DCM vs. RRD - DCM remains undervalued while comp. gains 164% With the latest developments related to RR Donnelly (NYSE: RRD), a USD $5 billion communications and print company based in Chicago and one of DCM’s closest comps - I decided to take a closer look at how DCM compares to RRD in order to better understand the potential value of DCM.
The battle to takeover RRD has really showcased the value in RRD’s stock. Historically trading in the USD $3 - $4 range, RRD’s stock price closed yesterday at $10.65 a share, a hefty premium reflecting a 4% premium to Chatham’s latest offer of $10.25 a share. The current share price, of course, reflects the latest offer, but it also implies a valuation of 7.0x RRD’s 2020 adjusted EBITDA, and 6.8x its trailing twelve month adjusted EBITDA (through September 30, 2021). And this valuation comes with RRD carrying a very significant Debt/EBITDA ratio of 5x. Generally, a very high debt load.
The opportunity here is to look at RRD competitors for untapped value. In particular, one of RRD’s direct competitors, DCM (TSE: DCM), offers an incredible opportunity to realized significant growth in the short term. DCM’s current share price is CAD $1.10 a share, and it trades at a 3.5x multiple of EBITDA. DCM’s Debt/EBITDA ratio is a far more reasonable at 1.5x.
If we were to apply the same valuation criteria that RRD is trading at, we could see DCM trading between CAD $3.09 and $3.22 a share -- 290% growth over the current share price!!
And if Atlas and Chatham are looking at business services, communications and marketing, and printing organizations like an RRD, it’s reasonable to think that DCM may be in their sights as well. No reason not to buy DCM stock…a no brainer!