Nice job, but I can't help but feeling if DMGT was in the US its market cap would be closer to $10-20Bn, and they would have spun out a lot of tech IPOs from their ventures already!
As it stands, they look semi-undervalued, but why look at the break-up value which is next to impossible to achieve given the rather controlling shareholder.
Thanks for reading and your comment Rob. I agree - if this was a US listed company, it's market cap would be much greater in my view.
On your question regarding the break-up value, while I accept that it may not be possible to achieve the full break up value, the take private offer from RCL (see my subsequent article) significantly undervalues the business. Highlighting the underlying value of the various parts of the business shows the merits of shareholders and perhaps an activist getting involved to push management to do more to unlock value. If the break-up value is understood, this should make it harder for the board to credibly recommend the RCL offer, which could drive help drive a re-rating or an increased offer price from RCL.
On a side note, you've mentioned debt analysis based on pre-IFRS 16 figures.
On this point, would you any thoughts how to approach pre-IFRS 16 going forward?
Essentially, Covid impacts and pre-IFRS 16 adjustments are making life really hard to compare any trends with past trading performance for may business... and adjust reported figures to allow any meaningful trend analysis is almost impossible or very time consuming.
I think post-IFRS 16 accounting is pretty unhelpful and distorts both earnings and the balance sheet. Lease obligations are relevant for comparing a company to peers, and for assessing creditworthiness (fixed charge cover analysis etc) but ultimately rent for most companies is just a standard business expense, so I tend to treat is as such for valuation purposes. Also as you point out, IFRS 16 makes it difficult to compare valuation today vs. historic levels as it's not like-for-like.
Nice! You were clearly ahead of it.
Thanks for reading!
Nice job, but I can't help but feeling if DMGT was in the US its market cap would be closer to $10-20Bn, and they would have spun out a lot of tech IPOs from their ventures already!
As it stands, they look semi-undervalued, but why look at the break-up value which is next to impossible to achieve given the rather controlling shareholder.
Thanks for reading and your comment Rob. I agree - if this was a US listed company, it's market cap would be much greater in my view.
On your question regarding the break-up value, while I accept that it may not be possible to achieve the full break up value, the take private offer from RCL (see my subsequent article) significantly undervalues the business. Highlighting the underlying value of the various parts of the business shows the merits of shareholders and perhaps an activist getting involved to push management to do more to unlock value. If the break-up value is understood, this should make it harder for the board to credibly recommend the RCL offer, which could drive help drive a re-rating or an increased offer price from RCL.
I agree
Brilliant (and timely) write-up.
On a side note, you've mentioned debt analysis based on pre-IFRS 16 figures.
On this point, would you any thoughts how to approach pre-IFRS 16 going forward?
Essentially, Covid impacts and pre-IFRS 16 adjustments are making life really hard to compare any trends with past trading performance for may business... and adjust reported figures to allow any meaningful trend analysis is almost impossible or very time consuming.
I think post-IFRS 16 accounting is pretty unhelpful and distorts both earnings and the balance sheet. Lease obligations are relevant for comparing a company to peers, and for assessing creditworthiness (fixed charge cover analysis etc) but ultimately rent for most companies is just a standard business expense, so I tend to treat is as such for valuation purposes. Also as you point out, IFRS 16 makes it difficult to compare valuation today vs. historic levels as it's not like-for-like.