Ah i remember this company. At one stage they were supposedly buying 'Stiletto' which is a high-class brothel in inner Sydney. 20 something year old me was like brothels are money printers, i'd be keen to buy in. The deal never happened, i never bought (looks like a good thing based on the chart).
Edit: great analysis post by the way OP.
Well that's a first. I'm sure there are few geological/female anatomy jokes in there somewhere but I'm going to refrain from mentioning them in the current political climate
The below is an introduction to Delecta - Australia's #1 dildo and mining company (by us, the Hype Train newsletter). It's become pretty popular on the infamous r/asx_bets Reddit forum. Keen to hear what people think about it on Strawman though...
Mining, but also sex toys - Delecta Ltd(ASX: DLC)
This isn’t a stock recommendation. We’re finance and business news guys simply introducing some ASX-listed companies operating in industries we find cool. The information in this section is for educational and general purposes only and should not be taken as constituting professional financial advice.
Company:
If you haven’t seen the huge amount of attention this company has been getting online, buckle up because this is one of the strangest we’ve ever seen. Delecta frames themselves as a prospective miner, but with a closer look, all of their current operating revenue comes from wholesaling adult toys.
So what's the plan here?: It doesn't sound like the adult side of the business is going away anytime soon, but recent board changes to include key figures with mining experience show that the company really is keen to expand on its operations in the resources industry.
Industry:
The speculative mining side of the operation is something that we have covered in previous Hype Train ASX-company overviews, and you can read plenty of articles on this segment as it makes up a solid chunk of the ASX.
Adult toys are a different story, however:
Adult toy market was worth USD 33.64 billion in 2020.
Expected to expand at a compound annual growth rate (CAGR) of 8.04% - this is actually quite impressive
The market is heavily skewed to e-commerce which Delecta seems to have been able to successfully take advantage of
The AFR has reported COVID-19 is fuelling a surge in sex toy demand for Australians
Prominent players operating in the global market include: Church & Dwight, Reckitt Benckiser Group, LELO, LifeStyles Healthcare, Doc Johnson Enterprises, Lovehoney, BMS Factory, PinkCherry, Tenga Co, Fun Factory and We-Vibe.
Financial health and valuation:
Financial Health:
DLC's short-term assets ($8.5k) exceed its short-term liabilities ($1.4k) and long-term liabilities ($740k).
Current ratio of 6.14 (Yahoo finance). This shows that the company is on top of its liabilities - a comfortable amount but not crazy.
Revenue has been growing over the last 2 years from $15.9k in 2018 to $16.7k in 2020 though perhaps alarmingly has fallen since 2017 ($18.5k).
Market cap is only 6m. This is seriously small and given the curveball nature of the whole company, makes this very risky territory.
Valuation:
$0.01 from Morningstar Quantitative (undervalued) on 19 March 2021
$0.013 from Simply Wall St on 22 March 2021
$0.006 current trading price on 22 March 2021
Ratios: P/S (ttm) of 0.36, EV/Revenue of 0.33, EV/EBITDA of 11.9 from Yahoo Finance
Unqualified opinion:
It’s fun: If we had an award for the #1 biggest meme stock it would definitely be awarded to Delecta. I mean r/asx_bets users were considering ‘banding together and just buying the whole company’. It’s also very unique in that it has a steady and growing source of revenue to prop up its speculative mining operations.
A combined valuation? To value this one it would probably make sense to use a combined approach with a typical DCF of its profitable adult toys business, and then other more speculative techniques for the mining biz.
It’s risky: Despite having a successful revenue-generating backbone, Delecta is super micro-cap, which compared to other prospectors, suggests the market is not expecting this to be the next successful mining company. This is also reflected in their share price which has barely moved over the last 5 years. The dichotomy between the two arms of the business also raises questions over how effectively a company this small can manage such different operations and give enough focus to each.
Research links to further understand this company