Chris Thompson provided another great piece of research.
Although E-research is a third-party analyst, he does provide excellent context on his financial models and gives a good base of what to expect for DCM. My favourite tool when analyzing a small-cap stock is the Discounted Cash Flow (DCF). I like the DCF because it discounts future cash flows to the present value to arrive at a fair market value, using small assumptions on the future.
What Chris provides in his text is the power of DCM's cash flows. Data has focused on stronger cash flows in the last couple of years, which has significantly helped pay down its debt. When looking at the following year, DCM has made some significant changes in the previous couple of quarters, which should significantly help the cash flow statement.
- Consolidating headquarters to one facility -$1M
- New office Richard Kellan talked about in earnings saving $0.8M a year due to hybrid work model
- Refinance saving -$1.5M a year
- Lowering headcount by more than 130 employees (Avg Cad Salary * 130) =(68,250*130=$8.8M)
- Cannon partnership around $1M in operating expense savings
With all those, I can see A) margins & cash flows to increase and B) Increased cost savings, which can be used for acquisitions and growth.
Chris used three forms of analysis to arrive at an average 1-year price target of $3.75. I will focus on the DCF because I believe Cash flows are the most important for growth.
Chris uses a Discount rate (WACC) of 10%, which I believe is fair for DCM. He also uses a 7X EBITDA Terminal Multiple which is ok considering DCMs current valuation.
E-research estimated DCM's revenue to have a 3% CAGR, which is conservative but shows that we can really see a much higher valuation if DCM can increase revenue with this higher margin base.
Everything else is straight forward to getting Unleveraged Free Cash Flow. I will link his report down below for anyone interested.
From his DCF, we get a $6 (CAD) share price which is a massive premium to today's share price. It just shows how undervalued DCM is based on a cash flow perspective.
Anyways great analysis from Chris. I would love to hear everyone's thoughts.
Link to Report: https://eresearch.com/wp-content/uploads/2021/11/eR-DCM-2021_11_24_UR-FINAL.pdf