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PBSV: 7.5% Dividend Declared. Returning Cash To Shareholders As PBSV Evaluates Strategic Options

By Brian Marckx, CFA



$0.075 Per Share Dividend Declared: Returning Cash To Shareholders As PBSV Evaluates Strategic Options

Bolstered by the sale of their Puerto Rico-based laboratory assets, Pharma-Bio Serv, Inc (OTC:PBSV) wasted little time in putting their ever-greater cash balance to work for shareholders. The sale, which closed in mid-September, brought in $2M cash upfront and includes another $3M in proceeds in the form of a two-year promissory note. Pro forma for the sale, cash balance was $16.9M as of July 31st – and this does not include the $3M promissory note (which will be fully collected over two years). And with operations now at a better-than-break even rate of cash flow generation, we think cash could continue to pile up.

As we noted in our report last week (Lab Assets Sold, Should Benefit Margins, Profitability. Big Cash Balance Affords Strategic Flexibility, Oct 1st), aside from possibly repurchasing additional shares (another ~1.7M shares can be repurchased under their existing stock buyback program), we did not have any particular insight as to management’s plans for potentially reinvesting their now even-larger cash position.

We also noted that, given that the lab had consistently ran in the red (and presumably would continue to do so), that selling off the assets was a sensible and shareholder-friendly decision by PBSV. While a too-big cash balance is usually a good ‘problem’ to have, given that the return on cash isn’t particularly attractive (especially at today’s interest rates), we also applaud management’s subsequent decision to declare a (very healthy) ~7.5% (i.e. $0.075/share) dividend.

The dividend, announced yesterday and payable on October 26, 2018 to shareholders of record at the close of business on October 15, 2018, will consume roughly 10% (i.e. $1.7M of $16.9M) of their (pro forma for the lab sale) cash balance (as of 7/31/18). While not specifically characterized as such, we assume, at least for now, that this is a one-time ‘special dividend’ – although also point out that the PR (filed with 8-K, Oct 4th) leaves open the possibility of future dividends as they evaluate their strategic options (“The Board will continue to evaluate the Company’s strategic plan, which might include future acquisitions, sales of business units, dividends or any combination of these opportunities while continuing our stock repurchase plan.”).

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