Dye and Durham is still undervalued, Scotia says

Its stock has done well of late, but Scotia analyst Kevin Krishnaratne thinks there is still money to be made on Dye and Durham (Dye and Durham Stock Quote, Chart, News, Analysts, Financials TSX:DND).

As reported by the Globe and Mail, the analyst April 12 reiterated his “Sector Outperform” rating and price target of $24.00 on DND.

“Shares have performed well post Q2 results mid-Feb (up 30 per cent), but we continue to see further upside with the stock trading at 7.6 times calendar 2024 estimated Adj. EBITDA and 11.8-per-cent CY24 FCF yield (13.7-per-cent PF interest cost savings via recent debt refinancing),” Krishnaratne added. “Additionally, we still see opportunities for even further balance sheet optimizations via the sale of non-core assets and other initiatives to deleverage and drive FCF upside.”

The analyst said financially, DND is set up for the foreseeable future.

““We view DND’s recently closed refinancing transactions (8.625-per-cent US$555-million senior secured notes due 2029, US$350-million term loan maturing 2031, CAD$105-million revolver maturing 2029), in addition to the repayment of prior existing facilities with Ares as continued steps in the right direction to enhance the company’s balance sheet flexibility,” he wrote. “Although leverage remains elevated at 4.78 times net debt to LTM [last 12-month] Further Adj. EBITDA as at Dec. 31 per company calculations, the refinancing moves eliminate prior risks related to the Ares facility maturity date being accelerated (to 2025 from 2026) if DND’s 2026 debentures were to remain outstanding. Furthermore, given how DND now intends to repurchase the remaining $185-million 2026 debentures, there is a long window until the company’s next debt related maturities, those being the 6.50-per-cent 2028 debentures. We note that there is a new springing maturity in place for the new revolver (2029) and term loan (2031), which may both see an acceleration in their maturity within 91 days of the US$555-million senior secured notes, if the latter are not repaid, extended, refinanced, or replaced prior to their due date.”

At press time, shares of Dye and Durham were down 1.5% to $15.64.