PASON SYSTEMS $17.91

PASON SYSTEMS $17.91 (Toronto symbol PSI; TSINetwork Rating: Speculative) (403-301-3400; www.pason.com; Shares outstanding: 84.1 million; Market cap: $1.6 billion; Dividend yield: 3.8%) serves the drilling contractors of oil and gas firms in Canada, the U.S., Mexico and Argentina. The company provides them with rental equipment for monitoring and managing landbased oil rigs. Its systems also let clients remotely collect data from their drilling operations. For the three months ended December 31, 2015, Pason’s revenue fell 56.7%, to $59.8 million from $138.2 million a year earlier. A rise in the U.S. dollar partially offset the slowdown in oil and gas drilling. The company lost $841,000, or $0.01 a share, compared to a profit of $47.2 million, or $0.57, a year ago. The lower revenue was the main reason for the decline. Cash flow per share was positive, though it was down sharply, to $0.21 from $0.72. Pason will cut its capital spending in 2016 to $35 million to keep cash flow as high as possible. That spending is down 31.4% from $51.0 million in 2015, and down 71.2% from $121.0 million in 2014. It has also reduced staff by 25%. Meanwhile, the company holds cash of $195.8 million, or $2.33 a share, and has no debt. It pays a quarterly dividend of $0.17 a share and yields 3.8%. Pason paid out a high 81% of its cash flow as dividends in the latest quarter. However, the current dividend rate appears sustainable. That’s mainly because demand for the company’s products should remain steady despite the 50% drop in North American drilling activity. Pason’s equipment is a big plus for drillers, as it lets them increase their revenue and lower operating costs. The company is also in a good position to gain business when oil and gas prices recover. Pason Systems is still a buy.

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