Friday, December 1, 2017

DAAT is Cheap

Today we're going to play my favorite game, Value That Stock!  I can see you're overcome with joy.  Here are the numbers:

  • Rev $13.1M in 2016 vs 12.6M in 2015 vs 10.9M in 2014
  • Net income $100k vs 81k vs 21k
  • EPS $0.02 vs 0.02 vs 0
  • Shares 5.33M
  • No long term debt
  • BV $5.2M vs 5M vs 5M

I'll go with a range of $5M - $10M for those numbers. If it was run better they would be more profitable but let's just say $8M to take a number and that would be $1.50 per share.  

Current stock price is $0.24, giving a market cap of $1.3M, so it's cheap however you look at it. Whether that value will ever be realized is a different question.

The company is Dac Technologies (DAAT) and they make gun cleaning kits, gun locks, and other items. They de-registered from the SEC in March 2011 and don't post reports anywhere. They send out annual financial statements to shareholders as required by state law but provide nothing else. I haven't tried contacting them.

The company was founded, and is still run, by David Collins who controls 58.7% of the vote. He owns 31% and the rest is in a Collins family trust that he votes for. He decides what goes and is now 71 years old.

Negatives:
One definite negative is lack of information. The company is dark so no one knows they exist or what they're worth. I wouldn't hold your breath on seeing any press releases.

A second negative is Collins using the company as a piggy bank. I recommend you read these two SA articles, here and here. Since the last 10k was in 2010, and I have not talked with company, I have no idea how they are running things now. I imagine it's similar to how it used to be with the CEO taking too high a salary plus other perks. Collins can keep doing this as long as he feels like then pass the company on to his kids to do the same.

Positives:
It's undeniably cheap.

My Investment Thesis:
Wait for a sale. 

It's clear Collins does not care about us minority shareholders and without any communication I don't see the stock price moving a whole lot.  Check the chart, it's been in the $0.20 range since de-listing from the SEC six years ago.  I think this is one of those stocks that will sit flat until one day a sale is announced and it spikes up 1000%.  That day could be tomorrow or a decade from now or never.



Let's quickly talk about a potential sale and the potential price tag.  Think back to those numbers at the top of this post and the cost savings if the CEO wasn't paid so much.  Or what if a larger company bought up DAAT and didn't need a CEO for this division at all?  Revenue is up 20% in the past couple years while earnings has barely moved.  In 2010 Collins brought home about $630k.  In 2009 the company earned $550k in $14.7M revenue and now they are earning $100k on 13M revenue so costs have gone up.  Based on their old 10k and latest numbers I'd bet earnings could be near $1M if they put in some cost saving measures and got rid of the overpriced CEO.  That would put company value in the $10M to $15M range ($2 to $3 for the stock).  Maybe higher, maybe lower, but you get the idea.  

I don't know if there will ever really be a sale.  The last 10k notes two Collins children, Payton and David Jr., but doesn't mention them in any sort of functional role.  I would think if he had plans to leave the company to one of them they would have been a director or VP or something.  

Collins is 71 years old so he has to do something at some point.  He has a trust set up for the kids and my guess is he will sell some day.  Excuse me while I go look for "some day" on my calendar...

--Dan 
disclosure: long DAAT




1 comment:

  1. Nice summary. I've owned this stock for a while. One thing to add - despite some corporate governance issues, one positive is that management is fairly open with information. I emailed the company for financial statements when I didn't own any shares and they promptly replied and sent me an annual report. I email a lot of dark companies, and very few reply at all.

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