June 14, 2024

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Elevating Home Design Standards

Pacific Trader: Doman Building Materials is bending, not breaking

2 min read

Doman Building Materials, with its long-term growth story intact, is attractively priced and yielding 7.7 percent

The stock: When we last took the measure of Doman Building Materials Group (TSX:DBM), it was still known as CanWel Building Materials and lumber prices were spiking with the pandemic-driven home-renovation boom. In retrospect, that was the first sign of the inflation that would take over the world economy, pushing up interest rates and ultimately cooling the housing sector. Compared to its forest-industry peers, though, Doman has weathered the pandemic hangover well, and market-watchers are starting to notice its attractive valuation in advance of what they expect will be better days ahead.

The drivers: As of this year, the Vancouver-based company has purged the last remnants of its former name from its operating divisions and unified its branding around the Doman name (itself a storied one in the B.C. woods). It continues to lean into pressure-treated wood and other value-added markets with the acquisition of Indiana-based Southeast Forest Products in March. Doman now has assets all down the value chain from timberlands and licenses to saw- and planing mills, treatment plants and a North America-wide network of distribution centres selling its own and third-party products to builders.

Revenues in the first quarter were essentially flat year-over-year at $602.5 million, as were net earnings, at $14.4 million. If this is as bad as it gets in the building-products sector, then, the pain is tolerable. Things should improve once interest rates come down a percentage point or two.

Trading for $7.26 per share on Tuesday (May 21), Doman stock is down 10 percent year to date but up 9.2 percent over 12 months — and, for that matter, 57 percent over five years — which to some spells a buying opportunity. Plus, with a dividend yield of 7.7 percent, you’ll be paid pretty handsomely to wait.

Word on the street: “We see good valuation upside with the stock down 9 percent year-to-date against the 17-percent increase in the S&P 500 building products index and trading at 10.2 times 2024 EPS [earnings per share] vs. peers at 12.5 times,” writes Canaccord Genuity analyst Yuri Zoreda, who has a “buy” rating and $9 target on Doman shares.

Coming and going: Vancouver-based digital health company CloudMD Software & Services (TSXV:DOC) has announced a deal whereby it will be taken private by Toronto private equity firm CPS Capital for $12 million ($36 million including debt) or 4 cents a share. The company launched a strategic review last summer after running into liquidity issues following a series of acquisitions.

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