Author Topic: Dumbdee - The Goodmans, The Bad & The Ugly - 30% of NAV bargain?  (Read 176263 times)

Rod

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Re: Dumbdee - The Goodmans, The Bad & The Ugly - 30% of NAV bargain?
« Reply #560 on: May 06, 2019, 03:53:09 PM »
I suspect your inner pessimist has the edge.

That said Iím looking forward to adding next week at bargain levels.

Just to be different I'm going to bet the stock goes up next week ;)

I think the best buying opportunity may be later in the year, or even in 2020. The big stock overhang may keep a lid on the price for a long time even if the company's value is clearly rising. If I can be confident the net assets are worth at least $3 without resort to hopes and dreams regarding some of the speculative stuff like Chad, I'd be a buyer. The preferreds may see a large rise in the interim.

I've got to think their recent history of an arguable coercive exchange offer and then a mandatory coversion to common at a huge discount will weigh on the prices of the prefs.

Also, I think there is a good chance that they suspend the dividend on the remaining pref issues after a tender. After they tender, it is really unlikely they'll return money to the common (dividend, etc). In that scenario, what is the upside to the Goodmans of paying pref dividends?

-they won't need to pay common dividends
-they won't be able to issue new prefs anyway
-the longer they don't pay the lower the effective interest rate on the prefs
-every dollar paid out to the prefs is no longer available for corporate priorities or executive compensation.

IMO, the logical thing for them to do is buy back some of the dilution in a tender and then stop paying the prefs. If they suspend the dividends on the prefs I think the price will tank.

Sure, but if they were going to suspend the dividends, why haven't they done it by now? You could have made the same argument at any time during the last 5 years and yet it hasn't happened. So it doesn't seem like something they want to do. And it's not something they need to do. Their situation is a lot more stable than it was, and they have cut a ton of costs out of their overheads. Converting the E's cut $6 million in dividend obligations by itself. So, if they were to suspend dividends now it would not be from necessity. I think there would be some pretty heavy downsides to doing that. One, Jonathan Goodman is trying to build a capital markets business with smaller mining companies. It would not help much to build the brand if they cut off dividends to their own preferred shareholders for no reason. I think the risks to the prefs are more that the investments they make going forward are bad, and/or DPM gets into big trouble.


petec

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Re: Dumbdee - The Goodmans, The Bad & The Ugly - 30% of NAV bargain?
« Reply #561 on: May 06, 2019, 03:59:41 PM »
I find it unlikely theyíll suspend the dividends on the prefs. Iím not sure the savings would be worth the ensuing noise, possible legal challenges, etc. By your thinking itís arguably logical for every pref issuer to suspend dividends, but they donít because there are hidden costs. By contrast there was logic in the conversion, which I regard as a good decision and one I would have taken.

Iíd rather own the prefs, but I canít. I have a smallish position in the common where I quite like the value. If it drops substantially from here Iíll likely add.
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bizaro86

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Re: Dumbdee - The Goodmans, The Bad & The Ugly - 30% of NAV bargain?
« Reply #562 on: May 06, 2019, 07:06:38 PM »
I think the difference between now and every other time during the last five years is that now they've converted an issue of prefs to common. So prior to that there was a chance they could have issued new prefs later, whereas now I'd say they will never be able to issue prefs again.

That brings me to some of the major differences between them and most other pref issuers, and why I think my logic above applies to them moreso than most other pref issuers

-Most pref issuers in Canada pay a significant common dividend as part of their strategy to attract capital. If they stop the pref dividend, they can't do that anymore.

-Most pref issuers in Canada are capital intensive businesses (banks, utilities, insurers, brookfield, etc). They have a constant appetite for more capital, and will want to issue more prefs. If they stop a dividend, they can't issue new prefs. Dundee won't be able to issue new prefs anyway (after converting to the E to common) so this doesn't apply to them.

-Dundee's reputation is already shot, imo, and I don't think suspending the other prefs would change much.

As for legal challenges, I can't see why there would be one. The ability to suspend dividends is expressly included in the indentures for those prefs. They're allowed to stop paying. If someone challenged it, they could pretty easily point to the fact that their net loss over the last two years is a combined $279 MM (~4X their market cap!) and it wouldn't be an issue.

Rod

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Re: Dumbdee - The Goodmans, The Bad & The Ugly - 30% of NAV bargain?
« Reply #563 on: May 07, 2019, 05:48:07 AM »
I think the difference between now and every other time during the last five years is that now they've converted an issue of prefs to common. So prior to that there was a chance they could have issued new prefs later, whereas now I'd say they will never be able to issue prefs again.

That brings me to some of the major differences between them and most other pref issuers, and why I think my logic above applies to them moreso than most other pref issuers

-Most pref issuers in Canada pay a significant common dividend as part of their strategy to attract capital. If they stop the pref dividend, they can't do that anymore.

-Most pref issuers in Canada are capital intensive businesses (banks, utilities, insurers, brookfield, etc). They have a constant appetite for more capital, and will want to issue more prefs. If they stop a dividend, they can't issue new prefs. Dundee won't be able to issue new prefs anyway (after converting to the E to common) so this doesn't apply to them.

-Dundee's reputation is already shot, imo, and I don't think suspending the other prefs would change much.

As for legal challenges, I can't see why there would be one. The ability to suspend dividends is expressly included in the indentures for those prefs. They're allowed to stop paying. If someone challenged it, they could pretty easily point to the fact that their net loss over the last two years is a combined $279 MM (~4X their market cap!) and it wouldn't be an issue.

Anythings possible I guess, but are you aware of other companies that have done this? That is, cut off dividends to preferred shares while they have ample liquidity?

bizaro86

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Re: Dumbdee - The Goodmans, The Bad & The Ugly - 30% of NAV bargain?
« Reply #564 on: May 07, 2019, 06:36:17 AM »
I think the difference between now and every other time during the last five years is that now they've converted an issue of prefs to common. So prior to that there was a chance they could have issued new prefs later, whereas now I'd say they will never be able to issue prefs again.

That brings me to some of the major differences between them and most other pref issuers, and why I think my logic above applies to them moreso than most other pref issuers

-Most pref issuers in Canada pay a significant common dividend as part of their strategy to attract capital. If they stop the pref dividend, they can't do that anymore.

-Most pref issuers in Canada are capital intensive businesses (banks, utilities, insurers, brookfield, etc). They have a constant appetite for more capital, and will want to issue more prefs. If they stop a dividend, they can't issue new prefs. Dundee won't be able to issue new prefs anyway (after converting to the E to common) so this doesn't apply to them.

-Dundee's reputation is already shot, imo, and I don't think suspending the other prefs would change much.

As for legal challenges, I can't see why there would be one. The ability to suspend dividends is expressly included in the indentures for those prefs. They're allowed to stop paying. If someone challenged it, they could pretty easily point to the fact that their net loss over the last two years is a combined $279 MM (~4X their market cap!) and it wouldn't be an issue.

Anythings possible I guess, but are you aware of other companies that have done this? That is, cut off dividends to preferred shares while they have ample liquidity?

No. But I'm also not aware of any other company that converted prefs to common when they had "ample liquidity"

I'm not saying they will do this, just that it's a risk worth considering before taking a position in the prefs. I think the market will consider it and keep the pref prices relatively low.
« Last Edit: May 07, 2019, 06:37:50 AM by bizaro86 »

bizaro86

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Re: Dumbdee - The Goodmans, The Bad & The Ugly - 30% of NAV bargain?
« Reply #565 on: May 07, 2019, 06:51:36 AM »
The arguments for a buy of the prefs right now seem very similar to me to the arguments in favor of buying the common at the start of the thread. There is a big sum of the parts discount on a bunch of low quality assets. The company is controlled by multiple voting shares, and the track record of investments is poor. The reason for the poor track record is visible (they keep buying highly speculative stuff). The DPM stake covers the prefs, sure, but I wouldn't want to be in the business of giving non-recourse margin loans on junior mining shares...

None of that has changed. I actually think from a long term bull position the common makes more sense than the prefs. If they keep destroying value at their current rate both will be zeros eventually. But if the oil in Chad comes in the common is probably a multi-bagger, but the prefs have capped upside. That potential had also capped the size of my DC.A short...

petec

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Re: Dumbdee - The Goodmans, The Bad & The Ugly - 30% of NAV bargain?
« Reply #566 on: May 07, 2019, 07:53:57 AM »
As for legal challenges, I can't see why there would be one. The ability to suspend dividends is expressly included in the indentures for those prefs. They're allowed to stop paying. If someone challenged it, they could pretty easily point to the fact that their net loss over the last two years is a combined $279 MM (~4X their market cap!) and it wouldn't be an issue.

Bear in mind the unpaid dividends would accumulate on the BS and impair the value of the common. At some point thereíd be significant pressure to pay, if things go well. And if they donít both classes are f***ed anyway.

I do agree however that there is a risk, however small - they clearly and rightly prioritise the common over the prefs.

I seem to remember the prefs have votes under some circumstances. That may include when theyíre not being paid. Donít imagine itís enough to wrest control from the Goodmans though.

My bigger objection to your theory is: why bother? The convertible series was a real problem for liquidity. The remaining dividends arenít. It would wreck their last shred of credibility for no benefit.

Still, interesting thought & discussion.
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bizaro86

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Re: Dumbdee - The Goodmans, The Bad & The Ugly - 30% of NAV bargain?
« Reply #567 on: May 07, 2019, 08:18:37 AM »
As for legal challenges, I can't see why there would be one. The ability to suspend dividends is expressly included in the indentures for those prefs. They're allowed to stop paying. If someone challenged it, they could pretty easily point to the fact that their net loss over the last two years is a combined $279 MM (~4X their market cap!) and it wouldn't be an issue.

Bear in mind the unpaid dividends would accumulate on the BS and impair the value of the common. At some point thereíd be significant pressure to pay, if things go well. And if they donít both classes are f***ed anyway.

I do agree however that there is a risk, however small - they clearly and rightly prioritise the common over the prefs.

I seem to remember the prefs have votes under some circumstances. That may include when theyíre not being paid. Donít imagine itís enough to wrest control from the Goodmans though.

My bigger objection to your theory is: why bother? The convertible series was a real problem for liquidity. The remaining dividends arenít. It would wreck their last shred of credibility for no benefit.

Still, interesting thought & discussion.

Those are all completely reasonable points, and I don't disagree with any of them.

petec

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Re: Dumbdee - The Goodmans, The Bad & The Ugly - 30% of NAV bargain?
« Reply #568 on: May 07, 2019, 07:09:37 PM »
Do any of the DPM followers have a view on whether it might begin paying a dividend? Itís trading on a fat 2020 FCF yield with little debt, but I donít know about itís capex plans.

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doc75

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Re: Dumbdee - The Goodmans, The Bad & The Ugly - 30% of NAV bargain?
« Reply #569 on: May 10, 2019, 05:39:43 AM »
I haven't seen any PR from Dundee themselves, but it appears they've sold the Sotheby's franchise rights, which is the primary asset of Dundee 360:

https://www.newswire.ca/news-releases/peerage-realty-partners-enters-into-agreement-to-acquire-sotheby-s-international-realty-canada-from-an-affiliate-of-dundee-corporation-841978915.html

They recorded an $8m impairment on this asset last quarter so I would expect the transaction to be valued at approximately book.  The entirety of Dundee 360 was carried at a NAV of about $15m as of Dec 31.