Pat McKeough responds to many personal questions about specific stocks and other topics on investment and the economy from the members of his Inner Circle. Every week, his comments and recommendations on the most intriguing questions of the past week go out to all Inner Circle members. And each week, we offer you one of the highlights from these Q&A sessions. While we reserve our buy-hold-sell advice for Inner Circle members, these excerpts provide a great deal of information and analysis on stocks we’ve covered for members of Pat’s Inner Circle. This week, we had a question on one of the Canadian stocks that is making a transition to the Internet age. Cheque printer Davis + Henderson has moved aggressively to acquire software that performs vital functions for financial institutions. Pat looks at the potential risks and rewards of the company’s growth by acquisition strategy. Q: Hi Pat: I have been a long-time reader of your newsletter, but this is my first question as an Inner Circle member. What is your view of Davis + Henderson? I have held it for years and been happy with it, but has it gotten too high? A: Davis + Henderson Corp., (symbol DH on Toronto; www.dhltd.com), is a leading cheque printer. It also provides software for managing chequing and credit card accounts and technology for approving loans, searching for and registering liens and processing student loans. Davis + Henderson’s clients are mainly financial institutions. It now has over 1,700 banks and credit unions as customers. In April 2011, Davis + Henderson bought Mortgagebot LLC, of Mequon, Wisconsin, for $231.8 million U.S. Mortgagebot sells web-based mortgage software in the U.S. Its software runs on more than 6,000 mortgage websites, and generates mortgage applications for nearly 1,100 banks and credit unions. Davis + Henderson bought Mortgagebot to keep diversifying away from cheque printing and related services, which make up about 40% of its business. Cheque printing is declining as more consumers switch to electronic payment methods. In May 2012, Davis + Henderson acquired Avista Solutions, of Charleston, South Carolina, for $40 million U.S. Avista provides mortgage-related software for community and regional banks, credit unions and mortgage brokers in the U.S. [ofie_ad]
Latest acquisition brings cloud computing technology for financial institutions
In the three months ended December 31, 2012, Davis + Henderson’s revenue rose 1.8%, to $187.2 million from $183.8 million a year earlier. The increase was mostly from its U.S. operations and included revenue from Avista. Excluding one-time items, earnings per share rose slightly, to $0.4329 from $0.4315. Davis + Henderson holds cash of $5.7 million, or $0.10 a share. In January 2013, Davis + Henderson acquired the remaining 67% of Compushare Inc. that it didn’t already own. California-based Compushare provides computer services, including cloud computing technology, to financial institutions. Davis + Henderson raised its quarterly dividend by 3.2%, to $0.32 from $0.31 with the December 2012 payment. The shares now yield 6.1%. The stock trades at 11.1 times this year’s forecast earnings of $1.90 a share. In the Inner Circle Q&A, Pat looks at the risk of Davis + Henderson’s growth by acquisition strategy, particularly in the highly competitive financial services industry. He also examines the company’s balance sheet and whether it can sustain its very high yield. He concludes with his clear buy-hold-sell advice on the stock. (Note: If you are a current member of the Inner Circle, please click here to view Pat’s recommendation. Be sure to log in first.) COMMENTS PLEASE—Share your investment experience and opinions with fellow TSINetwork.ca members Do you think the increasing reliance on the convenience of the Internet for financial transactions, including online trading, is a positive development? Or do you feel there are certain drawbacks to depending on the Internet? Let us know what you think.
