Dye & Durham Limited

Dye & Durham Limited (TSX: DND) is a Canada based company that provides business support services to organizations, government, and private firms through its cloud-based platform. The group offers legal services like due diligence, securities filings, litigation solutions, investigative services, court filing, KYC services, and financial risk management services.

Why Should Investors Book Profit?

• Bearish Signal: The stock of DND closed below its crucial support level of 100-days and 200-days simple moving average, indicating a weakness in the stock price. Hence, we expect a possible correction in its price in the coming trading sessions.

Technical Price Chart (as on November 30, 2021). Source: REFINITIV, Analysis by Kalkine Group

• Long Cash Conversion Period: The company reported a lengthy cash conversion time of 41.9 days in Q1FY22 (ended September 30, 2021), higher than the industry median of 21.6 days. The above indicates that the group takes longer to convert its investments in inventory and other resources into cash flows.

• Rise in Total Debt: In the recent past, the company reported a significant rise in its total debt, which remains a crucial concern. It would hinder the overall financial flexibility and lead to higher finance costs. Notably, the D/E ratio stood significantly higher at 0.78x in Q1FY22 compared to the industry median of 0.16x.

• Poor Debt Protection Metrics: At the end of Q1FY22, the company reported its net debt to EBITDA of 5.37x, compared to the industry median of 3.14x. A higher ratio suggests weak debt protection metrics for the company.

Valuation Methodology (Illustrative): Price to Cash Flow

Stock Recommendation

In Q1FY22, the group reported a surge in its input costs of CAD 82.874 million, significantly higher than CAD 41.387 million in pcp. The above was primarily due to a ~550% jump in direct expenses, coupled with increased technology & operations expenses, as well as increased general & administrative and sales & marketing costs. Continuation of the above trend could dampen DND’s profit margins. We have valued the stock using the Price to CF-based relative valuation method and have arrived at a double-digit downside (in percentage terms). For the said purposes, we have considered peers like Constellation Software Inc, Open Text Corp, etc. Considering the aforesaid facts, we recommend a ‘Sell’ rating on the stock of DND at the last traded price of CAD 41.84 on November 30, 2021.

One-Year Technical Price Chart (as on November 30, 2021). Analysis by Kalkine Group

*The reference data in this report has been partly sourced from REFINITIV.

Disclaimer

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