Dex Media Corp (NASDAQ–DXM)
Price May 10, 2013-$15.14
We stumbled across DXM a few months ago and bought some at the equivalent of $8.50 a share. It has soared since then, but we think it still has a long way to go.
DXM is the combination of the old Dex One and Supermedia companies, both of which were public. They were the old Yellow Pages companies which were spun off from their telephone company parents and had previously gone bankrupt and emerged again. They announced that they were going to merge months ago. But in order to accomplish the merger they had to get like 500 lenders to agree to it. That didn’t quite happen so they filed bankruptcy and emerged from it in early May. Buying it before the bankruptcy was a risk, but it has certainly worked out so far.
In a presentation on May 7th, they disclosed Q1 March 2013 numbers of revenue of $581 million, adjusted EBITDA of $231 million and debt of $3.1 BILLION down from $3.7 billion a year ago. They project $2.3 billion of revenue for 2013 and EBITDA of $865 million. Even at an EBITDA multiple of 4, we come up with a valuation of $24.25. The big deal is that if they hit their projections for 2016, the valuation soars to about $67 a share. This is what has big hedge funds crowing.
Last week both Kyle Bass of Hayman Capital said he thought the stock price could soar 5 times in the next 3 year (so about $75) and George Schultze of Shultze Asset management agreed with Bass.
If DXM can successfully navigate their conversion to digital (they currently have over $400 million in digital revenues) and continue to maximize their current print business decline while generating the cash needed to continue to pay down their substantial debts, this could be a huge winner.
There are about 17 million shares outstanding and it trades about 400,000 shares a day, so there should be no problems buying DXM.
Dex Media (DXM) provides local, social and mobile marketing solutions to businesses in communities across the U.S. under the Dex One and SuperMedia brands. The company’s widely used consumer services include the Dex Knows.com® and Superpages.com® online and mobile search portals and applications and local print directories.