Information Services Corporation — Sustained growth with FY23 guidance reiterated

Information Services Corporation (TSX: ISV)

Last close As at 13/04/2024

CAD27.50

−0.38 (−1.36%)

Market capitalisation

CAD496m

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Research: Industrials

Information Services Corporation — Sustained growth with FY23 guidance reiterated

Despite prevailing macroeconomic headwinds and a subdued Canadian property market, Information Services Corporation (ISC) demonstrated year-on-year top-line and adjusted EBITDA growth in Q323. This was largely attributable to the MSA extension, augmented by sustained organic growth of the Services division. Net income was affected by heightened net finance costs, as a result of a rise in net debt from the C$150m upfront payment for the MSA extension. Nevertheless, ISC remains on a trajectory of securing new contracts and management reaffirms its FY23 revenue and adjusted EBITDA guidance. We maintain our forecasts and valuation of C$37, implying 79% upside.

Natalya Davies

Written by

Natalya Davies

Analyst

Industrials

Information Services Corporation

Sustained growth with FY23 guidance reiterated

Q323 results

Industrial support services

9 November 2023

Price

C$20.82

Market cap

C$375m

C$1.48/€

Net debt (C$m) at 30 September 2023 (excluding lease liabilities)

165.8

Shares in issue

18.0m

Free float

69.5%

Code

ISV

Primary exchange

Toronto Stock Exchange

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(3.7)

(15.7)

(5.0)

Rel (local)

(5.1)

(12.8)

(4.4)

52-week high/low

C$26.98

C$19.48

Business description

Information Services Corporation, headquartered in Canada, is a leading provider of registry and information management services for public data and records. It focuses on the development and management of secure government registries with significant experience in integrating and transforming government information into solutions for the people and businesses of the Province of Saskatchewan.

Next events

FY23 results

March 2024

Analysts

Natalya Davies

+44 (0)20 3077 5700

Andy Murphy

+44 (0)20 3077 5700

Information Services Corporation is a research client of Edison Investment Research Limited

Despite prevailing macroeconomic headwinds and a subdued Canadian property market, Information Services Corporation (ISC) demonstrated year-on-year top-line and adjusted EBITDA growth in Q323. This was largely attributable to the MSA extension, augmented by sustained organic growth of the Services division. Net income was affected by heightened net finance costs, as a result of a rise in net debt from the C$150m upfront payment for the MSA extension. Nevertheless, ISC remains on a trajectory of securing new contracts and management reaffirms its FY23 revenue and adjusted EBITDA guidance. We maintain our forecasts and valuation of C$37, implying 79% upside.

Year end

Revenue (C$m)

EBITDA (C$m)

PBT*
(C$m)

EPS*
(C$)

DPS
(C$)

P/E
(x)

Yield
(%)

12/21

169.4

67.8

51.4

2.25

0.83

9.3

4.0

12/22

189.9

64.4

46.5

1.95

0.92

10.7

4.4

12/23e

210.1

75.0

45.8

1.92

0.92

10.8

4.4

12/24e

230.2

89.8

50.9

2.12

0.92

9.8

4.4

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

Strong acceleration in Q323

Q323 revenue and adjusted EBITDA increased 12% and 13% to C$54.6m and C$19.2m. Both Registry Operations and Services demonstrated adjusted EBITDA growth of 11% and 29% to C$15.0m and C$5.1m, respectively. Registry Operations benefited from incremental earnings from Saskatchewan Land Registry fee adjustments which offset a 1% decline in its volumes. The Services division enjoyed heightened customer acquisition, boosted by an influx of customers in the financial sector continuing to focus on due diligence in a high interest rate environment. Net income declined 45% y-o-y to C$4.2m, largely due to a surge in finance expenses from the substantial net debt increase to C$165.8m (excl. leases) (Q223: C$24.5m), driven by the C$150m upfront payment for the MSA extension.

Progressing with contract wins

As highlighted in our recent initiation note, ISC has a strong track record of proficiently acquiring and innovating registries and related information services globally, which is exemplified by its recent Technology Solutions contract with the State of Michigan, worth C$4.5m over a five-year term (option to extend). The contract involves delivering an online Uniform Commercial Code system using ISC’s RegSys platform, which will enable 24/7 filing and searching of financial statements and various liens, enhancing customer flexibility. This not only supports Technology Solution’s return to profitability but also underscores ISC’s expertise in data authentication, furthering its expansion in the global registry market.

Valuation: Maintained DCF valuation of C$37/share

We maintain our forecasts and DCF valuation of C$37/share, implying 79% upside to the current share price. The stock trades at 9.8x FY24e P/E, representing a material discount not only to its own history but also to a selection of peers, despite its long-term, predictable cash flows bolstered by the MSA extension.

Exhibit 1: Financial summary

C$'m

2019

2020

2021

2022

2023e

2024e

2025e

31-December

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

INCOME STATEMENT

Revenue

 

 

133.0

136.7

169.4

189.9

210.1

230.2

240.5

Cost of Sales

31.2

31.3

40.4

49.2

56.6

62.3

65.4

Gross Profit

101.8

105.5

129.0

140.7

153.5

168.0

175.2

EBITDA

 

 

40.0

49.2

67.8

64.4

75.0

89.8

92.8

Normalised operating profit

 

 

28.6

36.5

54.0

49.7

54.6

63.7

66.0

Amortisation of acquired intangibles

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Exceptionals

(0.2)

(2.6)

(1.2)

(2.0)

(2.5)

(2.0)

(2.0)

Share-based payments

(0.4)

(3.0)

(6.0)

(1.5)

(2.0)

(2.0)

(2.0)

Impairment

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Other

(0.5)

(0.2)

(0.1)

0.0

0.0

0.0

0.0

Reported operating profit

27.6

30.7

46.8

46.2

50.1

59.7

62.0

Net Interest

(1.2)

(2.0)

(2.7)

(3.2)

(8.8)

(12.8)

(11.8)

Joint ventures & associates (post tax)

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Exceptionals

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Profit Before Tax (norm)

 

 

27.4

34.4

51.4

46.5

45.8

50.9

54.2

Profit Before Tax (reported)

 

 

26.4

28.6

44.1

43.0

41.3

46.9

50.3

Reported tax

(7.0)

(7.8)

(12.0)

(12.2)

(11.8)

(13.4)

(14.3)

Profit After Tax (norm)

20.4

26.6

39.4

34.2

34.0

37.5

39.9

Profit After Tax (reported)

19.4

20.8

32.1

30.8

29.5

33.6

35.9

Minority interests

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Discontinued operations

(0.5)

0.7

(1.0)

(0.0)

(0.0)

(0.0)

(0.0)

Net income (normalised)

20.4

26.6

39.4

34.2

34.0

37.5

39.9

Net income (reported)

19.4

20.8

32.1

30.8

29.5

33.6

35.9

Basic average number of shares outstanding (m)

18

18

18

18

18

18

18

EPS - basic normalised (C$)

 

 

1.167

1.520

2.249

1.946

1.922

2.121

2.255

EPS - diluted normalised (C$)

 

 

1.17

1.51

2.18

1.91

1.89

2.09

2.22

EPS - basic reported (C$)

 

 

1.11

1.19

1.83

1.75

1.67

1.90

2.03

DPS (C$)

0.80

0.80

0.83

0.92

0.92

0.92

0.92

Revenue growth (%)

-

2.8

23.9

12.1

10.7

9.6

4.5

Gross Margin (%)

76.6

77.1

76.2

74.1

73.1

73.0

72.8

EBITDA Margin (%)

30.1

36.0

40.0

33.9

35.7

39.0

38.6

BALANCE SHEET

Fixed Assets

 

 

128.4

186.0

176.1

226.2

358.6

365.4

371.5

Intangible Assets

40.0

70.0

61.1

89.0

222.3

230.0

237.0

Tangible Assets

3.0

2.2

1.4

1.8

0.9

(0.0)

(0.9)

Investments & other

85.4

113.9

113.6

135.4

135.4

135.4

135.4

Current Assets

 

 

42.3

55.4

56.4

57.2

59.1

63.0

63.9

Stocks

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Debtors

12.6

17.0

12.8

14.9

16.8

20.7

21.6

Cash & cash equivalents

23.7

33.9

40.1

34.5

34.5

34.5

34.5

Other

6.0

4.4

3.6

7.8

7.8

7.8

7.8

Current Liabilities

 

 

24.7

27.3

36.9

39.6

43.6

49.5

51.5

Creditors

18.1

21.9

26.5

33.9

37.8

43.7

45.7

Tax and social security

0.8

1.2

7.0

0.7

0.7

0.7

0.7

Short term borrowings

2.0

0.0

0.0

0.0

0.0

0.0

0.0

Other

3.7

4.2

3.4

5.0

5.0

5.0

5.0

Long Term Liabilities

 

 

32.7

93.0

57.9

88.2

205.2

192.6

178.0

Long term borrowings

16.0

76.3

41.0

66.0

183.0

170.4

155.8

Other long term liabilities

16.7

16.6

16.9

22.2

22.2

22.2

22.2

Net Assets

 

 

113.4

121.1

137.7

155.6

168.9

186.3

206.1

Minority interests

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Shareholders' equity

 

 

113.4

121.1

137.7

155.6

168.9

186.3

206.1

CASH FLOW

Op Cash Flow before WC and tax

40.0

49.2

67.8

64.4

75.0

89.8

92.8

Working capital

(9.2)

3.5

14.2

(3.8)

2.1

2.0

1.0

Exceptional & other

(0.5)

(5.6)

(7.2)

(3.5)

(4.5)

(4.0)

(4.0)

Tax

(7.0)

(7.8)

(12.0)

(12.2)

(11.8)

(13.4)

(14.3)

Other

0.3

1.6

(1.6)

(1.3)

(1.0)

(1.0)

(1.0)

Net operating cash flow

 

 

23.6

41.0

61.2

43.5

59.8

73.4

74.5

Capex

(2.8)

(1.2)

(2.2)

(1.5)

(1.6)

(1.7)

(1.8)

Acquisitions/disposals

(6.8)

(70.2)

1.7

(54.7)

(150.0)

(30.0)

(30.0)

Net interest

(1.0)

(1.6)

(2.8)

(2.8)

(6.9)

(10.9)

(9.9)

Equity financing

(1.8)

(1.9)

(2.0)

(2.1)

(2.1)

(2.1)

(2.1)

Dividends

(14.0)

(14.0)

(14.0)

(16.2)

(16.2)

(16.2)

(16.2)

Other

0.0

0.0

(0.4)

3.4

0.1

0.1

0.1

Net Cash Flow

(2.8)

(47.9)

41.6

(30.3)

(117.0)

12.6

14.7

Opening net debt/(cash)

 

 

(8.7)

(5.7)

42.4

0.9

31.6

148.6

136.0

FX

(0.2)

(0.2)

(0.4)

0.2

0.0

0.0

0.0

Other non-cash movements

0.0

0.0

0.3

(0.6)

0.0

0.0

0.0

Closing net debt/(cash)

 

 

(5.7)

42.4

0.9

31.6

148.6

136.0

121.3

Source: Edison Investment Research


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Copyright: Copyright 2023 Edison Investment Research Limited (Edison).

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United Kingdom

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This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

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Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

General disclaimer and copyright

This report has been commissioned by Information Services Corporation and prepared and issued by Edison, in consideration of a fee payable by Information Services Corporation. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2023 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

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