Saskatchewan Registries And Regulatory Solutions Will Benefit From Fee Adjustments And Compliance Demands

Key Takeaways

• Fee adjustments and strong real estate activity in Saskatchewan are anticipated to enhance revenue and net margins across key divisions.
  
• Growing compliance needs and economic pressures are likely to boost revenues in Regulatory and Recovery Solutions through increased sales and higher-margin opportunities.
  
• Regulatory challenges and increased expenses could pressure net margins and financial flexibility, risking adverse impacts on revenue and earnings.

Catalysts

Provides registry and information management services for public data and records in Canada.

• Fee adjustments implemented in July 2023, particularly in the Saskatchewan Registries division, are expected to continue to drive revenue growth and enhanced net margins due to higher fees across an entire year.
  
• There is an expected continuation of strong real estate activity in the Saskatchewan market due to factors like strong population growth and improved market confidence, which should support revenue growth in the Land Registry segment.
  
• Continued growth in the Know Your Customer and due diligence activities in the Regulatory Solutions division is anticipated as compliance requirements become more stringent, which can lead to increased revenue over time.
  
• The Recovery Solutions division anticipates increased assignment levels and sales due to economic pressures on consumers, which will likely enhance revenues and possibly margins as the division benefits from higher-margin sales.
  
• Progress on solution definition and implementation contracts in the Technology Solutions segment is expected to drive revenue growth as the company capitalizes on new client projects and enhanced service offerings.

Information Services Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Information Services's revenue will grow by 6.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from 8.5% today to 14.9% in 3 years time.
• Analysts expect earnings to reach CA$43.5 million (and earnings per share of CA$2.39) by about February 2028, up from CA$20.7 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 19.0x on those 2028 earnings, down from 23.6x today. This future PE is greater than the current PE for the CA Real Estate industry at 11.6x.
• Analysts expect the number of shares outstanding to grow by 2.37% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.07%, as per the Simply Wall St company report.

Information Services Future Earnings Per Share Growth

Risks

• The introduction of a ban by the Government of Ontario on Notice of Security Interests (NOSIs) at the start of the quarter negatively impacted the company's collateral management offering, which could result in revenue declines from this segment.
  
• Increased expenses, including share-based compensation, IT services related to technology solutions, and increased amortization from the extension agreements, might compress net margins in the future.
  
• Although the regulatory environment enhanced due diligence activities, the overall high compliance costs could potentially affect net earnings if the costs do not translate into proportional revenue growth.
  
• The company's debt level, with $177.5 million as of September 30, 2024, could pose a risk to financial flexibility, potentially impacting earnings if interest rates fluctuate or if there's a need to service debt more aggressively.
  
• The potential for unforeseen regulatory changes, similar to the NOSIs ban in Ontario, across other regions could impact revenue, especially as secure registry solutions and contractual transitions might offset but not fully cover the lost revenues.

Valuation

• The analysts have a consensus price target of CA$34.4 for Information Services based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of CA$36.5, and the most bearish reporting a price target of just CA$30.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be CA$291.7 million, earnings will come to CA$43.5 million, and it would be trading on a PE ratio of 19.0x, assuming you use a discount rate of 8.1%.
  
• Given the current share price of CA$26.3, the analyst price target of CA$34.4 is 23.5% 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.