Updated Views on DSK

Hi Guys,

I've been doing some more research on DSK (re reading the most recent annual report, watching some old Peter King interviews and reading through some of the other really informative posts on this forum which have been very high quality!) and thought I would make some general points on what I've found and then have a bit of a crack at a potential EPS for FY24 with some discussion on what FY25 if we presume there is a broad recovery in consumer spending that Dusk manages to capitalise on.

Gross Margins: I know we've had a lot of discussions on the high margins at Dusk and wondered how sustainable these actually are. I was particularly interested to find that the margins were stable in the mid 60s all the way back to FY18 when we had a smaller but still meaningful store foot print of 106 stores. This gives me confidence the margins can be maintained going forward.

Directors Interest: I tracked back through the last few years of directors interest notices and was pleased to see that David Mclean topped up on market in the middle of this year at $1.23

I also give John Joyce (The Chairman) a lot of credit for holding around 3 percent of the company with 2.3 million shares. That's some serious skin in the came and means he's been hit harder that all of us through the brutal share price decline.

I didn't realise the full scale of Trent Petersons share sales he actually dumped an incredible 10 million shares between $1.80 and $2 towards the end of 2021

He's still holding a relatively significant stake with 278 thousand shares although I would imagine that's a tiny fraction of his net worth.

I actually think Catalyst (Mr Petersons Company who were involved in the float with Brett Blundy) might be a player in any takeover but that's pure speculation and would be a bad look for private equity in general floating something off at $2 then picking it up a few years later in the mid $1s (I actually think a takeover could get over the line around $1.30 at the moment unfortunately).

The most disappointing part is the remaining two directors with tiny shareholdings that are a fraction of their annual directors fee.

A possible curve ball that nobody thinks too much about is that as far as we are aware Peter King (the former CEO) still holds 2.16 million shares (he bought his last parcel on market at $2.50 in early 2022).

That's a similar stake to John Joyce and to me (again pure speculation) makes him a candidate to come back and run the company (Or maybe even take a board seat?) in any privatisation.

There has clearly been major changes to the top 20 shareholders list (another question is how much the Thai Fund are now holding?) and this is going to be a big factor in whether DSK remains a public company through next year.

Also just on a side note here didn't Regal sell out in July of last year? The recent AFR article regarding Ord Minnett shopping a deal around mentioned a potential purchaser getting Regal on side first. Was this just bad research?

New CEO incentives: I had a read over the 414 953 performance rights that have been granted to Vlad and was interested to see that we need to hit a 20c EPS in FY26 for any of these to vest.

The remainder vest on a pro rata basis between 20 and 27 cents which to me gives us an optimistic top end of what Dusks earnings might look like if things really turned around over the next couple of years (amazing to think we got to 41 cents back in FY21 when you look back on it).

Again I'll reiterate that I would love to see him purchase a substantial parcel on market in the next year to show faith in his own strategy that would be excellent.

Potential Earnings: I'm trying to establish a worst case scenario EPS for FY24 which then informs what the dividend might look like (I note the payout ratio in FY23 was quite conservative at 65%)

We had an 11.6 million NPAT in FY23

We know that sales so far are down 11.6% for the first 20 weeks of FY24 so let's presume that we finish FY24 10% behind on sales which would give us 124 million approximately (I'll round up or down to the nearest million for simplicity).

Gross Margin of 65 percent would make the gross profit 81 million

The fixed costs is where it gets tricky because we know they've been hit by inflation but they've also taken 2 million out in the CODB reduction program.

The annual report had 73 million in fixed costs for FY24 so maybe we work on the basis of a 5% increase? This would bring us up by 4 million to 77 million

This would give us a net profit of 4 million dollars then taking out 30% would give us 2.8 million divided by 62 million shares on issue gives us 4 cents per share EPS.

Where am I going wrong?