Pason Systems is a Top Pick, this portfolio manager says

Tying your software company to a boom-or-bust industry like oil and gas can make for a lot of volatility, but data management name Pason Systems (Pason Systems Stock Quote, Charts, News, Analysts, Financials TSX:PSI) has been able to succeed in good and bad weather over the past decade, which makes it a winner of a stock in today’s better economic climate for the oil and gas sector. That’s according to Gavin Graham of SmartBe Investments, who recently named Pason Systems as one his three Top Picks for the 12 months ahead. 

“In essence, you [had] a complete collapse in drilling activity in 2020 and 2021. [Pason Systems] are $1.1 billion market cap but they have $200 million in cash on the balance sheet, which is why they came through [the downturn] successfully,” said Graham, Chief Investment Officer at SmartBe, who spoke on BNN Bloomberg on Tuesday where he named Pason Systems a top pick.

“Management was saying that activity levels are now back to where they were in 2014-15, which was when the oil price collapsed from $150, which started the first bear market in Alberta because Saudi Arabia decided to start pumping lots of oil,” he said.

“And so this company has come through, it’s been successful and the earnings are up a great deal because the volume is there. And in the meantime, they have a commanding market share in Canada and a pretty big exposure in the US as well,” Graham said.

Ahead of fourth quarter earnings from Pason on Thursday after market close, the company saw revenue climb a huge 60 per cent year-over-year for its third quarter 2022, delivered in November. Pason’s topline of $92.5 million broke down into $75.2 million in North American revenue, $15.8 million in International and $1.4 million in Solar and Energy Storage, a newer initiative for the company.

Pason also saw Q3 adjusted EBITDA more than double to $46.2 million, with net income up 164 per cent to $33.7 million. 

“While the Company incurred incremental expenses to support increased activity levels and further faced inflationary effects on certain operating costs, third quarter results continue to demonstrate the Company’s strong operating leverage through improved industry conditions,” Pason said in a press release.

Pason Systems, which currently sports a dividend yield of 3.25 per cent and had just raised its dividend last quarter, has seen its share price go from the $20 range where it lived for a number of years leading up to mid-2019 to as low as $8 by mid-2021. Since then, the stock has been bouncing around the $13-$17 range.