Author Topic: Dumbdee - The Goodmans, The Bad & The Ugly - 30% of NAV bargain?  (Read 97735 times)

sculpin

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Anyone want to admit to owning any heavily discounted resource focused conglomerates?

Well Dundee Capital (TSX - DC.A) is certainly one as is the once highly regarded Sprott Resource Corp (latest NAV $1.41, SCP mkt price $0.45) which traded at $5.75 back in 2011 when Eric Sprott's rantings on gold & financial cataclysm were more in vogue.

For those who believe there is upside in oil, ag and gold these 2 publicly traded vehicles could offer a highly leveraged vehicle to this rebound yet with a substantial margin of safety built in due to their massive discounts to recent net asset values.

According to GMP (see below) Dundee Capital has a net asset value of $16.02 as of last quarter yet trades on the TSX currently for a meager $4.90 heavily discounted Canuck bucks. This is about 30% of its calculated NAV.

As Broadview Capital writes in their latest November portfolio update...

A brutal year for smaller-cap Canadian stocks appears to be culminating in one last horrific tire-fire of a
sell-off. The confluence of tax loss selling, commodities hitting new lows and the disappearance of
liquidity has created a “no bid” environment for huge swaths of the market.


It is at this point that one must consider the trade-off between volatility and absolute return.
In plain English, this consideration is expressed as “are you willing to watch as your portfolio falls, perhaps
significantly, if you are confident it will ultimately regain those losses, and more?” As such an example,
we have been watching the equity of Dundee Corporation (DC.a:TSX)2 over the past few months. We
have seen it plummet from the mid-teens a year ago to under $8 two months ago. At that point, it
looked interesting given the potential value of the underlying assets. It’s now under $5. It may
ultimately prove to have been a great deal at $8, but certainly not a better deal than at $5 (or maybe at
$3).


Follows is the GMP note on Dundee following the Q3 release....

Dundee Corporation BUY
DC.A-TSX

November 16, 2015

Q3/15 - UHIC impairment lowers NAV

Undiscounted NAV of $16.02

As of Q3/15, our undiscounted NAV is $16.02 (previously $19.55). The decline
was due predominantly to an asset impairment at United Hydrocarbon
International Corp. (“UHIC”) that reduced the carrying value of the
investment. The carrying value of the investment in Pan African Minerals also
declined materially. Despite our reduced NAV, the discount remains wide, at
~54%. In addition to ongoing uncertainty around UHIC and Pan African, we
also believe the market continues to be cautious on a few of the other
material holding including Blue Goose Capital, Union Group International and
Dundee Securities.

UHIC remains the largest individual investment in the portfolio at $227
million or $3.87/share (previously $5.79/share). During the quarter, UHIC
recorded an impairment on its resource properties of $215 million, to reflect
the recoverable amount. As a reminder, UHIC temporarily suspended
operation in Q1/15 in response to pressure on global oil prices. We continue
to believe that some recovery on the investment is likely, although timing
remain uncertain.

Maintain BUY – Outlook still positive, optional upside remains

The UHIC impairment does not change our positive outlook for DC.A overall.
We believe this had been priced into the stock. In our view, the current share
price may still allow investors to participate in the upside of certain private
investments. We believe the investment portfolio remains diversified and
strategic and we continue to see potential for value through real estate
investments and new product initiatives such as the SPAC.

We continue to use DC.A’s carrying values of investments for our
undiscounted NAV. However, we have quantified downside risk for the NAV
by applying various discounts to the portfolio depending on the risk profile of
the investments. Our most conservative calculation, which excludes all
private resource sector investments, still results in shares trading at a ~10%
discount to NAV.

Our undiscounted NAV is $16.02 (previously $19.55). We apply a 20%
discount to yield our price target of $13.00 (previously $16.00). Shares
continue to trade below our most conservative NAV estimates. We maintain
our BUY recommendation.


scorpioncapital

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Re: Dumbdee - The Goodmans, The Bad & The Ugly - 30% of NAV bargain?
« Reply #1 on: December 15, 2015, 04:39:38 PM »
Add Canacord Genuity (CF) to the list. An investment bank trading at tangible book value. Usually a good price if their commodity focused client list picks up.

intothebreach

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Re: Dumbdee - The Goodmans, The Bad & The Ugly - 30% of NAV bargain?
« Reply #2 on: December 15, 2015, 07:41:12 PM »
I've also been long Dundee since it got chopped to half book. In addition to its vast collection of resources assets, I also view it as having an option in launching a new financial offering since Goodman's non-compete is now over, which he took the time to mention in the latest AR (if memory serves). Been wrong or early so far, slowly adding more.

gokou3

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Re: Dumbdee - The Goodmans, The Bad & The Ugly - 30% of NAV bargain?
« Reply #3 on: December 15, 2015, 07:58:31 PM »
What about the preferred? Dundee series 3 is trading at 40% of par.

petec

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Re: Dumbdee - The Goodmans, The Bad & The Ugly - 30% of NAV bargain?
« Reply #4 on: December 16, 2015, 12:51:47 AM »
Sculpin did you mean to spell it Dumbdee?!   I like it!

I did some work on this a year ago (reading the annual letter was purgatory - some serious hubris there) and am now very interested.   The problem is I found it impossible to value many of the underlying assets so you're rather reliant on accounting/cost basis being accurate.   Thoughts?

P

sculpin

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Re: Dumbdee - The Goodmans, The Bad & The Ugly - 30% of NAV bargain?
« Reply #5 on: December 16, 2015, 07:00:15 AM »
Add Canacord Genuity (CF) to the list. An investment bank trading at tangible book value. Usually a good price if their commodity focused client list picks up.

Canaccord also has a rate reset preferred share that is currently trading at $13.00 (with a par value of $25). It is currently yielding over 11% based on its current dividend of $1.44. However this  preferred resets on June 30th 2017 at the Canada 5yr bond rate plus 4.03% which given the current 5yr rate would mean a drop in the dividend to around the $1.20/annum area. Still a pretty good dividend amount if you believe in Canaccord. As well, if CF is taken over by a larger entity these prefs could rerate to a lower dividend yield or be paid off at $25. The symbol on  them is CF.PR.C on TSX.

Series C preferred shares:

YIELD: Canaccord Genuity Group (formerly Canaccord Financial) Series C preferred shares pay fixed, cumulative, preferential cash dividends payable quarterly, yielding 5.75% annually for the initial period ending June 30, 2017 ("Initial Fixed Rate Period")*
RATING: DBRS has assigned the Series C preferred shares a rating of PFD-3 (low with a negative trend).
CONVERSION DATE: After the initial period ending June 30, 2017, the dividend rate will be reset every five years at the rate equal to the 5-year Government of Canada bond yield plus 4.03%.
CONVERSION OPTION: On September 30, 2017 and on every September 30th every five years after, holders of Series C preferred shares will have the right, at their option, to convert any or all of their shares into an equal number of Cumulative Floating Rate First Preferred Series D shares.
 

Nelson

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Re: Dumbdee - The Goodmans, The Bad & The Ugly - 30% of NAV bargain?
« Reply #6 on: December 16, 2015, 07:43:03 AM »
I've been long this one since about $11. I averaged down at $8 and then I bought the Series 3 (DC.PR.D) preferreds. Overall, it's a relatively large position, about 5% of my portfolio.

I view it as a typical Ben Graham cigar butt, especially at today's price. I'm getting energy and mining assets which are already beaten-up for 30 cents on the dollar. Even if the valuation is aggressive, the margin of safety here is huge.

Intothebreach mentioned one potential catalyst, which is the company getting back into the wealth management business again in a big way. The other is its real estate division. They have joint ventures to develop a casino on Vancouver's waterfront, along with resorts in Cuba and a big development surrounding the new Olympic site in South Korea. Remember, these guys have history in creating value in real estate through Dundee REIT which was eventually spun off into the Dream family of REITs.

Francis Chou owns a bunch of Dundee too, and at higher prices as well. I'm content to hold and collect my ~10% dividend on the preferred. I see a very small chance the whole company goes to zero.

sculpin

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Re: Dumbdee - The Goodmans, The Bad & The Ugly - 30% of NAV bargain?
« Reply #7 on: December 16, 2015, 07:57:40 AM »
What about the preferred? Dundee series 3 is trading at 40% of par.

Yes the DC.PR.D is a floater yielding 90 day Tbill plus 4.1% trading at $9.60 and currently paying out $1.14 so yield is about 12%. With the amount of assets backing the Company and relatively low level of debt this should be an excellent current yield play and spectacular if you ever believe that short term interest rates will ever rise again.

The DC.PR.B is a rate reset preferred which resets at the 5 year bond plus 4.1% on 30 Sep 2019 so there is about 4 years at the current dividend level of $1.42 yielding about 11 % at the current trading price of $13. Another great opportunity if you ask me.


sculpin

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Re: Dumbdee - The Goodmans, The Bad & The Ugly - 30% of NAV bargain?
« Reply #8 on: December 16, 2015, 12:46:17 PM »
I've been long this one since about $11. I averaged down at $8 and then I bought the Series 3 (DC.PR.D) preferreds. Overall, it's a relatively large position, about 5% of my portfolio.

I view it as a typical Ben Graham cigar butt, especially at today's price. I'm getting energy and mining assets which are already beaten-up for 30 cents on the dollar. Even if the valuation is aggressive, the margin of safety here is huge.

Intothebreach mentioned one potential catalyst, which is the company getting back into the wealth management business again in a big way. The other is its real estate division. They have joint ventures to develop a casino on Vancouver's waterfront, along with resorts in Cuba and a big development surrounding the new Olympic site in South Korea. Remember, these guys have history in creating value in real estate through Dundee REIT which was eventually spun off into the Dream family of REITs.

Francis Chou owns a bunch of Dundee too, and at higher prices as well. I'm content to hold and collect my ~10% dividend on the preferred. I see a very small chance the whole company goes to zero.

In my opinion, Dundee should be the poster child for the abolition of dual class share structures. Take a look at the latest management information circular & note carefully the substantial amounts paid to directors & management to put together such a complicated & poorly performing menagerie of assets. No way would this be trading at 25% of a already much reduced net asset value if there were no multi voting shares....
http://dundeecorp.com/pdf/2015-DC-Circular-FINAL.pdf


Nelson

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Re: Dumbdee - The Goodmans, The Bad & The Ugly - 30% of NAV bargain?
« Reply #9 on: December 17, 2015, 09:21:03 AM »
I've been long this one since about $11. I averaged down at $8 and then I bought the Series 3 (DC.PR.D) preferreds. Overall, it's a relatively large position, about 5% of my portfolio.

I view it as a typical Ben Graham cigar butt, especially at today's price. I'm getting energy and mining assets which are already beaten-up for 30 cents on the dollar. Even if the valuation is aggressive, the margin of safety here is huge.

Intothebreach mentioned one potential catalyst, which is the company getting back into the wealth management business again in a big way. The other is its real estate division. They have joint ventures to develop a casino on Vancouver's waterfront, along with resorts in Cuba and a big development surrounding the new Olympic site in South Korea. Remember, these guys have history in creating value in real estate through Dundee REIT which was eventually spun off into the Dream family of REITs.

Francis Chou owns a bunch of Dundee too, and at higher prices as well. I'm content to hold and collect my ~10% dividend on the preferred. I see a very small chance the whole company goes to zero.

In my opinion, Dundee should be the poster child for the abolition of dual class share structures. Take a look at the latest management information circular & note carefully the substantial amounts paid to directors & management to put together such a complicated & poorly performing menagerie of assets. No way would this be trading at 25% of a already much reduced net asset value if there were no multi voting shares....
http://dundeecorp.com/pdf/2015-DC-Circular-FINAL.pdf



Yeah, I'll admit there are issues there. There are a whole bunch of issues. The latest is the deal with the Series 4 preferred shares. Potato wrote about it here http://www.holypotato.net/?p=1392 but here's the gist of it.

There was a maturity coming up in June, 2016 for the Series 4 prefs. Management pretty much scoffed at it and all but told investors they'd be converting them to a new series of prefs that doesn't come due until 2019. Not only that, but it turns out once you convert to the new Series 5 preferred you'll forfeit any fractional shares you might have gotten from the conversion. I guess they kind of make up for that with a consent fee ($11 for every 100 shares I believe, might be wrong), but still. The whole thing smells a little.

Getting back to the common, the fact is you're not picking up assets at 30% of NAV if there aren't some problems. I thought 50% below NAV was a nice discount and then oil blew up. If it wasn't already a big position I'd pick up more, but I tend to get into trouble when I average down more than once.

As for the dual voting shares, I agree there are issues when a controlling family can basically do whatever they want. There's no way an activist investor is going to go in and shake things up. If they can't threaten to get the votes to change things, they have no power. But at the same time, the Goodman family owns 11 million out of the 58 million outstanding shares. Ned owns 6 million and the 4 boys own 5 million. Only 3.something million are the multiple voting shares. These guys want the share price to go up just as much as I do.