Dyna Group International, Inc. (DGIX) - Potential Earnings Power for Free
I believe I’ve got another interesting expert market stock for you guys. Dyna Group International, Inc. (DGIX) is a curious company, they appear to own only one subsidiary - Great American Products. As far as I can tell this is the only business they own and their only source of operations. DGIX’s page on OTC Markets links to this subsidiary, and I can’t find any other business operations online.
Fortunately, Great American Products reports financials on their website, you have to request management to send you the password to access them. Once you gain access you find that the company has provided quarterly and annual reports going back to 2012. The annual reports include some insightful thoughts from management, and the company’s balance sheets and income statements.
Great American Products (From here on DGIX), sells drinkware and hydration products. Their products are designed with the various logos/colors of professional and collegiate sports teams. DGIX competes for licensing/vendor agreements that give them the right to sell these products. The company currently sells products for all teams in the MLB, NBA, NFL, NHL, and many Division 1 schools. (Website Pictured Below)
It’s not a particularly interesting or exciting business, nor is it growing. This fact is reflected in DGIX’s income statements. The company makes a profit, but sales have been stagnant - peaking in 2019 - and now only marginally higher than in 2016. We will talk more about earnings after the next paragraph but the balance sheet is where the real value is.
DGIX has $5m in Cash & Marketable securities, Current assets of $17.7m, and Book value of $16.6m. In addition, DGIX has only $1.4m of Total liabilities and has maintained zero debt since 2018 when they paid it all off. With a market cap of $7.6m -stock price currently $0.57 - DGIX sells for more than a 50% discount to NCAV & BV. That is extreme value for a profitable un-levered company.
Speaking of profitability let’s go back to Earnings. Net Income has been positive every year since 2015, and EPS has grown in each of the last three years. 2021 was a great year for the company, reported earnings were $4.2m or $0.317/share. (P/E of only 1.8x). However, this number is misleading as it includes about ~$2.4m from the Government’s PPP and Employee Retention Tax Credits (ERTC). Obviously, the PPP is a one-time thing, and the CEO wrote in his annual letter that it’s unlikely DGIX benefits from ERTC again. After adjusting earnings for ERTC and PPP, their EPS is around $0.18. That is significantly lower than reported earnings, but even so, P/E is still only 3x. Is $0.18 a good proxy for DGIX’s earnings power? The market certainly doesn’t think so - and honestly neither do I. DGIX operates in a tough industry - licenses expire after only 1-3 yrs, and competition is fierce. If DGIX can continue to renew its licenses, the stock is absurdly cheap. But what if they can’t? Is the stock still a bargain?
Well… in my opinion, yes! Considering the massive discount to NCAV, the market has already priced this fear in. In fact, I believe the market has gone too far. Sure, stocks don’t trade below 50% NCAV for no reason - not even nano-caps - and the market’s concerns are real. But their fears have led to an irrational market value. For a stock to justly sell at less than 1/2 NCAV, there generally has to be a lot of debt, assets that are difficult to sell, or declining book value. (Among other things). DGIX, as previously mentioned, has no debt, a lot of liquid current assets, and an increasing Book value. BV increased 32% in 2021 and has not dropped in any year since 2017, compounding annually at 15% since. Cash and Marketable securities make up almost 30% of current assets, and they also account for 2/3rds of DGIX’s market cap. If you take into consideration the company’s ~$6.6m of receivables, DGIX is being priced at a 1/3rd discount to its most liquid current assets. The margin of safety offered to us by the market price is massive. To demonstrate this, I conservatively calculated a liquidation value for DGIX, discounting assets as if the company was trying to sell them quickly.
As you can see, at the current market value, the future of DGIX’s earnings isn’t very important or concerning. In fact, if any earnings power does materialize, you are getting it for free.
After doing some research on their industry, I am fairly confident that they will be fine in at least the near term future. In the most recent shareholder letter, the CEO explained that Fanatics was recently given exclusive rights for all ‘hardgoods’ for Major League Baseball. DGIX’s current license with the MLB expires next October, after which they hope to become a licensee or authorized vendor for Fanatics. So we probably won’t have any clarity on DGIX’s future until around October.
On a side note, it’s fun to hear the name Fanatics again. I remember getting jerseys from Fanatics as a kid for the holidays. I have funny memories of opening gifts and realizing my folks got me a bootleg ‘Fanatics branded’ jersey instead of a more expensive and standard Nike/Adidas one. Oh well, privileged first-world problems.
Thank you for reading! As always none of this is investment advice and you should always do your own due diligence. I do not own DGIX as I am not able to purchase expert market shares due to SEC Rule 15C2-11 which barres brokers from publishing quotations for securities on the expert market. Any and all feedback/thoughts are welcome!