Consensus community valuation
Bit of that going around atm @Bear77
Take a look at the update from Decmil yesterday and tell me if you think it warrants an increase in the share price of up to 36%.
I can't fathom the bin fire the market had to be expecting Decmil to deliver in order to rerate it upwards after delivering this. Maybe they're giving it props for having a $16m MC and delivering a $102m loss - that couldn't be easy. To be fair they did disclose a strong order book but I can't get to their FY22 numbers without assuming a negative gross margin. Not much point in having a strong order book if you've tendered below cost.
Decmil is probably the pick of the bunch but there are some other results, which have prompted market moves that are a little perplexing. Atomos came in at the bottom of guidance and got a rocket under it. Aerometrix was so-so and did the same. Birddog was another who proudly announced they'd slowed significantly and was rewarded with a 20% rise on the day.
Presumably it's all about expectation versus reality but it's a strange market when expectation is so divergent to company guidance.
[None held]
Just looked at gross profit margin over the past ten years. Gone only way. Down. Market cap has followed. Decmil once had a market cap of $400m and gross proift margins of 30%. Gross proift margin in the last half year was 6%. Probably will be lower in this half year. Market cap now is less than $30m
Warren Buffett once said great, or very good, companies are those with pricing power. On the flip side, terrible (bad) companies do not. Falling gross margins suggests that Decmil is a pretty bad company without any pricing power (not a surprise). If inflation remains elevated this could be disastrous for Decmil
I am staying well clear of this ......
26-July-2021: Update and Capital Raising
First off, I do not own any Decmil (DCG) shares, and I'm steering well clear of this company. Their management are rubbish and their track record is woeful. They are loss-making and their share price has been heading south-east since they were trading between $10 and $12 per share in 2012, so for almost a decade now. At the time it was $1 to $1.20/share, but they've since had a 1 for 10 share consolidation, so based on today's share price (post-consolidation), their SP range back in 2012 was equivalent to $10 to $12.
They announced this raising today, at 40 cps, and promptly dropped to 39.5 cps. Their trading range today was 39 to 40 cps. The CR is a A$10 million two tranche placement at $0.40/share plus a SPP of "up to" $2m on the same terms as the placement. The placement consists of:
- Tranche 1 (unconditional): 19.3 million new shares to raise ~A$7.7 million
- Tranche 2 (conditional): 5.7 million new shares to raise ~A$2.3 million, subject to shareholder approval at a general meeting of the Company to be held on or about 30 Aug 2021.
This raising includes one option for every two new shares issued, exercisable at $0.48, with an expiry date of 2 years from issue, which, IMHO, would be the only reason for anybody to be interested in this raising, but I'm still steering clear of them.
If you skim through this presso (link above - at the top of this straw), they are certainly painting the company in the best possible light - starting with slide 3, titled "Investment Highlights":
- Leading Australian construction company with national footprint, successfully operating for over 40 years
- FY21 a successful year of consolidation – new board and management / contracts performing well / balance sheet strengthened / strong pipeline
- Extremely positive outlook across all market segments – infrastructure / resources / construction / energy
- Strong FY22 expected through building momentum on the year of consolidation
- $30m financing to support working capital and position Decmil for future opportunities
Wow - what's not to like? Actually, almost everything. Their debt levels for a start, and the fact that they're taking on another A$20 million subordinated debt facility - announced in this presentation, in addition to the $10 to $12m capital raising (placement & SPP), and they already had debt. They ended FY20 with A$17.75m in long term debt. And their entire market cap is just $55m (total shares on issue multiplied by the current share price).
Next - their profitability, or lack thereof. They posted a big loss in FY20 and I'm tipping they are going to post another one for FY21, hence this CR before the results are announced. Their ROE over the past 5 (five) financial years has ranged from as high as 6% to as low as -68% (that's MINUS 68 per cent), which was FY20 (their most recent full financial year). Their FY20 ROC (return on capital) was -59% - again, please note there is a MINUS sign there, i.e. their ROE and ROC were both severely negative. Those numbers were sourced from Commsec.
The ASX website shows DCG's TTM EPS (trailing twelve month earnings per share) as -$0.158 (negative 15.8 cps) and Commsec show DCG's "current" EPS as being -$3.299 which sounds a tad extreme. Something NQR there me-thinks. I don't think Commsec have allowed for the 1 for 10 share consolidation (SC) that DCG did in early November 2020, which probably means that should read -$0.3299, but that still seems like a huge EPS loss. That 1:10 SC may also have affected those Commsec ROE and ROC numbers for FY20 for DCG, but they would both still be negative. Any way you look at it, FY20 was a horrible year for the company during which they had some massive write-downs and lost a lot of money.
Decmil actually claimed to have returned to profitability in Half 1 of FY21 (the 6 months ended 31-Dec-2020) - see here - however that profit was less than $1m. It was actually NPAT of $0.6m ($600K). And they said they also had a "Healthy cash position of $29.7 million at 31 December 2020" plus "Decmil has reduced its debts substantially during the period, repaying the $25 million term loan from National Australia Bank and reducing amounts owing to surety providers for called bonds from $27 million at 30 June 2020 to $16 million at 31 December 2020."
And yet here we are, 5 months later (than that 24-Feb-2021 report) raising more money and talking on more debt at the same time. And with a share price that is below the raising price. Just barely below, but it's still below. And they do have a history of raising capital. They raised another $52.4m last June, just prior to closing their books for FY20, by way of an accelerated pro rata non-renounceable entitlement offer on the basis of 4.2 new shares for every 1 existing share at an issue price of $0.05 per new share. That was before their share consolidation in November, so was equivalent to 50 cps based on today's share structure. They were already in a trading suspension when they announced that heavily discounted CR - and they'd last traded at $0.079/share (on 18-May-2020), equivalent to $0.79 now. They opened again (on 02-June-2020) at $0.093, but they were down to $0.053 ten days later. The company then consolidated their shares on the basis of 1 share for every 10 held on 05-Nov-2020. They made their most recent 12-month high of 72 cps shortly after that, and then it's been all downhill from there again.
There is not a lot of confidence in the market around this company, and why would there be? They have a history of over-promising and under-delivering, raising capital regularly, consolidating their share structure, plus major bunfights with clients, including a major one with the NZ DOC (department of corrections), a dispute that resulted in Decmil closing down their entire New Zealand operations, and disputes with their subcontractors, like a high profile dispute with Southern Cross Electrical Engineering - SCEE (ASX: SXE) - who struggled to get paid by DCG for work SXE performed for them. Decmil's share price has been heading the wrong way for over 9 years. The company's founder, Denis Criddle, left the company in 2018, leaving his son Scott to run the company. Scott Criddle held the positions of Chief Operating Officer, Chief Executive Officer, Managing Director, and finally Executive Director, before also leaving the company, in mid-2020 after almost sending the company broke. Decmil as a company wasn't doing well when Scott took over the top job there, but he certainly didn't do them any favours with his leadership. The Criddle's are no longer listed as substantial shareholders in the company. The only substantial shareholders are Thorney Investment Group (a.k.a. TIGA Trading) with 18.7%, Franco Family Holdings with 7.67% and IFM Investors with 6.11%. For more info on the Franco Family, see this article: https://www.afr.com/property/residential/the-billionaires-living-on-perth-s-millionaire-s-row-20190715-p5279h
The bit about the Franco Family is just over halfway through the article. Interesting that Kerry Stokes only paid $200K for his 3200sq m block in the 70s and then in 2018 Ryan and Kerry Stokes paid $11m for a property three doors down, with five bedrooms, an internal lift and a boathouse, which was rumoured to have been bought as interim accommodation while renovations on Kerry's home were under way. It was also speculated that the second house was bought as a future Perth residence for Ryan. ...Anyway, I digress. The Stokes boys have nothing to do with Decmil Group.
Alex Waislitz’s Thorney Opportunities Fund (TOP) have had some success with some of their investments, but they also have a history of doubling down on some dogs at times. The TOP SP is currently around 55 cps and they were higher than that 3 years ago, and 5 years ago, so those people who suggest that Thorney are excellent stockpickers might want to look a little deeper into their performance over recent years, which suggests that they have been backing some poorly performing companies whose future prospects also don't look too flash, like Decmil Group.
I wouldn't touch Decmil with a barge pole. There's just nothing to like there.
