Author Topic: DII-B.TO - Dorel Industries  (Read 5355 times)

Viking

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DII-B.TO - Dorel Industries
« on: January 19, 2011, 02:14:02 PM »
Being Canadian, I am always on the lookout for local, world class companies. Dorel has three business segments: kids carseats & strollers, bikes and nice looking cheap furniture. Bikes, Europe and Brazil are hot. US kids stuff saw a blip in Q3 and cheap furniture is working through some freight cost issues (both are ST issues). Top and bottom line has been and will continue to grow nicely (about 10% per year). Small amount of debt and solid management. As the company executes and delivers I would expect the share price to respond. Shares actually traded at just over $33 back in 1999; I think back then Dorel was a stock darling trading at a crazy high multiple... How times change!

2010 RBC Est Net Earnings = $3.80
2011 RBC Est Net Earnings = $4.20
Share Price = $33.37
2010 PE = 8.8; 2011 PE = 7.9
Dividend = $0.60; Div Yield = 1.8%

Q3 Conference Call Minutes: www.dorel.com/press/2010/DII_CC_Q3_10_Nov5_Transcript.pdf
Q3 Investor Presentation: www.dorel.com/press/2010/Dorel_Q3_10_IR_web.pdf

"Dorel Industries Inc. (TSX:DII.B.to - News) is a world class juvenile products and bicycle company.  Established in 1962, Dorel creates style and excitement in equal measure to safety, quality and value. The Company's lifestyle leadership position is pronounced in both its Juvenile and Bicycle categories with an array of trend-setting products.  Dorel's powerfully branded products include Safety 1st, Quinny, Cosco, Maxi-Cosi and Bébé Confort in Juvenile, as well as Cannondale, Schwinn, GT, Mongoose, IronHorse and SUGOI in Recreational/Leisure.  Dorel's Home Furnishings segment markets a wide assortment of furniture products, both domestically produced and imported.   Dorel is a US$2 billion company with 4500 employees, facilities in nineteen countries, and sales worldwide."
« Last Edit: June 07, 2011, 03:01:52 PM by Parsad »


beerbaron

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Re: DII-B.TO - Dorel Industries
« Reply #1 on: January 19, 2011, 07:36:18 PM »
Thanks Viking, I'll revisit Dorel. Did not find anything compelling last year but I did not dig a lot too.

BeerBaron

beerbaron

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Re: DII-B.TO - Dorel Industries
« Reply #2 on: January 30, 2011, 06:06:47 PM »
I have revisited Dorel, it's neither a bad nor a great company. One of my favorite metric to evaluate a company's capital allocation opportunities is to use Munger's "Does the company have a history of creating at least 1$ of market value for every 1$ retained"

Looking at the last 13 years history it looks like the company retained around 1B in cash but their current market value is around 1B$ too. 13 years ago it had a mkt value of 250M$ (PE of 10). Not bad but not great either, my guess is that it's fairly valued right now. I'd be buying around 25$ to get a 20-30% margin of safety.

Lots of goodwill and intangible too.

BeerBaron

Baoxiaodao

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Re: DII-B.TO - Dorel Industries
« Reply #3 on: January 31, 2011, 08:59:36 AM »
I have revisited Dorel, it's neither a bad nor a great company. One of my favorite metric to evaluate a company's capital allocation opportunities is to use Munger's "Does the company have a history of creating at least 1$ of market value for every 1$ retained"

Looking at the last 13 years history it looks like the company retained around 1B in cash but their current market value is around 1B$ too. 13 years ago it had a mkt value of 250M$ (PE of 10). Not bad but not great either, my guess is that it's fairly valued right now. I'd be buying around 25$ to get a 20-30% margin of safety.

Lots of goodwill and intangible too.

BeerBaron

BB, very good point. I enjoyed your comments.

PlanMaestro

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Re: DII-B.TO - Dorel Industries
« Reply #4 on: January 31, 2011, 09:37:34 AM »
Munger's "Does the company have a history of creating at least 1$ of market value for every 1$ retained"

That is a great quote, where did you find it.

beerbaron

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Re: DII-B.TO - Dorel Industries
« Reply #5 on: January 31, 2011, 04:21:19 PM »
Munger's "Does the company have a history of creating at least 1$ of market value for every 1$ retained"

That is a great quote, where did you find it.

It's a classic Buffett/Munger approach, they stated it many times. I remember seeing a Munger video where he is debating using ROE VS the $ Retained Earning method. Could not find it again but it would be great if semeone could post it.

Here is what a quick google search found.

In 1984, Warren Buffett made these comments:

‘Unrestricted earnings should be retained only where there is a reasonable prospect – backed preferably by historical evidence or, when appropriate by a thoughtful analysis of the future – that for every dollar retained by the corporation, at least one dollar of market value will be created for owners. This will happen only if the capital retained produces incremental earnings equal to, or above, those generally available to investors.’


http://everythingwarrenbuffett.blogspot.com/2008/04/buffett-secrets-retained-earnings.html

It's a somewhat comparable metric to ROE. Except it will not be modified by share buybacks or issuances.

By the way: That is the metric Buffett uses to justify not paying a dividend. And I agree.

BeerBaron
« Last Edit: January 31, 2011, 04:27:31 PM by beerbaron »

Viking

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Re: DII-B.TO - Dorel Industries
« Reply #6 on: January 31, 2011, 10:51:13 PM »
As I continue to read here are a few more comments:
1.) very thinly traded stock...
2.) family controlled AND family run
3.) not short term oriented... makes decisions based on medium to long term
4.) talk a lot about importance of innovation; spend over $30 million per year on this
5.) results can be quite volatile from Q to Q (divisions, currencies etc)
6.) global leader in car seats... business appears to be in a holding pattern
7.) bike business has been on fire this year... Q4 will help confirm if this is a trend or one time thing
8.) furniture business will continue to face headwinds in Q4 (due to freight issues)
9.) made a number of purchases the past couple of years; restructured under performing units; looks to have some nice upside should things continue to come together
10.) dividend will likely be increased (currently $0.60) to $0.72 or more
11.) modest share repurchases will likely continue (likely bought back about 2% of shares outstanding in 2010)

Company earned $0.61/share in 2000. Should earn about $3.80 in 2010 = 20% compound growth
Average earnings from 2000 to 2003 was $1.45/share = 12% compound growth

I think it is reasonable to expect 10% growth going forward. Should the bike division continue to outperform then 10% will be too low. Still looks pretty cheap to me. (and underfollowed).
« Last Edit: January 31, 2011, 10:57:27 PM by Viking »

PlanMaestro

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Re: DII-B.TO - Dorel Industries
« Reply #7 on: February 01, 2011, 07:48:18 AM »
By the way: That is the metric Buffett uses to justify not paying a dividend. And I agree.

Oh, I agree too. The thing is that have not seen a good quote of the retained earnings approach and was hoping that this one could make the cut. It goes directly from the Miller/Modigliani franchise valuation, one of my favorite formulas ever.

And if someone can find the video that BB mentions.... p, p, please?

doc75

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Re: DII-B.TO - Dorel Industries
« Reply #8 on: July 06, 2011, 06:32:34 AM »

Does anyone here follow Dorel?  It popped up on a screen I was running last night.   I've only looked at it briefly, but it has been trading down since the new year and in many regards it looks like it's getting pretty cheap. Maybe one for the watch list.

Good stuff:  PE in the 7s, reasonable ROE, excellent history of profitability, and in a very robust industry (primarily non-faddish products for kids and bicycles).  Dividend payout of around 2%. Share buyback announced in March for around 2.5% of float. The stock briefly took a big hit in the 2008-2009 implosion, but it looks like the business skated through almost unscathed. 

Badness:  Split share structure.  Trades below book, but significantly above tangible BV -- lots of goodwill/intangibles on the balance sheet.  Receivables increased dramatically in the recent quarter and debt has increased in tandem.  (This appears to be a temporary situation. Management addresses it in the quarterly report.)   The biggest issue, and undoubtedly the reason for the declining price, is that margins dropped from 25% to 23% in the recent quarter, so income was much lower in the last quarter (YOY)  despite higher revenues. 

A soft European/US retail environment has hurt the company recently. Management cites currency effects, input costs, and higher financing costs as the cause of decreased margins in the last quarter.  The higher financing costs were very significant, as they went from 3.3M to 5.9M, apparently as a result of converting a revolving credit line to long term debt at a fixed (and significantly higher) rate.

For what it's worth, Thomson/Reuters indicates that there has been net selling by institutions as of late, with 2 of them closing out their positions.

RRJ

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Re: DII-B.TO - Dorel Industries
« Reply #9 on: July 06, 2011, 07:39:56 AM »
Funny-I just started looking at this two days ago. I had flagged it as a potentially predictable company that I might be able to value with some degree of accuracy and saw it had dropped some.  I don't have insights beyond that at this point but I thought it was worth noting it had popped up on my radar too.