DH Corporation — expensive cheques but might be a good stock to buy


After looking at the ludicrous prices for business cheques, I decided to invest in the company that makes them for all the banks, D+H (formerly Davis and Henderson, which is about 140 years old). The set up fee for cheques is $161.77, plus if I wanted 50 cheques it would cost $87.13, or a much more reasonable $173 for 600 of them (on top of the $161.77). I refused to pay that much, paying more than a dollar to write a cheque, let alone the service charges was beyond unpalatable. Instead, I went to Staples where the same cheque costs $79.99 for 200 or $105.99 for 500.

At about this same time I read an article in the Globe and Mail about D+H. The stock had tanked after the 2008 crash, everyone was negative on it because the future prospects for the cheque writing industry looked grim, and it was yielding about 7%. I like a good dividend so I bought some (a few of the articles I read said that they were moving into financial technologies so it looked like there was some hope for it). I bought some at $17.30, and more at $19.00. It was in the $40 range in the summer, but due to some pressure from short sellers it is now hovering around $30 . Its yield is now just over 4%. It has a P/E of about 13, ROA of about 3% and ROE of about 6% with a market cap of $3.4 billion. I’m wondering if I should use the recent price drop as an opportunity to buy more. I’ll have to take a look and see if earnings look solid and if it makes sense to add to my holdings during this slump, or if there are indeed danger signs lurking.

What happened is that the company began to diversify outside of cheque printing and it began to make acquisitions with an eye to become a financial technology company. In April 2015, it closed on a $1.25 billion acquisition of Fundtech Ltd. which is a payment technology company. There is some debate about how the transition to the new business model will evolve. A summary from the Globe and Mail is here In April 2015 Susan Brunner did an analysis of the stock and she found it to be expensive, though the price has come down since then.  Part one and part two.

This post is for information purposes only. Please do your own research or consult an investment professional before making any investment decisions.


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