Today, Canaccord offered the following commentary (via Dow Jones News):
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Investors may be reluctant to bet on casino operator Donaco International (DNA.AU) currently because its earnings are hard to predict, but that could change in future, Canaccord Genuity says. "On a conservative basis, we see a sustainable level of Ebitda for the business of A$80M-A$90M," Canaccord says. "If this can be demonstrated over the next 6-12 months, then together with a material reduction in bank debt, the stock will be trading on multiples too attractive to ignore in our view." Donaco, which owns the Star Vegas resort in Cambodia and the Aristo International Hotel in Vietnam, is due to report 1H earnings on Thursday. Canaccord expects net profit to fall 15% to A$22.3M. DNA last traded at A$0.35, well below Canaccord's A$0.73/share price target. ([email protected]; @dwinningWSJ)
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I think Canaccord is being polite and a bit off the mark. The "reluctance" isn't so much DNA's unpredictability -- if so, Crown would be equally in the dumps. The problems, I believe, are:
(a) Lack of momentum -- waiting for the falling knife to become a rocket. The ASX has more momentum dynamics than more sophisticated bourses (IMO). Partly blame DNA mgt for poor attention to current and potential shareholders.
(b) DNA board stumbled badly on expectations and delivery of dividends and share buyback. Missed consensus on divvies hurt broker trust in DNA's board and weakened ASX market appetite for DNA stock. The ASX market particularly has higher divvy expectations!
(c) SP is likely being toyed with (and pushed down) by short term traders or possibly un-registered short selling (doubtful, but might be possible offshore). Notice pre-trade sell orders well below the on market transaction point.
(d) Perceived risk of released shares overhang from Star Vegas former owners as well as risk of gambling law changes in Thailand. (Vietnam gambling laws about to change, but limited adverse effect on DNA except maybe fewer Vietnam visitors to Cambodia after next year).
DNA Price at posting:
35.0¢ Sentiment: None Disclosure: Held
