PASON SYSTEMS (Toronto symbol PSI; www.pason.com) rents equipment for monitoring and managing oil and gas rigs. It also sells communication technology, such as its satellite system, which companies use to remotely collect data from their drilling operations.
Pason serves oil and gas producers and drilling contractors throughout Canada, the U.S., Mexico, Argentina and Australia.
In the three months ended June 30, 2013, Pason’s revenue fell 2.1%, to $82.4 million from $84.1 million a year earlier. Less drilling in the U.S. and Canada offset strong international sales. Still, cash flow per share rose 5.1%, to $0.62 from $0.59. That’s because the company cut costs at its U.S. operations, which account for 71% of its revenue.
Pason holds cash of $195.4 million, or $2.38 a share, and has no debt.
The company spent $7.4 million, or a high 9% of its revenue, on research and development in the latest quarter. This spending will help it remain competitive as technology plays an ever-increasing role in oil and gas drilling. Pason employs 240 full-time and contract researchers.
Tech stocks: Pason raises dividend again and switches to semi-annual payout
Pason raised its quarterly dividend by 8.3% with the April 2013 payment, to $0.13 from $0.12. It also switched to quarterly dividends from semi-annual payouts. This latest increase followed a 9.1% hike with the January 2013 payment. The shares now yield 2.4%.
In July 2013, Pason lost a patent dispute with its main competitor involving its AutoDriller product, which helps companies run their drilling operations more accurately and efficiently. The judgment awards the competitor $52.9 million of damages.
Pason plans to appeal the ruling, but either way it has already set aside $53.1 million to cover the judgment. As well, AutoDriller’s patent expired on April 19, 2013, so Pason can continue to sell it without risking more lawsuits.
The stock has risen 49% in the past year, even with volatile oil and gas prices. The near-term outlook for North American drilling remains uncertain.
In the latest edition of Stock Pickers Digest, we look at Pason System’s cash flow outlook in light of the uncertain climate for oil and gas drilling and consider whether the stock can keep rising. We conclude with our clear buy-hold-sell advice on the stock.
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