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Author Topic: Undervalued Strong Buy of DCHAF  (Read 1323 times)

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justo

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Undervalued Strong Buy of DCHAF
« on: May 11, 2011, 07:54:20 PM »
Just did some research on a company called Dacha Strategic Metals Inc. It looks like their stock is trading at a price level that is below its intrinsic value and their working capital per share.  This would be a great investment both short term and long term for the following reasons:

The company is currently trading at a discount to its net current assets (about 0.49). According to the company’s website, their net current assets are currently (as of April 29, 2011) valued at $ 0.71 a share with their inventories being valued at 48.8 million. Total current assets are valued at about $51,878,495. We should also take any liabilities off to get a net assets value which is about (using liabilities from last interim financial statement, which are almost nil) $51,077,503, giving us a net asset value of $0.70 per share. 

In regards to that it should be noted that the company does have some options and warrants that have not been executed. Currently the company has 21,316,400 in Warrants and 7,200,000 in options. IF executed these would dilute the number of shares outstanding to 101,584,704, meaning the net asset value per share would decrease to approximately $0.59, assuming other assets stay roughly the same (if all warrants and options are exercised the amount of shares would increase, but the company would receive over $8,000,000 in cash). So even when fully diluted the value is still above the current stock valuation for the company, providing some margin of safety for the investor.

The company also has a P/E ratio of only 7x, which is extremely low now that the company is generating revenues.
This company bodes well for the long term due its current EPS as well as the promising position that the industry is in.
 Dacha’s EPS has grown over the past 3 years to 0.07, starting back in 2009 when it recorded a loss per share of about 0.31 per share. The company has improved its EPS year after year and should continue to do so as the company continues to operate as a going concern.  Clearly, this means an increased share price year after year.

Dacha is in the Rare Earth Elements industry in which China is the number one supplier of rare earth elements. For those that do not know, rare earths are the “technology metals,” used in everything from cell phones to missiles. At the end of 2010 China announced that the first round of export quotas in 2011 for rare earths would be 14,446 tons which was a 35% decrease from the previous first round of quotas in 2010. This is significant because by supplying less the demand for these rare earths increases significantly, as shown by the Yttrium Oxide graph (which you’ll have to look up), one of the metals that Dacha deals in.

As you can see the price has continually increased with the continuing demand for rare earth metals. Dacha is unique in that it does not mine for any of these rare earths so it does not incur any of the high costs associated with early stage exploration companies. What Dacha does is it buys these rare earth metals through it’s great relationship with its China partners at an inexpensive price, holds these investments, and later sells them off at a higher price. Keeping these close relationships with its partners in China is crucial to the company’s success, and it is excellent news that the company tries very hard to keep these relationships strong.

Conclusion:
Both the short and long term offer some gains in regards to this companies stock. Being able to buy right now at a discount is very advantageous as it provides a margin of safety for your money. Coupled with increased EPS year after year makes this company a good buy under these conditions.  I would buy now, as it would not surprise me if this stock reached $0.60 in the near future and higher in the long term. If you have any questions feel free to send me a message!

On that note, as of May 4th Reuters has projected that Dacha Strategic Metals’ target share price will increase to 0.69 by years end! Happy buying!

Most of this information can be obtained from the company’s website as well as looking at the company’s latest financial statements for the 2011 year. The Reuters statement can be found at http://www.cnbc.com/id/42894399.

justo

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Re: Undervalued Strong Buy of DCHAF
« Reply #1 on: May 30, 2011, 12:44:23 PM »
Hello everyone just thought I would update you on DCHAF and how it is doing. I initially said that Dacha was a strong buy at $0.49 and, low and behold, it is currently trading at about $0.55. BUT the big news is that their assets have just appreciated up to $0.94 a share. This means that the new book value is approximately $0.78 a share. That is a huge discount if DCHAF is currently trading at only $0.55.

As I believe the company is doing great things and I wouldn’t be surprised if DCHAF actually did hit $0.69 a share as forecast by Reuters. Although I do think it is now going to hit much higher than that.

So who has listened to me so far and bought into this company?

Here is a link to the press release:

http://www.dachacapital.com/Investors/Press-Releases/Press-Release-Details/2011/Dacha-Reports-Assets-of-C094-Per-Share-With-Inventory-Valued-at-US648-Million-as-of-May-27-20111125447/default.aspx

justo

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Re: Undervalued Strong Buy of DCHAF
« Reply #2 on: May 31, 2011, 09:07:58 PM »
There is just so much going to with this company right now I’m having a tough time keeping up! So a few more updates.

First off we have the announcement that Dacha will be placing a bid to buy back some of its stock. This is a pretty big deal because it means that the company has (hopefully) realized that the price of its stock is undervalued. They are planning on purchasing just under 7,000,000 shares from the TSX Venture exchange. This is great news as fewer shares mean an increase in share price. However, to me it is very ambiguous what the new price could be should all those shares be repurchased, as we have to take into account the price that it is paying which we do not know. However, we do know that their book value is approximately $0.78 per share (see 2nd post). Assuming that the company does not buy above 0.70 and they buy the maximum amount of shares then the new book value should be higher (currently it is impossible to figure this out as one would need updated financial statements). I’d say that it shouldn’t go much higher than 0.85, but I am speculating here. For simplicities sake I shall stick with my prior calculation that DCHAF’s share price should be valued at around 0.78 (Although the buyback can increase this price).

The second update is that Reuters has re-valued DCHAF’s target share price to $0.99! That is much higher than what I think, but then again right now it’s trading at about $0.65 and I said (in my first post under different circumstances) that it wouldn’t go much higher than $0.60. So those are the updates! Now is still a great time to buy as 1. The current price is still undervalued and 2. The rare-earth metal inventory is going to continue to appreciate meaning that assets, and subsequently book value, are going to increase.

Here are the press releases:

http://www.dachacapital.com/Investors/Press-Releases/Press-Release-Details/2011/Dacha-Strategic-Metals-Inc-Announces-Intention-to-Make-a-Normal-Course-Issuer-Bid1125455/default.aspx

https://research.tdwaterhouse.ca/research/public/Stocks/NewsArticle/ca/SMF?documentKey=1314-L3E7GV0KN-1


justo

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Re: Undervalued Strong Buy of DCHAF
« Reply #3 on: June 27, 2011, 08:15:55 PM »
They’ve just reported that their asset value per share has increased to approximately 1.39 (but we know it’s more like 1.01 due to the weighted number of shares outstanding).

Just thought I would let everyone know. Still look at their great EPS though!

http://www.dachametals.com/Investors/Press-Releases/Press-Release-Details/2011/Dacha-Reports-Assets-of-C139-Per-Share-With-Inventory-Valued-at-US974-Million-as-of-June-24-20111125795/default.aspx

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