Dumbdee - The Goodmans, The Bad & The Ugly - 30% of NAV bargain?

[petec]

What is to be expected from the Parq operations?

 

Initially management gave guidance to GMP that Parq could do the following financially after a 12 month ramp period - should be the end of the ramp late this Fall...

 

Management has provided their financial expectations for Parq, which are subject to an

estimated 12-month ramp up period. Parq is on track to open in the fall of 2017.

 

 $75-$100 million EBITDA

 60-70% from casino activities

 10-15% from hotel activities

 15-30% from other services (food/beverage, parking etc.)

 

At the end of the first quarter they stated 2018 would look like this...

 

Parq guidance

 

Management has given guidance for 2018 and expects to generate EBITDA of

$50 to $75 million and in excess when operations are fully ramped up. As a

result of expected increases in customer traffic and slot utilization rates, 50%

to 60% of EBITDA is expected to be generated through casino operations

while the remainder is from hotel operations and beverage services.

 

So the contribution from the casino seems to be about 10% below in the overall results of the facility. It will be interesting to see if this is further adjusted in the Aug/Sep after experiencing the height of the tourist season in Vancouver (June - Aug). Potential value of Parq to Dundee using a simplistic valuation model of expected 2018 results is as follows ( On a fully converted basis, the Corporation holds a 45.9% interest in Parq Vancouver, while Paragon Gaming Inc. owns a 21.9% fully converted interest, and PBC owns a 32.2% fully converted interest)....

 

                EBITDA high    EBITDA low

 

              $75mm            $50mm

 

                10X                10X

 

EV              $750mm          $500mm

 

Debt          $550mm          $550mm

 

Equity        $200mm          ($50mm)

 

46% DC      $92mm            $0

 

At the upper end of the range value comes in at $90 million to Dundee using $75mm in EBITDA while Parq is owned by the debt holders at the lower end. Hopefully, upon full ramp in 2019, Parq can achieve the initial expected results resulting in a floor valuation to Dundee of $90mm & upside to a $200mm valuation with $100mm in EBITDA & possibly a much better financing arrangement.

 

As well, perhaps higher value & substantial financial breathing room could be extracted by selling the hotel operations in what is a strong Vancouver market - an example per room valuation multiple for the hotels would be $425,000 per room average over both the Douglas & Marriot's 517 guest rooms gives a valuation of $220mm just to the hotels & their expected approximate 15% - 25%  contribution to Parq EBITDA.

 

https://www.statista.com/statistics/496256/vancouver-downtown-value-per-hotel-room/

 

http://dailyhive.com/vancouver/interim-hotel-rooms-development-policy-vancouver-shortage

 

Vancouver’s tourism sector growth has been experiencing year-over-year records with overnight visitation, but this is not reflected in the city’s hotel accommodations capacity. A new report by the City of Vancouver states the municipality saw a net loss of 1,105 hotel rooms between 2008 and 2018, with the gains in the years leading to the 2010 Winter Olympics now lost.

 

I came up with similar numbers on an ev/ebitda analysis. I didn't think of the hotel valuation separately. For me the big question is whether initial guidance was just wrong, and 75-100 will never be reached, or the issue is more the ramp time, in which case we might still get there but slower. Either way we don't really have enough info.

 

I was also struggling with the appropriate multiple to use. I also centred on 10 but ran 8 and 12 for interest. These are hard and trophy assets which might argue for a higher multiple than the average equity analyst (me) would be comfortable assuming.

[Rod]

What is to be expected from the Parq operations?

 

Initially management gave guidance to GMP that Parq could do the following financially after a 12 month ramp period - should be the end of the ramp late this Fall...

 

Management has provided their financial expectations for Parq, which are subject to an

estimated 12-month ramp up period. Parq is on track to open in the fall of 2017.

 

 $75-$100 million EBITDA

 60-70% from casino activities

 10-15% from hotel activities

 15-30% from other services (food/beverage, parking etc.)

 

At the end of the first quarter they stated 2018 would look like this...

 

Parq guidance

 

Management has given guidance for 2018 and expects to generate EBITDA of

$50 to $75 million and in excess when operations are fully ramped up. As a

result of expected increases in customer traffic and slot utilization rates, 50%

to 60% of EBITDA is expected to be generated through casino operations

while the remainder is from hotel operations and beverage services.

 

So the contribution from the casino seems to be about 10% below in the overall results of the facility. It will be interesting to see if this is further adjusted in the Aug/Sep after experiencing the height of the tourist season in Vancouver (June - Aug). Potential value of Parq to Dundee using a simplistic valuation model of expected 2018 results is as follows ( On a fully converted basis, the Corporation holds a 45.9% interest in Parq Vancouver, while Paragon Gaming Inc. owns a 21.9% fully converted interest, and PBC owns a 32.2% fully converted interest)....

 

                EBITDA high    EBITDA low

 

              $75mm            $50mm

 

                10X                10X

 

EV              $750mm          $500mm

 

Debt          $550mm          $550mm

 

Equity        $200mm          ($50mm)

 

46% DC      $92mm            $0

 

At the upper end of the range value comes in at $90 million to Dundee using $75mm in EBITDA while Parq is owned by the debt holders at the lower end. Hopefully, upon full ramp in 2019, Parq can achieve the initial expected results resulting in a floor valuation to Dundee of $90mm & upside to a $200mm valuation with $100mm in EBITDA & possibly a much better financing arrangement.

 

As well, perhaps higher value & substantial financial breathing room could be extracted by selling the hotel operations in what is a strong Vancouver market - an example per room valuation multiple for the hotels would be $425,000 per room average over both the Douglas & Marriot's 517 guest rooms gives a valuation of $220mm just to the hotels & their expected approximate 15% - 25%  contribution to Parq EBITDA.

 

https://www.statista.com/statistics/496256/vancouver-downtown-value-per-hotel-room/

 

http://dailyhive.com/vancouver/interim-hotel-rooms-development-policy-vancouver-shortage

 

Vancouver’s tourism sector growth has been experiencing year-over-year records with overnight visitation, but this is not reflected in the city’s hotel accommodations capacity. A new report by the City of Vancouver states the municipality saw a net loss of 1,105 hotel rooms between 2008 and 2018, with the gains in the years leading to the 2010 Winter Olympics now lost.

 

I came up with similar numbers on an ev/ebitda analysis. I didn't think of the hotel valuation separately. For me the big question is whether initial guidance was just wrong, and 75-100 will never be reached, or the issue is more the ramp time, in which case we might still get there but slower. Either way we don't really have enough info.

 

I was also struggling with the appropriate multiple to use. I also centred on 10 but ran 8 and 12 for interest. These are hard and trophy assets which might argue for a higher multiple than the average equity analyst (me) would be comfortable assuming.

 

I think based on projections from Dundee we could have a high confidence that EBITDA will come in at somewhere between 50M and 100M when fully ramped. Multiples I've seen for hotel and casino properties range between 10 and 12. So that gives a valuation range of 500M on the low end to 1200M on the high end. Debt plus preferreds plus a little for additional capital contribution is 700M. So the equity value could be anywhere from 0 to 500M. Dundee, I believe has 37%, giving a value to them of 0 to 185M or $0 to $3 per share. I don't think I could narrow this range down at this point. We really do need to wait and see. Encouraging factors are the very tight hotel market in Vancouver, the growth of tourism, the uniqueness of the property, the low land lease rate, and the high current valuations and investor interest in commercial properties in Vancouver.

[petec]

I think based on projections from Dundee we could have a high confidence that EBITDA will come in at somewhere between 50M and 100M when fully ramped. Multiples I've seen for hotel and casino properties range between 10 and 12. So that gives a valuation range of 500M on the low end to 1200M on the high end. Debt plus preferreds plus a little for additional capital contribution is 700M. So the equity value could be anywhere from 0 to 500M. Dundee, I believe has 37%, giving a value to them of 0 to 185M or $0 to $3 per share. I don't think I could narrow this range down at this point. We really do need to wait and see. Encouraging factors are the very tight hotel market in Vancouver, the growth of tourism, the uniqueness of the property, the low land lease rate, and the high current valuations and investor interest in commercial properties in Vancouver.

 

That's more or less the same conclusion I came to although I "converted" the prefs, only subtracting the debt and giving Dundee 46% not 37%. Works out at about the same NAV range though, and I have no confidence to call where in the range reality will fall.

 

My overall view is that taking the stocks at market and haircutting most of the other assets by 50%, I could have about 20% downside from here in the common; but if either Parq or United work out, I have enormous upside.

 

 

[Rod]

D and B prefs trading around 10 now. That's over 14% yield on the B and more like 15.7% when it resets next year (at current 5-year bond yield). Does this not represent an extreme degree of pessimism?

[longlake95]

i've been adding to the D's. Not sure what to think. These securities have been left for dead. Call me crazy, but wouldn't they want to buyback the pref's on the cheap? sell one or more of the cash consuming crappy businesses and use the proceeds to buyback cheap debt - don't you create value at the stroke of a pen?

[Rod]

i've been adding to the D's. Not sure what to think. These securities have been left for dead. Call me crazy, but wouldn't they want to buyback the pref's on the cheap? sell one or more of the cash consuming crappy businesses and use the proceeds to buyback cheap debt - don't you create value at the stroke of a pen?

 

I think that stock buybacks are part of the plan once the balance sheet has been sorted out.

[petec]

i've been adding to the D's. Not sure what to think. These securities have been left for dead. Call me crazy, but wouldn't they want to buyback the pref's on the cheap? sell one or more of the cash consuming crappy businesses and use the proceeds to buyback cheap debt - don't you create value at the stroke of a pen?

 

I think that stock buybacks are part of the plan once the balance sheet has been sorted out.

 

Have they said so?

[bizaro86]

i've been adding to the D's. Not sure what to think. These securities have been left for dead. Call me crazy, but wouldn't they want to buyback the pref's on the cheap? sell one or more of the cash consuming crappy businesses and use the proceeds to buyback cheap debt - don't you create value at the stroke of a pen?

 

Creating value doesn't necessarily seem to be their MO here.

[Rod]

i've been adding to the D's. Not sure what to think. These securities have been left for dead. Call me crazy, but wouldn't they want to buyback the pref's on the cheap? sell one or more of the cash consuming crappy businesses and use the proceeds to buyback cheap debt - don't you create value at the stroke of a pen?

 

I think that stock buybacks are part of the plan once the balance sheet has been sorted out.

 

Have they said so?

 

Yes. In the reply to a question at the annual meeting as well as in the conference call for Q1. The idea of stock buybacks, both common and preferred, was raised. Jonathan Goodman said it was the right idea but needed to wait until the balance sheet issues were sorted out first.

[SafetyinNumbers]

It would be nice if the family started buying stock too.

 

Jonathan indicated that he wants to buy common and preferred but I’m really not sure what’s giving him pause. Perhaps, conversion of the DC.PR.E’s to common is a possibility and the common would get hit in that scenario so maybe he wants to save his firepower or perhaps they consider themselves restricted while they are sorting out the balance sheet.

[sculpin]

Dundee Precious continuing to do well - DC's position worth about $120 million.

 

GMP research...

 

Dundee Precious Metals BUY

DPM-TSX

Last: C$3.09

Target: C$4.90

 

FLASH: 2Q18 results – Chelopech’s solid results lead to improved FY production and cost guidance

 

Last night, DPM reported Q2 results after pre-releasing production earlier this month (refer to our Flash note of July 11). Adj. EPS of $0.08 beat our estimate (and consensus) of $0.05. The variance largely driven by lower G&A. CFPS before changes in working capital, including interest paid was $27mm or $0.15 vs our forecast of $28mm or $0.15 (consensus at $0.16). Operating costs were below our estimates at Chelopech, but offset partly by higher cash cost per tonne smelted at Tsumeb.

 

As pre-reported, Chelopech had another solid quarter producing 48k oz gold and 8.5mm lbs copper in concentrates (with 55k oz and 10.4mm lbs payable in concentrates sold due to unsold inventory from Q1). Cash cost of $472/oz gold sold in copper concentrates (inclusive of pyrite oz) was lower than our forecast of $579/oz (1Q18 was $574/oz). The lower cash cost is partly due to benefiting from higher grades and recoveries as well as lower unit cost ($35.62/t processed vs $37.23/t in Q1).

 

At Tsumeb, 46.6kt of concentrate smelted in Q2 had a cash cost of $548/tonne smelted vs. our estimate of $494/t. Cash cost was negatively impacted by lower volumes of concentrate smelted along with lower acid by-product credits (due to the 24-day annual maintenance shutdown in May), higher electricity and labour cost, a stronger ZAR relative to the U.S. dollar. Despite the higher costs at Tsumeb in Q2, we expect cash costs to improve in the coming quarters driven stronger operational performance following the maintenance shutdown. Furthermore, DPM has put in place additional currency hedges and it has favourably revised 2018 cash cost per tonne smelted guidance to $430-480/t (from $440-500/t).

 

The smelter has performed well following the annual maintenance shutdown and concentrate smelted in July achieved a new record. At the end of Q2, Tsumeb is sitting at 43% of annual guidance of 220-250kt smelted. We currently model 240kt of concentrate smelted in 2018.

 

Strong YTD performance at Chelopech results guidance revision: 2018 gold production guidance has been increased by almost 6% or 10k oz (at mid-point of range) relative to original guidance. Chelopech is now expected to produce 180-200k oz gold (previously 165-195k oz) with payable gold in the range of 155-172k oz (previously 140-170k oz). Copper production and sales volumes are unchanged. AISC was also improved by $50/oz to $640–755/oz (from $640–855/oz previously) based on modestly lower unit cost and deferred sustaining capex (reflecting timing of expenditures). Refer to Figure 1 for details on updated guidance.

 

We currently model 2018 full-year production of 188k oz gold and 36.4mm lbs copper which is within revised guidance and AISC of $759/oz.

 

Krumovgrad’s construction progressing well but slightly behind schedule – first gold still expected in late 2018: The project was ~71% complete at the end of June (compared to project schedule of 78%). Capex remains unchanged ($164mm-$168mm budget - with $111.6mm spent at the end of June) and first concentrate production is still expected in late Q4.

 

Impact: Positive on improved guidance

 

Operationally, Chelopech had another solid quarter with cash cost coming below our expectations. The strong operational performance in H1 led to a positive guidance revision. We believe Chelopech is well positioned to meet the updated gold production guidance having produced ~55% of (mid-range) annual gold production in H1.

 

With the annual maintenance at Tsumeb complete, the smelter should see stronger operational performance in the coming quarters.

 

Recommendation: Maintain BUY rating and C$4.90 target

[sculpin]

 

 

Dundee to release Q2 2018 results Aug. 14

 

2018-08-07 17:36 ET - News Release

 

 

Mr. John Vincic reports

 

DUNDEE CORPORATION TO HOST CONFERENCE CALL FOR SECOND QUARTER 2018 RESULTS

 

Dundee Corp. senior management will host a conference call on Wednesday, Aug. 15, 2018, at 10 a.m. ET to discuss the company's second-quarter 2018 results.

 

Second-quarter 2018 results conference call and webcast:

 

Date:  Wednesday, Aug. 15, 2018

 

Time:  10 a.m. ET

 

Webcast:  see company's website

 

Live Call:  1-855-859-2056 or 1-416-849-0833

 

Replay passcode:  3482877

 

Dundee plans to issue a news release containing the second-quarter 2018 results after market close on Tuesday, Aug. 14, 2018, and will also post it to the company's website. The conference call will be archived for replay until Wednesday, Aug. 22, 2018, at midnight. An archive of the audio webcast will also be available at Dundee's website.

[petec]

I'm enjoying the fact that the common is down 5% just because they set a date for announcing results! I get the sense Mr. Market has inverted "no news is good news" into "all news is bad news"! And understandably so, but if they've made progress on converting more holdings to cash and have something intelligent to say about future strategy, this could be a positive q.

[Cardboard]

Goodman will probably say that he needs a few more months to review the portfolio...

 

Anyway bought a bit of stock and preferreds today on this craziness. You were correct Petec, summer months, no announcement of doing anything and things can get crazy cheap.

 

Cardboard

[petec]

Goodman will probably say that he needs a few more months to review the portfolio...

 

Anyway bought a bit of stock and preferreds today on this craziness. You were correct Petec, summer months, no announcement of doing anything and things can get crazy cheap.

 

Cardboard

 

The upside in this thing if either Parq or Chad work out is immense.

[sculpin]

Goodman will probably say that he needs a few more months to review the portfolio...

 

Anyway bought a bit of stock and preferreds today on this craziness. You were correct Petec, summer months, no announcement of doing anything and things can get crazy cheap.

 

Cardboard

 

The upside in this thing if either Parq or Chad work out is immense.

 

Recent reviews of Parq seems to be improving...

 

https://www.tripadvisor.ca/Attraction_Review-g154943-d12945737-Reviews-Parq_Vancouver-Vancouver_British_Columbia.html

 

[petec]

Good. They need to!

[Rod]

Goodman will probably say that he needs a few more months to review the portfolio...

 

Anyway bought a bit of stock and preferreds today on this craziness. You were correct Petec, summer months, no announcement of doing anything and things can get crazy cheap.

 

Cardboard

 

 

The upside in this thing if either Parq or Chad work out is immense.

 

Recent reviews of Parq seems to be improving...

 

https://www.tripadvisor.ca/Attraction_Review-g154943-d12945737-Reviews-Parq_Vancouver-Vancouver_British_Columbia.html

 

I was in Vancouver a few days ago so I stopped by Parq to take a look. I was there around noon so wasn't expecting it to be too busy. The casino was doing good business, more than I would have expected for that time of day. There was a lot of people checking in and out of hotels. The restaurants that I saw were not open at the time except for Honey Salt and Market East. There were people in them buy not a lot. The building itself is impressive. The exterior is beautiful and the interior is very clean and felt like a nice place to spend time. I would call it "classy" but coming from me that might not mean much. Hard to judge business from just one brief visit, but if there is a weak spot currently I can imagine it is the restaurants.

[doc75]

Perhaps the pressure on the B/D prefs reflect a fear or expectation that the company will turn off interest payments to preserve capital.

 

The Goodmans don't own any of these series so it would not hurt their personal returns.

 

 

 

 

[petec]

Perhaps the pressure on the B/D prefs reflect a fear or expectation that the company will turn off interest payments to preserve capital.

 

The Goodmans don't own any of these series so it would not hurt their personal returns.

 

Don't those shares get votes if they do that? I think they have some rights which the Goodmans might want to avoid triggering.

[Lakesider]

I think their only right is to receive dividends before the commons, management can delay div payments if they so wish.

 

Maybe some of the pressure is also worry that at maturity they wont be paid out with cash but with commons that are rapidly sinking?

[SafetyinNumbers]

I think their only right is to receive dividends before the commons, management can delay div payments if they so wish.

 

Maybe some of the pressure is also worry that at maturity they wont be paid out with cash but with commons that are rapidly sinking?

 

If the market was really worried about that, you would think the DC.PR.E would be a lot lower since those are puttable in June and the conversion would be set at $2. That is, 12.5 shares at $1.37 is ~$17.13 vs the current quote of $23.12.

 

 

[Cardboard]

You are correct SafetyinNumbers (Method would be shorter but, anyway).

 

The drop in the preferreds B and D can only be explained by fear in the marketplace: fear that price will keep heading down or a panic. Logic has left town a while ago.

 

Cardboard

 

 

[doc75]

I think their only right is to receive dividends before the commons, management can delay div payments if they so wish.

 

Maybe some of the pressure is also worry that at maturity they wont be paid out with cash but with commons that are rapidly sinking?

 

As far as I know, the B/D's are perpetual -- there's no maturity, and there is no mechanism to redeem them with equity rather than cash.

 

If dividends are not paid for 8 quarters, then each B/D pref share gets one vote.  But this would make no difference to the Goodmans, since their multiple voting shares would still leave them with a large majority of votes.  For the B & D series, I think there is a very real possibility that they could suspend dividends to preserve cash.  I just don't know to what extent this is driving the price dive.

 

 

 

 

 

 

 

[mrholty]

You are correct SafetyinNumbers (Method would be shorter but, anyway).

 

The drop in the preferreds B and D can only be explained by fear in the marketplace: fear that price will keep heading down or a panic. Logic has left town a while ago.

 

 

 

I wonder if how much of the drop in the past few days was that perhaps Saudi's SWF owned some shares.  That has been the explanation for the sell off in some of the resource stocks after the Saudi gov't told Saudi companies to liquidate their positions in Canadian companies. 

 

I like buying when others are having to liquidate so I bought some.  Still a small position however.