Dream Unlimited Corp

Dream Unlimited Corp (TSX: DRM) is a leading developer of exceptional office and residential assets in Toronto, which owns stabilized income generating assets in both Canada and the U.S and has an established and successful asset management business. 

Why Should Investors Book Profit?

• Increasing uncertainties: The resurgence of Delta variant cases has raised a lot of questions, and it might have an influence on the company's operations and cash flows. Since the government may tighten some mandatory lockdowns to combat the spread, it would affect the occupancy level of the company’s properties
• Lower margin profile v/s Industry: In Q2 2021, the company failed on maintaining its pace and witnessed lower performance across operating margin matrix, which exhibits the pressure on company.
• Stretched valuations: DRM shares are available at an NTM EV/Sales multiple of 6.9x compared to the industry (Real Estate Operations) median of 3.4x, while on NTM P/E multiple, it is trading at 18.3x compared to the industry median of 13.7x. This implies that the shares are overvalued against the industry.
• Long Cash Cycle days: The company is holding higher Cash Cycle (Days) compared to the industry, implying the company takes more days to convert its inventory to cash. Currently, its Cash Cycle is at 138 days compared to an industry median of only 9.6 day.
• Higher average collection period: The company is having a higher average Accounts Receivable day of 205.1 days, against the industry median of 48.7 days. A higher average collection period indicates that the organization collects payments slower. This may create a difficulty for the company to have enough cash on hand to meet their financial obligations.
• Trading near the upper band of Bollinger Band: Recently, the stock witnessed a healthy rally on the daily price chart and has moved above close to the Bollinger band, indicating the stock is perhaps overbought and due for a price correction or a consolidation. Furthermore, the momentum oscillator RSI (14-Period) is trading at ~83.58 levels, which also indicates that the stock is in overbought zone and there is a deep possibility of price consolidation or correction.

Source: REFINITIV, Analysis by Kalkine Group 

Valuation Methodology (Illustrative): Price/Earnings

Stock recommendation

The company posted mixed numbers in Q2 2021, where it grew its Revenue, but booked net losses, compared to the previous corresponding period. Its margins profile remained at the lower side compared to an industry, exhibits the pressure. Furthermore, the resurgence of Delta variant cases has raised a lot of questions, and it might have an influence on the company's operations and cash flows as the company could witness lower occupancy. Additionally, it holds higher Cash Cycle (Days), implying the company takes more days to convert its inventory to cash, along this it also holds higher average Accounts Receivable days which could further propel difficulty for the company to have enough cash on hand to meet their financial obligations. Moreover, the technical indicator suggests that stock is perhaps overbought and due for a price correction or a consolidation. Hence, based on the above rationales and valuation, we recommend a “Sell” rating on the stock at the closing price of CAD 30.72 on October 27, 2021.

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

Disclaimer

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