Following Friday’s announcement of “a series of actions to improve its balance sheet flexibility and reduce its convertible debt,” CIBC’s Scott Fletcher lowered his target for Dye & Durham Ltd. to $26 from $28, maintaining an “outperformer” rating, while Scotia’s Kevin Krishnaratne cut his target to $25 from $30 with a “sector outperform” recommendation. The average is $25.29.
“Management’s announced balance sheet moves on Friday, which see DND reduce its 2026 convertible debt maturities by $95-million to $250-million (mainly via issuance of $85-million converts due 2028), are a step in the right direction to help address leverage concerns,” said Mr. Krishnaratne. “We also view commentary that Q1/24 results will be in line with expectations (i.e., similar to Q4) as positive. Shares of DND are down nearly 50% since Q4 mid-September on what we believe are multiple factors including the company’s high leverage (we model 5.0 times total debt to LTM Adj. EBITDA in Q1/24 moving below 3.8 times by FY25), its exposure to real estate transactions, and broader weakness in small-cap tech. While we appreciate these concerns, we view the big sell off as presenting a compelling opportunity, with the stock now trading at CY24 estimated FCF yield ex-restructuring 19 per cent or 15.5 per cent including restructuring expenses vs. high leverage/high margin SW peers 7.5 per cent.”