Dominion Diamond Corp. – Value Analysis (NYSE:DDC) : July 31, 2017

Capitalcube gives Dominion Diamond Corp. a score of 28.

Our analysis is based on comparing Dominion Diamond Corp. with the following peers – Mountain Province Diamonds Inc., Lucara Diamond Corp., Tiffany & Co. and Signet Jewelers Limited (MPVD-US, LUC-CA, TIF-US and SIG-US).

Investment Outlook

Dominion Diamond Corp. has a fundamental score of 28 and has a relative valuation of UNDERVALUED.

Fundamental Score

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Company Overview

  • Considering peers, relative outperformance over the last year and the last month suggest a leading position.
  • It trades at a lower Price/Book multiple (0.88) than its peer median (2.75).
  • The market expects faster earnings growth from DDC-US than from its peers and also a turnaround in its current ROE.
  • DDC-US‘s relatively low net margins and poor asset turns suggest a problematic operating strategy.
  • Changes in annual earnings (relative to peers) are better than the change in its revenues (relative to peers), implying the company is focused more on earnings.
  • DDC-US‘s return on assets currently and over the past five years has trailed the peer median and suggests the company might be operationally challenged relative to its peers.
  • The company’s relatively low gross and pre-tax margins suggest a non-differentiated product portfolio and not much control on operating costs relative to peers.
  • While DDC-US‘s revenues have increased slower than peer median, the market currently gives the company a higher than peer median P/E ratio and may be factoring in some sort of a strategic play.
  • The company’s relatively low level of capital investment and below peer median returns on capital suggest that the company is in maintenance mode.
  • DDC-US has some amount of debt capacity available.

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Leverage & Liquidity

DDC-US has some amount of debt capacity available.

  • With debt at a relatively low 1.09% of its enterprise value compared to an overall benchmark of 25% (Note: The peer median is currently 9.27%), and a reasonable interest coverage level of 2.21x, DDC-US has a fair amount of debt capacity available.
  • Of the 4 chosen peers for the company, only 3 of the stocks have an outstanding debt balance. Companies with no debt include LUC-CA.

DDC-US has moved to a relatively low leverage from a Constrained profile at the recent year-end.

  • DDC-US‘s interest coverage has increased 5.10 points from last year’s low but is still below its five-year average interest coverage of 13.11.
  • While its interest coverage increased to 2.21x from -2.89x (in 2017), its peer median decreased during this period to 7.96x from 10.72x.
  • Interest coverage rose 7.86 points relative to peers. It is also below the 2.50x coverage benchmark unlike the peer median.
  • DDC-US‘s debt-EV continues to trend downward and is below (but within one standard deviation of) its five-year average debt-EV of 3.00%.
  • Though its debt-EV has remained relatively stable at 1.09% compared to 2017, its peer median has decreased to 9.27% from 11.14% during this period.
  • Relative to peers, debt-EV rose 1.65 percentage points.

Access the detailed analysis for Dominion Diamond Corp.

Key Liquidity Items

Company Debt/Enterprise Value (%) Current Ratio Interest Coverage (x) Cash Flow To Total Debt (%)
Mountain Province Diamonds Inc. 38 0.89 -2.21 -7.44
Lucara Diamond Corp. 0 2.77 No interest exp 999
Tiffany & Co. 9.27 6.17 26.48 75.54
Signet Jewelers Limited 22.34 4.41 7.96 48.1
Dominion Diamond Corporation 1.09 2.66 2.21 1681.31
Peer Median 9.27 2.77 7.96 75.54
Best In Class 1.09 6.17 No interest exp 1681.31

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Company Profile

Dominion Diamond Corp. engages in the mining and marketing of rough diamonds. It operates through three reportable segments: Diavik Diamond Mine, Ekati Diamond Mine and Corporate. The Diavik Diamond Mine segment includes the production, sorting and sale of rough diamonds from the Diavik Diamond Mine. The Corporate segment captures costs not specifically related to operating the Diavik and Ekati mines. The company was founded by David Grenville Thomas on April 19, 1994 and is headquartered in Yellowknife, Canada.

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