Resilient Real Estate And Regulatory Tailwinds Will Support Stronger Long Term Earnings Power

Catalysts

About Information Services

Information Services operates registries, services, and technology platforms that support property, corporate, and regulatory information transactions.

What are the underlying business or industry changes driving this perspective?

• Resilient real estate activity in Saskatchewan, with higher transaction volumes, more high value property registrations and higher average home prices, is supporting the higher margin Land Registry and can continue to support revenue and adjusted EBITDA if that activity persists.
• Ongoing system development and registry enhancements in Saskatchewan, combined with capitalized IT work inside Technology Solutions, point to a more scalable cost base that can support future volume without a similar rise in expenses. This can help adjusted EBITDA margins and earnings over time.
• Regulatory compliance requirements such as FINTRAC are driving steady usage in Regulatory Solutions. Price increases on renewals and contracted relationships can support pricing power and contribute to revenue growth and adjusted EBITDA in that segment.
• Countercyclical Recovery Solutions activity tied to higher automotive delinquencies is adding a second leg of growth in Services. Higher margin asset recovery assignments and better allocation from lenders can support segment level margins and cash generation.
• Disciplined capital allocation, including voluntary prepayments of $16 million on the credit facility and a stated net leverage target of 2 to 2.5x, positions the company with greater flexibility for future contract wins or acquisitions. These factors can influence revenue, net income and adjusted free cash flow.

Assumptions

This narrative explores a more optimistic perspective on Information Services compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts. How have these above catalysts been quantified?

• The bullish analysts are assuming Information Services's revenue will grow by 5.7% annually over the next 3 years.
• The bullish analysts assume that profit margins will shrink from 10.7% today to 10.2% in 3 years time.
• The bullish analysts expect earnings to reach CA$30.8 million (and earnings per share of CA$1.69) by about January 2029, up from CA$27.2 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 38.9x on those 2029 earnings, up from 30.2x today. This future PE is greater than the current PE for the CA Real Estate industry at 8.4x.
• The bullish analysts expect the number of shares outstanding to grow by 1.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.2%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• A large part of Registry Operations is tied to real estate activity in Saskatchewan. If transaction volumes or average home prices soften after a very strong period, the higher margin Land Registry revenue stream could come under pressure, which would likely feed through to lower adjusted EBITDA and net income.
• Recovery Solutions benefits from elevated automotive delinquencies, but this is a countercyclical business. If credit conditions improve and lenders see fewer delinquencies, case volumes and asset recovery assignments could fall, weighing on segment revenue and compressing overall margins and earnings.
• Regulatory Solutions is influenced by the health of the Ontario economy and the impact of regulatory changes such as the ban on NOSIs and the opening of the Ontario Business Registry. Any further regulatory shifts or prolonged economic headwinds in Ontario could limit transaction volumes and fee growth, affecting revenue and adjusted EBITDA in that segment.
• Technology Solutions revenue depends on the timing and progress of long term third party implementation contracts, and recent deferrals into future periods highlight that client driven delays can stall project milestones. This could make revenue more volatile quarter to quarter and affect earnings visibility and cash flow timing.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The assumed bullish price target for Information Services is CA$49.0, which represents up to two standard deviations above the consensus price target of CA$42.2. This valuation is based on what can be assumed as the expectations of Information Services's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of CA$49.0, and the most bearish reporting a price target of just CA$35.0.
  
• In order for you to agree with the more bullish analyst cohort, you'd need to believe that by 2029, revenues will be CA$300.2 million, earnings will come to CA$30.8 million, and it would be trading on a PE ratio of 38.9x, assuming you use a discount rate of 8.2%.
  
• Given the current share price of CA$43.84, the analyst price target of CA$49.0 is 10.5% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.