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

[rb]

Money laundry going on at Casinos? This is ground breaking stuff. Who knew?  ::)

[doc75]

New Parq Casino is an outrageous land deal—public assets leased way below market to a 2-bit US casino player, then millions in construction subsidies.

 

I don't think is is uncommon practice for big city redevelopments. Thats the way it happens across the globe.

 

Could be.  But that wasn't the part that seemed sketchy to me.

[RichardGibbons]

Money laundry going on at Casinos? This is ground breaking stuff. Who knew?  ::)

 

In case it's not obvious to you, the reason it matters isn't that it's money laundering in casinos. It's that the provincial government is making it one of their top five high-profile political issues.

 

If a chunk of a business's revenue is derived from illegal activity, and the government says, "This is the particular illegal activity we're going to focus on and eliminate", then some might consider that news relevant to future of the business.

[Cevian]

I really hope this isn't going to end up being the perfect case study for a falling knife one day. I can't believe there are sellers are this price but there doesn't appear to be any sign of a bottom.

[doc75]

I really hope this isn't going to end up being the perfect case study for a falling knife one day. I can't believe there are sellers are this price but there doesn't appear to be any sign of a bottom.

 

I fondly remember thinking that at $1.99.  The B prefs are at a 13% yield.

 

Don't know if it's steady selling from a large holder, or simply a lack of any news that would trigger a change in direction.  All the obvious stuff is negative:  DPM is down 10% from highs,  ECS is down heavily over the past few months,  money laundering is becoming a big story re: Parq, and not a hint of insider purchases as it plumbs new lows. 

 

 

 

 

 

 

 

 

[doc75]

The market cap of the B and D prefs is now $37m + $18m.  The E's are essentially debt with a $83m face value.  So assuming the E's get paid off in full ahead of the B's and D's, the market is valuing Dundee's liabilities at around $138m.

 

This is against a portfolio consisting of:

$118m in shares of DPM (today's price)

$16m in shares of ECS (today's price)

$50m in "other" publicly traded securities (prices at Mar 31)

a bunch of operating entities and private investments (hard to value, but presumably nonnegative)

 

For some reason the market has very low expectations of the Goodmans (...turns to look at 5 year stock chart). 

 

 

[sculpin]

Been buying B's & D's and more common in low $1.60's. Might visit Parq in next week to see how it is doing at height of tourist/holiday season.

[doc75]

FYI: Just found this today.  Possibly linked to the recent weakness in the prefs etc. 

 

---------------------------------------------------

 

22 Jun 2018

$291 million of debt rated

Toronto, June 22, 2018 -- Moody's Investors Service downgraded Parq Holdings Limited Partnership's (Parq) corporate family rating (CFR) to Caa1 from B3, probability of default rating to Caa1-PD from B3-PD, and senior secured term loan ratings to B2 from B1. The ratings outlook was changed to negative from stable.

 

"Parq's CFR was downgraded and the outlook changed to negative to reflect materially weaker first quarter 2018 results than we expected, weak liquidity and expected leverage of 14x, which may improve, but will likely be maintained above 10x in the next 12 to 18 months", said Peter Adu, a Moody's Vice President and Senior Analyst.

 

Ratings downgraded:

 

Corporate Family Rating, to Caa1 from B3

 

Probability of Default Rating, to Caa1-PD from B3-PD

 

$246 million senior secured first lien term loan due 2020, to B2 (LGD3) from B1 (LGD3)

 

$45 million senior secured delayed draw term loan due 2020, to B2 (LGD3) from B1 (LGD3)

 

Outlook Actions:

 

Outlook, Changed to Negative from Stable

 

RATINGS RATIONALE

 

Parq's Caa1 CFR is constrained by: (1) Moody's expected leverage (adjusted Debt/EBITDA) around 14x for its first year of operation (2018) and the likelihood that the metric will be maintained above 10x in the next 12 months thereafter; (2) heightened refinancing risk in December 2020; (3) weak liquidity; (4) single location and ramp-up risks associated with its new casino and hotel resort; (5) saturation of gaming and lodging facilities in the Lower Mainland of British Columbia; and (6) small scale relative to key Canadian peers. The company benefits from: (1) its attractive location; (2) Marriott Hotel's brand strength, and (3) the demonstrated willingness of its private owners to inject equity for cost overruns and delays in the past, which may continue, but is not assured.

 

Parq has weak liquidity. The company's source of liquidity is its cash balance of C$21 million at Q1/2018 while it has uses of about C$14 million in the next four quarters. The company has no external revolving credit facility and Moody's expects free cash flow of negative C$10 million and C$4 million of term loan amortization in the next four quarters, which leaves minimal excess liquidity. Parq has a C$15 million minimum liquidity covenant that will be breached in 2018. However, Parq's private owners have injected capital to fund cost overruns and delays during the construction phase of the resort. Moody's believes the owners will have to inject liquidity into the company to keep it operating. Parq has limited ability to generate temporary liquidity from asset sales.

 

The negative outlook considers that Parq's liquidity will be insufficient to support its operations in the next 12 months. The negative outlook also signals Moody's default concerns as the company may not be able to expand EBITDA or repay debt to reduce leverage meaningfully prior to the maturity of its $291 million in term loans in December 2020.

 

The rating will be downgraded if EBITDA and free cash flow do not expand meaningfully or if Moody's perceives that there is increased risk of a debt restructuring or default. The rating will be considered for upgrade if the company is likely able to maintain adequate liquidity and sustain leverage below 8x (14.1x expected for 2018) and EBIT/Interest above 1x (0.1x expected for 2018).

 

The principal methodology used in these ratings was Gaming Industry published in December 2017. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

 

Parq Holdings Limited Partnership, headquartered in Vancouver, British Columbia, owns a new 775,000 square foot casino and hotel resort in downtown Vancouver. Parq is privately-owned by Dundee Corporation, PBC Group and Paragon Gaming (45.9%, 32.2% and 21.9% respectively). Revenue for the two quarters of operation, ended March 31, 2018 was C$71 million.

[Cardboard]

What about $78 Brent for the Chad venture?

 

The whole thing is retarded, just like for oil stocks. People find plenty of excuses not to buy and they foresee the next 5 recessions and 2 depressions. Where is skepticism in the S&P or TSX?

 

Parq is prime Vancouver real estate!

 

Bought some DC.PR.B today and was close to get more common.

 

Cardboard

[doc75]

What about $78 Brent for the Chad venture?

 

The whole thing is retarded, just like for oil stocks. People find plenty of excuses not to buy and they foresee the next 5 recessions and 2 depressions. Where is skepticism in the S&P or TSX?

 

Parq is prime Vancouver real estate!

 

Bought some DC.PR.B today and was close to get more common.

 

Cardboard

 

I'm not saying there's no value here. But the Parq downgrade does indicate that refinancing is not going to be easy.  Things aren't looking great for this year, and Dundee may find themselves forced to put in more capital than expected.  I was hoping they'd de-risk that project considerably in the near term.

 

With regards to the Chad venture.  Their carrying value is pretty high on their balance sheet, based on a 65% chance of commercial cash flows from Doba and 45% from Block H.  I don't know enough about oil or the project to know whether these are reasonable assumptions.  Maybe you've looked into it?

 

[gokou3]

Their two hotels should worth something.  Here are some room rates for end of July (peak hotel season for Vancouver) - first and last ones.

[gokou3]

...and rates for the beginning of November, should be low season.  Someone who has more experience in hotel valuations can figure out a value based on these room rates.

[bizaro86]

You need to know occupancy to estimate a value, which could be poor given the hotel is new and ramping up.

[petec]

Their two hotels should worth something.  Here are some room rates for end of July (peak hotel season for Vancouver) - first and last ones.

 

Of course they're worth something. The question is, are they worth much more than the debt. I played with some ebitda and multiple scenarios and decided not to value it at more than they have invested - I hope I am being conservative but we don't have a lot of info.

[petec]

Is there any way of getting this thread into the investment ideas section? It faintly irritates the pedant in me that it's under general discussion!

[petec]

Separately, does anyone have a handle on valuing the Android and Sarea investments?

[sculpin]

Here is Jim Roumel's valuation of Dundee post AGM. Values Parq at 50% of carry, expects Blue Goose sale & places conservative assumptions on other assets while subtracting $41 million for corp costs & pref dividends over next 18 months. Still comes out with $4.25 per common valuation.

 

 

I attended Dundee's shareholder meeting two weeks ago and walked away with increased confidence that the board has a plan, senior executives are up to the task and Jonathan knows what he's doing and is passionate about righting this ship. I view it as a "reverse prodigal son" story, i.e. the brother has come back to fix the sins of the father.

 

Our conservative NAV assumption gives us a large margin of safety, in my opinion:Primary Investments:

 

1. Untied Hydro $65 million (40% of carrying value)

2. Blue Goose $35 million (Current mark, we believe gets sold this year)

3. Dundee Securities $13 million (50% of carrying value)

4. Dundee 360 $12 million (50% of carrying value)

5. Android $24 million (100% of carrying value)

6. Dundee Sarea $7 million (50% of carrying value)

7. Parq $50 million (50% of carrying value)

8. DPM $124 million (Current market value)

9. eCobalt $19 million (20% discount to market)

10. Other Public Equities $40 million (20% discount to market)

11. TauRx $20 million (50% of carrying value)

12. Debt Investments $25 million (25% discount)

 

Sum: $291 million discounted NAV vs Dundee's NAV of $588 million

 

Less 18 months corporate overhead of $24 million and 18 months Preferred Div of $17 million = $4.25/share

[petec]

That's absolute madness. Surely you have to subtract at least the market value of the prefs (I would subtract the par value because they'll trade a lot closer to par if things go right, which is the only way you win in the common)? He is only subtracting 18 months of pref dividends!

[sculpin]

That's absolute madness. Surely you have to subtract at least the market value of the prefs (I would subtract the par value because they'll trade a lot closer to par if things go right, which is the only way you win in the common)? He is only subtracting 18 months of pref dividends!

 

I looked at his numbers and it is somewhat wonky but close to the per share figure. Before taking out corp costs & pref dividends over next 18 months and adding the $37mm cash he left out I get to $251mm net asset value per common or $4.25 per share. Taking out the costs & dividends gives me about $3.50 per share.

 

Total value of assets above = $434mm + Cash $37mm - Total pref of $218 = $251mm

[petec]

Ah-I misunderstood, having not bothered to sum the assets myself. Sorry!

[Rod]

Here is Jim Roumel's valuation of Dundee post AGM. Values Parq at 50% of carry, expects Blue Goose sale & places conservative assumptions on other assets while subtracting $41 million for corp costs & pref dividends over next 18 months. Still comes out with $4.25 per common valuation.

 

 

I attended Dundee's shareholder meeting two weeks ago and walked away with increased confidence that the board has a plan, senior executives are up to the task and Jonathan knows what he's doing and is passionate about righting this ship. I view it as a "reverse prodigal son" story, i.e. the brother has come back to fix the sins of the father.

 

Our conservative NAV assumption gives us a large margin of safety, in my opinion:Primary Investments:

 

1. Untied Hydro $65 million (40% of carrying value)

2. Blue Goose $35 million (Current mark, we believe gets sold this year)

3. Dundee Securities $13 million (50% of carrying value)

4. Dundee 360 $12 million (50% of carrying value)

5. Android $24 million (100% of carrying value)

6. Dundee Sarea $7 million (50% of carrying value)

7. Parq $50 million (50% of carrying value)

8. DPM $124 million (Current market value)

9. eCobalt $19 million (20% discount to market)

10. Other Public Equities $40 million (20% discount to market)

11. TauRx $20 million (50% of carrying value)

12. Debt Investments $25 million (25% discount)

 

Sum: $291 million discounted NAV vs Dundee's NAV of $588 million

 

Less 18 months corporate overhead of $24 million and 18 months Preferred Div of $17 million = $4.25/share

 

There are also significant tax loss carryforwards that should have some value.

[sculpin]

Dundee Precious Metals Details:

 

Second quarter metals in concentrate produced was 48Koz Au and 8.5Mlbs Cu versus Q1/18 of 57.3Koz Au and 9.3Mlbs Cu and Q2/17 of 53.5Koz Au and 8.7Mlbs Cu.

While the quarter’s gold production was weaker than Q1/18, this was expected as Q1 saw ore grades significantly higher than planned. The company noted in the release that Chelopech’s gold production was still higher than expected in Q2 as a result of higher gold grades in the zones mined.

Gold production YTD looks to be trending towards the high end of guidance(165-195Koz) and copper production appears to be in line with guidance (33.7-40.4Mlbs).

At the smelter, concentrate smelted of 46.4Kt was below Q1/18 of 54.1KT and Q2/17 of 60.6Kt due to the 24 day annual shutdown.

At Krumovgrad, the forecasted CAPEX remains at $164 to $168M, compared with the original estimate of $178M.

Implications:

 

Mildly Positive

 

Despite lower gold production q/q and y/y, YTD production of 106Koz appears to be trending towards the upper end of full year guidance. While the smelter’s performance was light due to the annual shutdown, the company notes that full year concentrate throughput is expected to be within guidance of 220-250Kt, therefore it should have a strong H2/18 with YTD concentrate smelted totally 102.2Kt.

 

Krumovgrad remains on track for a late Q4/18 startup.

 

DPM remains the best-value name in our Junior Producer universe and is a top pick for the quarter.

[petec]

I feel like the next quarter (post portfolio review) is key; the stock could drift a lot lower with no action or explode on positive action. Personally I'd:

a) sell everything not listed below and buy back liabilities cheap;

b) mature DPM and Parq and sell those (18 month timeframe)

c) focus on maximising option value at DST and United

d) Use the "new" securities business to find new options.

 

Until I see a plan I can't decide whether to get more excited as the price comes down, or not.

[Rod]

I feel like the next quarter (post portfolio review) is key; the stock could drift a lot lower with no action or explode on positive action. Personally I'd:

a) sell everything not listed below and buy back liabilities cheap;

b) mature DPM and Parq and sell those (18 month timeframe)

c) focus on maximising option value at DST and United

d) Use the "new" securities business to find new options.

 

Until I see a plan I can't decide whether to get more excited as the price comes down, or not.

 

I hope we see significant assets sales soon. Right now when I look at the stock I hear that screaming sound that the shot down planes make in old WWII movies.

[petec]

I feel like the next quarter (post portfolio review) is key; the stock could drift a lot lower with no action or explode on positive action. Personally I'd:

a) sell everything not listed below and buy back liabilities cheap;

b) mature DPM and Parq and sell those (18 month timeframe)

c) focus on maximising option value at DST and United

d) Use the "new" securities business to find new options.

 

Until I see a plan I can't decide whether to get more excited as the price comes down, or not.

 

I hope we see significant assets sales soon. Right now when I look at the stock I hear that screaming sound that the shot down planes make in old WWII movies.

 

The plane makes the screaming sound or the pilot? ;)