Target price and numbers....

Been doing a little further work on the DNA opportunity, which I continue to think is one of the better risk/reward trades out there. (I've gone hard at it and recently topped up) 

Excuse the length of this post, I’ve summarised my numbers at the top. Would appreciate any feedback, what am I missing ?

Market Cap AU$62m ($0.075 SP)

CY2019 EBITDA AU$40m (assumption per below)

Debt AU$56m

Cash AU$40m (AU$47m at annual report, less AU$12 megabank repayment and increased it by AU$5m for cash generated to Dec31)

Net Debt $16m

EV AU$78m 

So the company is trading on an EV/EBITDA multiple of 1.95x … that is seriously, seriously cheap

If you believe the company will be able to cancel the Vendor’s 19% stock in DNA then it looks like …

Market Cap AU$50m ($0.075 SP)

CY2019 EBITDA AU$40m 

Debt AU$56m

Cash AU$40m

Net Debt $26m

EV AU$66m

Trading on EV/EBITDA multiple of 1.65x …. 

The stock doesn’t come without risks but equally it has some potential big upsides catalysts also (see Catalysts below, on balance weighted to upside) 

So if we fast forward a year what does the company look like (assuming Megabank isn’t refinanced) and Vendor’s shares are canceled but no other award or enforcement.

Market Cap AU$50m ($0.075 SP)

CY2020 EBITDA AU$40m

Debt AU$30m (assumed 2 x payments of US$8.5m - paid from cash flow)

Cash AU$40m (kept flat, maybe conservative)

Net Debt -$10m 

EV AU $40m 

EV/EBTIDA multiple of 1.0x 

If you keep the multiple around 2x then the share price should be around $0.15 two times is too cheap for this business. 

Almost all the overhanging issues will be resolved in that 12 months so assuming nothing drastic goes wrong you think the multiple would get back to at least 4x (still cheap) so share price would be $0.30. So for a 12 months hold, assuming the thing doesn't blow up on legals and without any earnings improvement it could be a 4 bagger. 

There would be further upside in the 2 year time frame as the company would have completely paid down megabank (have no debt), net cash of ~$40m and generating (conservatively) $25-30m free cashflow for dividends or buy back, if they paid out that cash as a dividend it would be somewhere between $0.04 - $0.045 per share in dividend. 

This doesn’t assume any upside to the US$190m damages case if they win and can enforce it, I feel that offsets the risks so don't add it into any assumptions. 

Upcoming Catalysts 

• Feb 27 results (could be either completion or update on Strategic Review) results to Dec31 known
• March 13th Strategic review due (guided 3 months from Dec 13th)
• Feb/March announce refinanced debt with ability to pay dividends and share buy-backs, more free cash flow 
• OCP could start to buy stock again after they are free from non-public information on the debt refinance
• March resolution of lease dispute on Star Vegas
• July-August Singapore arbitration on DNA case US$190m damage case against vendor 
• August-September potential enforcement (if successful) of cancelation of Star Vegas vendors 19% shareholding
• Q4 CY2019 potential enforcement in Asia over any damages award

What know on current Earnings

AGM Update 29th Nov
* July - October was defined by the company as "poor trading". 
* July - October Group EBITDA was $5.22m for the 4 months 
* Company confirmed that there was strong improvement in November performance [note: turn around started November not October]

Trading Update 29th Jan 
* December Quarter Group EBITDA $8.1m 

Note: That includes October which was before the recovery

Given the December quarter includes October which was a poor performing month, the run-rate EBITDA is in fact higher than Q4 of $8.1m or $32.4m p/a

If we take October month EBITDA as the average of the AGM update of the 4 months we get $1.3m 

Which means the months of November and December must be $3.4m each to get to the $8.1m (i.e. Oct $1.3m / Nov $3.4m / Dec $3.4m = $8.1m)

So the monthly run rate EBITDA equates to $40.8m p/a