DGL Limited
DGL Group Limited fell another -3.6% yesterday, with the stock down -31% since announcing its earnings (EBITDA) downgrade mid-last week.
We feel the market has overreacted to the news, given the downgrade was a -10% reduction from $71.5m to $73.5m down to $64m to $66m.
This shows the market’s shaky positions at the moment and that the market may be worried about another downgrade, say another -15% EBITDA downgrade down to say $55m. DGL looks interesting trading at ‘only’ 4x EBITDA – markets might be worried about another A2 Milk type situation. Looks oversold to us here at sub-80c – 4x EV/EBITDA is a tasty price – even with input costs going up topline looks solid. We are yet to provide full research on DGL Group but it’s worth considering a punt down at these levels ‘down and dirty in the charts’ for those with higher risk tolerance.
NZ
Rakon (RAK) has opened a new factory at SEZ Aerospace Park in Bengaluru – expected to increase margins and reduce costs as the company has been quick to “on-shore” ex-China. Note RAK looking like not bad value at 0.90c – we prefer it under a dollar (target price: $1.30-1.40)
Channel Infrastructure (CHI) sitting at a 10% gross yield at the moment. We like the company as a “toll booth” on fuel coming into NZ (large runway on jet fuel + diesel – fade the electric hype). Our one question mark is the sudden resignation of former CFO Jarek Dobrowolski and the swift replacement of him with his precursor, Denise Jensen. We rang CHI for comment and received a fairly short response back. Raises a few question marks. The market release to the CFO’s departure is classic boilerplate PR: “Jarek has decided to spend more time with his family and pursue other opportunities.” Well, certainly. Still like CHI as a stock but proceed with caution – a short tenured CFO is never a good sign
Aus
Radio station owner ARN Media launched an off-market raid on Southern Cross Media shares last night, seeking to to buy up to 14.8% of the company. Their bid of $1.08 values the company at $258.44M, a +44% premium to the current market cap of the company. Melting ice cube seeking to buy melting ice cube. US PE investor I Squared Capital has emerged as the preferred bidder for Downer’s waste management business Repurpose It, winning over the contractor with a bid of ~$250m. Downer owns ~45% of the business. Downer’s stock has largely recovered since a series of accounting scandals last year. No view.
Macro
We found the following chart interesting – NZ govt debt to GDP. 1987 – i.e. Black Monday – and 2023 have some similarities. Much like now, CPI in the 80s ran hot with the RBNZ hiking to keep up. And much like now, ‘83-87 was a period of sustained enthusiasm for stocks — look at chart two, which shows the top ten best performing stocks of 1985. Many of these traded at astronomical P/E ratios (Nvidia?) — a handful have continued to do well – AO Smith, Amgen; but many more have never regained their “glory years” – certainly in terms of multiples. Most rationalised to reasonable P/E ratios. Regression to the norm.
NZ Debt to GDP – history never repeats, tell myself before I go to sleep?
Best performing stocks 1985
Leaving you with a quote from a 1986 LA Times article — replace the year with 2021 and it could almost be a carbon copy: “Making money in stocks was easy in 1985. Lower interest rates, low inflation, takeover fever and other factors helped the Dow Jones average of 30 industrial stocks rise 27.66%, its best yearly gain since 1975. Thirty-two record highs were set. Stocks in nearly every industry rose. Gainers led losers by 1,957 to 356–better than five to one.”