DH Corp. (TSX:DH) is a financial technology provider that tanked a whopping 31% in 2016. The company recently cut its dividend by 62% as a part of a strategic transformation that will help the company pay back its mountain of debt and re-focus on long-term initiatives that will help the stock get out of the hole it’s currently in.
The company has been known as a supplier of paper cheques, but it has since moved into the financial technology space in order to stay competitive as the financial industry shifts into the digital age. DH Corp. has made a series of acquisitions in the financial technology space over the last few years, but it has accumulated a mountain of debt, which is now at $1.9 billion. There’s no question that this is a ridiculous amount considering the company only has a market cap of $2.4 billion.
DH Corp. will be holding off on any more acquisitions, at least for the next year, until it can delever its balance sheet.
After DH Corp.’s acquisition of FUNDtech, a company with large exposure to the U.S. economy, will be very strong for the next few years thanks to a pro-business president-elect Donald Trump. He is determined to give the U.S. economy a boost by lowering corporate taxes and getting rid of regulations that hinder some businesses.
The stock currently yields a bountiful 5.6% yield, which looks reasonably stable after the recent cut. The company currently trades at a 1.1 price-to-book ratio, which is much lower than its historical average ratio of 1.9. The price-to-sales and price-to-cash flow multiples are at 1.4 and 8.3, respectively, both of which are lower than the company’s five-year average multiples of 2.1 and 14.1, respectively.
The stock is too cheap to ignore, so if you’re a contrarian investor who wants to get some FinTech exposure, then DH Corp. is a fantastic pick that offers a nice margin of safety at the current entry point.
The debt may hinder the company’s ability to grow and make acquisitions for the next two years, but I believe the company can get its earnings back on track without making any more acquisitions. It’s likely that DH Corp. will focus on re-investing in its current group of companies while paying its shareholders a generous dividend.
If you invest in the stock, then make sure you’ve got an investment horizon of three years or more, because a full rebound may be years away. Buy the stock and collect the huge 5.6% dividend yield in the meantime.
