Opinions Stockchase Insights
Dye & DurhamDND.TOHOLDNov 27, 2024
Stockchase InsightsStock price when the opinion was issued
As of Jun 09, 2026. Market Open.
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An example of a company his firm wouldn't touch. That doesn't mean it won't recover, but a lot of things are happening. Management turmoil, family issues, board fight, legal proceedings. Might get back to $30 eventually, but that doesn't help the people who bought at $45.
He wants dividend income and a consistent approach from management.
The disaster at DND seems never-ending. Revenue is declining, debt remains huge, and it is barely in line with its covenants. It will likely get hit with year end selling, and the company clearly is floundering. We would have no interest here.
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Plantro has pulled its bid, so it certainly might become a seller. Frankly, the stock has become a bit of a basket case. It has been up for sale. Management has revolved. It buys back stock and then issues stock. But the main issue is debt. 12-month cash flow was $81M. Obligations net of cash are $1.4 billion. We would consider it low quality and too risky. Yes, it could be sold. But we would have said that a long time ago as well.
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He owns a small position. Leverage is the biggest concern but the valuation of its assets is good. It needs to monetize their financial services base. There has been a situation with the CEO.
Greg Dean
We think DND is still a HOLD for a few reasons:
DND possesses a portfolio of high-quality businesses with decent pricing power (gross margin around 87%).
In recent quarters, management is also committed to doing share repurchases at an aggressive pace, cancelling more than 20% of total shares outstanding within one year.
Also, cost control initiatives and a recovery in the real estate market as interest rates peak could be a near-term catalyst for the share price to gain momentum.
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We think DND is quite cheap given the quality of the portfolio of legal software businesses they possess strong competitive advantage positions (few competitors). The company is also actively repurchasing shares recently at an aggressive pace, and management also believes shares are significantly undervalued. However, the leverage is high.
The recent lawsuit is relatively minor, we think it is just normal business issues. On the other hand, the business model is quite controversial as DND will acquire niche legal software companies that possess strong pricing power (only one or a few providers) through a leveraged balance sheet, and raise prices to create shareholder value (the practice similar to Valeant in the past or TDG). DND did raise prices quite aggressively but we don’t think DND gouges its customers like Valeant in the past.
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Under activists' pressure, the CEO has decided to step down, which was likely because the company decided it was going to lose anyway in the upcoming special shareholders' meeting. DND says it has received expressions of interest from ''inbound parties', at 'attractive premiums' but has paused its strategic review while it focuses on the special meeting and possible revamp of its board. Investors liked the news and the shares rose. But the future of the company is still very much in flux. The meeting is Dec 17 and if Engine Capital wins we could see a new board composition and a new direction for the company. It has potential, but a massive amount of debt. It is probably better off selling itself, in our view, due to its debt and small size, but right now it is hard to call. We would see it as a HOLD until the meeting is resolved and some clarity comes out.
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