Ann: Successful Completion of $120m Underwritten Placement, page-194

There is lot's of views on share price and where it is going to be, but not much talk about valuation.

I'll have a stab here, by looking at a five year time frame. No suggestions that I'm right (I'm often not) but this is my back of an envelope calculation

In five years to have a decent return, you'd want the share price to be at least $2 to give a market beating return over that time. Assuming there are no more CRs (this is a pretty optimistic scenario since DRO has a long history of CRs) the number of shares on issue will be about 1 billion, allowing for options to management etc. That would give a market cap of $2 Billion.

By then DRO should be a profitable stable company that is not growing anything like at the rates today, but if we assign it a P/E of 25 that means it would need to be earning at least $80 - $100 M per year. That seems plausible but one wouldn't want to be betting on anything too much higher than that, because it needs an awful lot of growth to reach that point.

At the current price that's a 14% estimated return if there are no more CRs and DRO delivers well on it's promises. Given that I can probably get the same return on much safer large caps, the current price looks acceptable with someone with a high risk profile but I wouldn't call it particularly attractive. It seems to me that the dilutions have really hurt they attractiveness of DRO because when a company has a billion shares on offer, it needs $100 M in profit (after tax) to have an EPS of 10c.

So based on that, what would I call an attractive price, where I'd jump in (assuming there are no better offers around)? I guess that would be about 70c since that would give me a return of 25% p.a. if all above turns out to be, on average, somewhere near the mark. It may never reach that (I can't and don't predict share prices).

Of course a lot of people fall in love with stocks, but it should always be a comparison with what else is out there. I doubt if anyone is much interested in where my old DRO money is today, but for the one or two who might be, here goes. I already mentioned the TWE warrants, but they went a while back (I sold as soon as the Chinese wine tariffs were removed) and now I'm in a stock called AL3. It's not making big claims, has modest CRs when it needs cash, and management isn't pillaging the company. Like DRO it has a good growth profile but is in an early point in its growth, but profitability seems close. Though I bought at 10c and it's up a bit since then.