Hi guys, I've been an occasional visitor to hot copper for at least 12 months now and have followed this thread along with other stocks I own out of curiosity. Many interesting points have been made that lead me to further research and a better understanding so it's probably time I gave back to one of the discussions (not that what I say is gospel of course!)
Just for the sake of disclosure I own DNA shares at an average price of $0.40. I am currently very happy to hold my shares at the current price believing the company to be significantly undervalued by the market. I will try to articulate why below..
1. I can understand (and I share it) the concern about the motives of mgmt and whether they are always acting in the best interests of owners but with Joey having such a significant holding in the company it's at least a comforting sign. It's hard to imagine he doesn't want his $65 odd million investment to grow.
2. Correct me if I'm wrong but the Star Vegas was purchased for $360m which was later independently lifted to above $400m (bargain purchase uplift that went to profits in 2016). Now consider that the entire company is selling for about $270m. So if you place any credence on the above then essentially you are buying the star Vegas at a deep discount and getting the rapidly improving Aristo thrown in free.
3. Simply the fact that you can now buy a very profitable business that spits out enough FCF to pay dividends, pay down debt (quickly) AND do a share buy-back. You will find much less than 10% of ASX listed businesses doing that at any one time and DNA is doing so all whilst trading as if it's leaking cash.
4. Even if we assume that profits fall by 25% this FY. That would be a fairly big decline and would see a NPAT of about $40m. (Taking out mgmt fee that is no longer applicable). This would place the company on a forward P/E of 7. For a company doing all the things I said in point 3 above, this seems too good to be true.
5. Yes there have been some setbacks and the AGM update was a touch disappointing but let's also not forget the positives, junkets are rebuilding again, the King is unlikely to die this FY, the planned refurbishments, the expansion of slots and table games along with entairtainment venues, the Man Utd partnership (potentially underrated, Man Utd are hugely popular in this part of the world) and most of all the rapidly growing middle class of Asia.
6. It's not without risks! And that is why I haven't really gone balls n all on this. The regulatory and political risk in this part of the world cannot be underestimated. The Thai government making a decision to legalize gambling would probably have huge ramifications for example. The risk of poorly executed acquisitions also gets me nervous but at this price I feel the market is pricing the company on the basis of doom and gloom.
It's a risk reward game and I feel at this price there is a big margin of safety. You may or may not have full faith in the board but at this price they can do a lot wrong and you still be a winner long term. Importantly, the market can stay irrational for a long time so I won't be shocked if this goes to $0.25 but if the fundamentals stay sound IMO this will be valued significantly higher by the market in 2-3 years.
Apologies for the long winded post. I will try and be more succinct if I'm posting in future.
DNA Price at posting:
31.5¢ Sentiment: Buy Disclosure: Held
