sculpin Posted December 15, 2015 Share Posted December 15, 2015 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. Link to comment Share on other sites More sharing options...
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