low revenue.

• The Company recorded a net loss of CAD 3.7 million (CAD 0.04 per share) in Q3 2020, compared to net income of CAD 15.4 million (CAD 0.18 per share) recorded in the previous corresponding period.

Revenue Bifurcation

Source: Company

Risks associated with investment

Due to high dependency on the oil and gas clients, adverse effect on crude oil demand can hit revenues of the company. Lower demand for crude oil would result in lower drilling activity by the oil producers resulting in lower budget allocation for the software and maintenance purposes.

Valuation Methodology (Illustrative): EV to EBITDA

(Note: All forecasted figures and peers have been taken from Thomson Reuters). 

Stock recommendation

As the economy has started reviving, the worst appears to be behind us in terms of oil and gas drilling activity. Global oil demand has begun to recover from its lows and similar strength seen in the gas markets, as the industries have started their operations again, generating the demand for oil and gas. The Company witnessed the North American land drilling count stabilizing, and activity in their international jurisdictions has also been increasing, particularly in regions where drilling was effectively shut down earlier during the pandemic.

The balance sheet of the Company remains strong, the Company ended the reported quarter with cash and cash equivalents of CAD 169 million, as a result of constraining operating and capital costs, and lower dividend payment.

We have valued the stock using EV to EBITDA based relative valuation method and have arrived at a high single digit upside (in percentage terms). For the said purposes, we have considered Computer Modelling Group Ltd, Trican Well Services, etc. as the peer group for the comparison. Hence, we recommend a ‘Watch’ stance at the closing price of 7.41 on November 25, 2020.

Daily technical chart. Source: Refinitiv (Thomson Reuters)

Disclaimer

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