DLC 0.00% 0.6¢ delecta limited

DLC Future plans

  1. 668 Posts.
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    I came across DLC a few weeks back and dismissed it as I found the business model confusing and at first glance didn't seem to offer much. Was encouraged to take a closer look and based on that I bought in during the last week. The main reasons for me were a strong registry with almost 70% tightly held, solid wholesale business and potential acquisition of another uranium, copper or gold project. My assumption was that any acquisition would be followed by the sale of the wholesale business. So I contacted the company and they confirmed that although nothing is guaranteed it would be the likely outcome.

    That left 2 big questions - which project and how much could they get for the wholesale business. As others have already alluded to the most likely acquisition would be a US or Canada gold project based on players involved. I believe that would be an excellent outcome for all shareholders.

    To get a feel for the second question I went through the annual reports for FY18-20 and it's all pretty solid and improving with FY20 results the best of recent years despite AUD/USD averaging around 65c (FY18 - 75c; FY19 - 70c). The wholesale business results for FY20 were revenue of $16.65m with GP of $4.2m and NP of $0.9m. Based on the results from the last 3 years I'd be disappointed if they couldn't sell it for at least $7-10m. Especially considering recovery in the AUD and expected continued weakness in USD.

    Current mcap is $8 with cash & investments of over $2m which gives EV of under $6m based on Friday's closing price (more than covered by wholesale business alone). That offers really good risk/reward profile to me - especially if the gold acquisition is a good one. Ultimately this is a stock where the sum of the parts is worth a lot more than the current valuations. Personally I think the real value will only be achieved by selling the wholesale business or project portfolio. Based on recent acquisition and stated goal of further acquisitions there's only one option and that's selling the wholesale business which will not only unlock the value here but also remove need for any further CRs for the foreseeable future. GLTA
 
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