Dolphin Capital $DCI – bit fishy but worth a try…

Bought some DCI a couple of weeks ago at 7.25 – 4.7% portfolio weight.  Picked up more today at 8p – now a 6.8% portfolio weight.  They released an RNS in Mid November – basically selling property and paying down debt.  I thought this significantly derisked the company.  On Friday 2nd they announced an EGM – they are moving into liquidation mode.

They are a resort development company.  They have just sold Playa Grande at 10% below Nav and paid down debt.  They now have a debt to total assets ratio of 18.5%. Factsheet is here.

#EDIT 8/4/2017 – sold out flat – concerned this might take longer than expected – below may still hold though…

Prior to this they sold its 49% stake Aristo developers at a 70% discount to NAV at the end of October.  This is truly appalling, the company’s explanation makes little sense to me.  It sounds like either the NAV (on which they charge fees) was massively overstated before or they gave it away. The good news is that the rest of it’s assets are majority owned.

The latest announcement states that they plan to realise between €135m to €235m – as the current market cap is €86m this gets us to a 56% to 173% return.  It is still pretty poor – the NAV is much higher.

They had invested assets of over a billion in 2007.  These geniuses want paying even more to dispose of the rest.

I seriously question whether paying the existing management €28m – or 9% of the return is a worthwhile use of shareholders money.  According to the RNS the big boys seem to  have agreed it – so it is a done deal.  This is on top of their 1.25% of asset value fee each year.  Cheekily they get 3% for sales executed in H2 2016 – looks like they are getting paid an incentive to sell Playa Grande – even though they have already sold it!

Fees are 3% of divestments in H2 2016 2.5% 2% and 1.3% for disposals in 2017, 2018 and 2019.

The fees are structured so they go down the longer it takes – but they are still incentivised to sell at above 50% of NAV.  I am lucky in that I am going in at a price which is so low that I can still make money.

They also lose money operationally – hopefully they can sell quickly and not lose so much. These are new hotels / resorts so one might expect it to take a while for them to become profitable…

Auditors are KPMG.  Shareholders are varied – management only have 9.7% stake…  Not sure about the valuations – if anything discount rates look high to me.  Apparently the valuations were done by Colliers, American Appraisal and PKD consulting.  They present the assumptions – near impossible for me to judge so I will just have to go with it.  I am reassured by their sale at a bit under NAV of Playa Grande. The valuation is low enough I can be quite wrong and still come out ahead.  Assets are very diverse – which is both a positive and a negative.

There is a lot to dislike about this company and the way it is run – this is one of my more negative “buys”.  Don’t forget the key facts though, its liquidating and  trading well below NAV.  Ultimately even if every asset is sold at 30% of NAV I still wouldnt lose much – and the haircut probably wont be this much.

As ever I would love to hear what you think.

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