PASON SYSTEMS (Toronto symbol PSI; www.pason.com) is trading near all-time highs as it continues to gain from the boom in U.S. shale oil and gas drilling.
Pason 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 March 31, 2014, the company’s revenue rose 12.7%, to $123.2 million from $109.3 million a year earlier. Higher sales in the U.S., Australia and Canada offset slower drilling activity in Mexico and a significant devaluation of the Argentine currency.
Cash flow per share rose 11.5%, to $0.68 from $0.61. Pason holds cash of $116.8 million, or $1.42 a share, and has no debt.
The company raised its quarterly dividend by 7.1% with the April 2014 payment, to $0.15 from $0.14. The shares now yield 2.0%.
Energy stocks: Major Drilling sees drop in orders from gold firms and junior miners in latest quarter
MAJOR DRILLING (Toronto symbol MDI; www.majordrilling.com) is a large contract drilling firm that mainly serves the mining industry.
In the three months ended January 31, 2014, Major’s revenue fell 41.7%, to $71.8 million from $123.3 million a year earlier. The company’s loss also widened to $12.8 million, or $0.16 a share, from $4.3 million, or $0.05. The latest earnings included a $3.3-million foreign exchange loss.
Many of Major’s large- and medium-sized mining customers, particularly gold companies, slowed their drilling activity in the latest quarter, and orders from junior miners dropped sharply.
As well, high costs and new mining taxes forced the cancellation of many projects in Australia, while political uncertainty slowed work in Mongolia and Argentina. Finally, Mexico and Chile had many projects delayed or cancelled, because they have a larger proportion of junior miners than most countries.
Major has cash of $62.4 million, or $0.79 a share, and low debt. Its semi-annual dividend of $0.10 a share gives the stock a 2.4% yield.
In the latest edition of Stock Pickers Digest, we consider Pason’s prospects and the outlook for North American drilling in the face of environmental lobbying to limit the “fracking” of shale rock. We also look at Major Drilling’s cash flow forecast and whether it can maintain its dividend through a period of industry downturn. We conclude with our clear buy-hold-sell-advice on these two stocks.
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