Pollard Banknote Limited demands patience

Feb 12th, 2016 – Comment

Closely held by family


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Lou Schizas is an equities analyst, investor, entrepreneur, professor and television and radio personality – and a true believer in the happiness-inspiring powers of capitalism.


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PBL LOGO

Hello Lou,

Could you please give me your analysis on Pollard Banknote?

This company is near its 52-weeks high.

Do you see more upside ahead or it’s not worth the gamble here.

Thanks and have a good week.

Mario

 

Hey Mario,

Thanks for the assignment. This will be my first look at Pollard Banknote Limited (PBL TSX) which over the last twenty five years has been focused on the production of instant lottery tickets for clients around the world. Instant lottery games generate 55% of lottery revenue and the segment has been showing steady growth.

The instant lottery scratch card printing segment operates as an oligopoly with three companies competing for contracts. Scientific Games Corp. (SGMS NASDAQ) controls 70% of the market, PBL 22%, and International Game Technology (IGT TSX) 8%.

The government control of lotteries provides a significant barrier to entry although technical disruptions are possible. PBL is just moving into the emerging iLottery segment which will have to be monitored. If players move to online instant games it could put pressure on the traditional printed card model.

PBL has a market capitalization of $193.52 million with average daily trading volume over the last three months of 5,670 shares. The stock is controlled by the Pollard family  which holds seventy three percent of the stock. The closely held stock in family hands  would explain the low trading volume. The yield on the dividend is 1.46% with the majority of the distribution going to the family.

An inspection of the charts will help determine how best to approach this small cap specialty printing company.

 

 

 

PBL

The three-year chart indicates that the uptrend line that started in 2012 was breached in June of 2015. What is also observable is that as it moved higher the stock built levels of support along the way. In January of 2016 when the shares breached the 50 and the 200-day moving averages buyers came back into the market near support at $6.25.

 

 

 

PBL2

The six-month chart depicts the buy signals generated by the MACD and the RSI in mid January as the stock ran for a $2.25 gain in just three weeks time. Make note of the resistance that has come in near $8.50 and is now presenting a potential topping pattern.

I would advise waiting to see if PBL is ready to start a new leg up from these levels before scratching this card.

 

Next time I will re-examine the case for POET Technologies Inc. (PTK TSXV) for Joe.

 

Make it a profitable day and happy capitalism!

 

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