Unfortunately buying a stock of a PER of over 60 leaves little margin for error, so you need to be sure you are buying a quality growth stock. In this regard, I think DMP is a con-job. You are buying one very good business but two very poor businesses. The Aust/NZ operations earns about $40m or 67% of the groups earnings. This profit is on $150m of assets (about 25% of the groups assets), providing a return on assets of roughly 30%. This is a quality business (but reaching maturity) you would be prepared to a premium PER for, in my view about 25 times - giving a value of approx. $1 billion. This is a relatively rich valuation, i.e. providing an earnings yield of only 4%. The combined European and Japan operations will earn around $20m this year on assets of close to $500m - a paltry 4% of the amount of capital invested. A very poor business by any standards. At the current price of $40.46, the market value of DMP is $3.5 billion. Would you pay $2.5 billion for $20m of earnings? Applying a 15 multiple to the combined Europe and Japan businesses would result in a $300m value, providing a total company valuation of $1.3b - the share price would have to fall over 60% to reach this value.
DMP Price at posting:
$40.46 Sentiment: Sell Disclosure: Not Held
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