PASON SYSTEMS $19.73 (Toronto symbol PSI; TSINetwork Rating: Speculative)(403-301-3400; www.pason.com; Shares outstanding: 83.7 million; Market cap: $1.6 billion; Dividend yield: 3.5%) rents equipment for monitoring and managing land-based oil rigs. It also provides communication systems clients use to remotely collect data from their drilling operations. Pason serves oil and gas firms and drilling contractors throughout Canada, the U.S., Mexico and Argentina.
In the three months ended June 30, 2015, the company’s revenue fell 44.7%, to $57.4 million from $103.9 million a year earlier. A rise in the U.S. dollar only partly offset an industry-wide slowdown in oil and gas drilling.
The company lost $9.4 million, or $0.11 a share, compared to a profit of $17.6 million, or $0.21, a year ago. The lower revenue was the main reason for the decline, and the latest quarter also included $2.6 million of restructuring costs. Cash flow per share was positive, though it was down sharply, to $0.11 from $0.53.
To keep its cash flow as high as possible, Pason is reducing its capital spending by 46.3% this year, to $65 million from $121 million in 2014. It has also laid off 20% of its staff.
Meanwhile, the company’s balance sheet is strong, with cash of $195.3 million, or $2.33 a share, and no debt. The stock yields a high 3.5%, and the dividend appears sustainable.
Oil and gas producers’ capital spending cuts will slow North American drilling by 50% or more this year. However, Pason’s products let producers increase their revenue and lower their operating costs, which should keep the company’s sales and profits from falling much further. That also leaves Pason well positioned for gains when oil and gas prices recover.
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