DNA 11.7% 3.4¢ donaco international limited

OCP theory

  1. 336 Posts.
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    Here is my investment case and why I think this could be a multi bagger from current levels.

    OCP will refinance the Megabank loan. They finance SVH, so know the industry well and financing DNA with the free cashflow would be a much less risky loan than SVH and they'll pickup ~8% p/a for their troubles over 5 years.


    You'd expect to see 50% amortisation over 5 years and OCP debt would remove the covenant on share buy back and dividends. OCP are smart they know that refinancing the debt and recommencing the buy back and dividend will be good for the share price so they want to benefit from that as well which is why they have been buying as much stock as the can. Plus owning a big chunk of the company will allow them to influence the board to make the loan change from Megabank to them. 


    If you remove the US$21m of megabank amortisation (DNA called out ~2 years to pay it down the US$39.9m) add in OCP amortisation they could buy back 40% of the company in the first 12 months (without touching their ~AU$47m cash balance but would require SH approval for the increase ... you get the picture). After that (or during that using their cash) they recommence the dividend which could be, something like AU$10-$20m (not doing any exact work on that number) against 490m shares which would be 2.0c - 4.1c per share in dividend. 


    Then you have the upside of the Thai vendor arbitration which is very likely to see another ~19% of the company returned, so that puts the dividend up to 2.55c - 5.1c per share. This feels like a fairly likely outcome of the arbitration >80% chance and they have locked his shares on the register.


    Using the $10m dividend low case, you could see this trading on 10% div yield which is a share price of 25.5c on 390m shares which is a market cap of AU$100m on EBTIDA of AU$20-25m is 4-5x EBTIDA and (say) 4.8x - 6.25 x EV/EBITDA. Probably in the range of what it should trade on +/- 1x. 


    There are too many variables to play with but if you do a bear case of the above, reduce the buy back, increase the amortisation, reduce the dividend, reduce the earnings, you still end up somewhere like 15cents which is more than double the current share price. If you put earnings back to the level pre current problems, then the 25c looks conservative and it could be closer 50c-60c.


    Then you have any upside on the US$190m claim on the Thai vendor (outside his shares), that seems like a long shot but heck at current share price and market cap if they can even recover something small (maybe his assets in Singapore etc) it makes a huge difference to the numbers above.


    Before OCP entry the picture this seemed like a good risk / reward trade but after OCP buying I think this is one of the best trades I've seen in a long time. A lot of things have gone wrong, it has been priced on the emotion of a few instos getting out and there are a number of things that could now go right from a better board, debt refinance, a win on the chair vendor and an improvement in property performance and take up of the online business. 


    That all said, it has been a real mess to date, with a lack of good governance with assets in emerging markets, it is a really risky stock.


    Disclaimer: I've purchased a lot of stock and I'm really long, DYOR.

     





 
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Last
3.4¢
Change
-0.005(11.7%)
Mkt cap ! $42.00M
Open High Low Value Volume
3.8¢ 3.8¢ 3.4¢ $34.6K 987.3K

Buyers (Bids)

No. Vol. Price($)
1 200000 3.5¢
 

Sellers (Offers)

Price($) Vol. No.
3.8¢ 56887 1
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Last trade - 15.58pm 28/03/2024 (20 minute delay) ?
Last
3.4¢
  Change
-0.005 ( 8.11 %)
Open High Low Volume
3.6¢ 3.6¢ 3.4¢ 123855
Last updated 15.57pm 28/03/2024 ?
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