Decisive Dividend is a Buy, says Beacon

Beacon Securities launched coverage of Decisive Dividend Corp (Decisive Dividend Corp Stock Quote, Charts, News, Analysts, Financials TSXV:DE) on Friday, with analyst Russell Stanley saying the stock is attractively priced with a healthy dividend yield. 

Based in Kelowna, BC, Decisive Dividend acquires and builds companies with sustainable competitive advantages, focusing on manufacturers of non-discretionary products with steady cash flow profiles, growth potential and aligned leadership. 

Created in 2015, DE has completed ten acquisitions to date for an aggregate purchase price of $83 million, with five acquisitions having occurred since April, 2022, showing a now accelerated M&A pace. 

Companies bought by DE include Blaze King, which makes clean-burning wood stoves and gas fireplaces, welding and fabrication solutions business Northside and Procore, which manufactures radiators for heavy equipment used in mining, Oil & Gas and road construction.

Stanley said Decisive Dividend looks at 80-100 acquisition opportunities annually, while at the same time,  integration opportunities exist within its current portfolio of businesses, according to Stanley. 

“We expect the company to continue pursuing new businesses that diversify the revenue base as well as tuck-ins that can build on existing operations,” Stanley wrote.

Stanley argued that DE has demographic tailwinds in its favour. Society is approaching The Great Succession, where according to a Canadian Federation of Independent Business (CFIB) report, 76 of small business owners, representing $2 trillion in assts, plan to exit their companies within the next ten years, up from 72 per cent in 2018. 15 per cent of owners say they would like to exit within the next year, up from eight per cent in 2018, and 41 per cent plan to exit within one to five years, up from 39 per cent in a prior study. 

Stanley said the #1 reason for exiting is retirement at 75 per cent, with burnout or stress the second-most popular at 22 per cent.

That bodes well for DE, according to Stanley.

“Almost half of business owners expect to sell their companies to unrelated buyers, with the CFIB report noting that tax laws discourage sales to family members. We believe this creates a target-rich environment for Decisive,” he said.

On its financials, Stanley thinks DE will drive its revenue from $99 million in 2022 to $139 million in 2023 and to $164 million in 2024, while adjusted EBITDA is forecasted to go from $14 million in 2022 to $23 million in 2023 and to $30 million in 2024.

On a comps basis, Stanley has DE currently trading at 5.7x his 2024 EV/adjusted EBITDA forecast, which represents a 38 per cent discount to its peer group average at 9.1x. 

Stanley has started off DE with a “Buy” rating and $10.00 target, which at press time represented a projected one-year return of 60 per cent. Decisive Dividend currently sports a dividend yield of 6.5 per cent.

“We expect DE to continue efforts to ensure a stable-and-growing dividend, supported by a diversified revenue base and cash flow growth,” Stanley wrote.