Dream Unlimited [(DRM.TO)(OTC:DRUNF)] ("Dream" or "the company") now has over a year under its belt as a standalone company after it was spun-out from Dundee Corporation. Over that time, Dream has created a lot of value, including increasing book value by $90 million (since the end of 2013) and expanding the fee-earning asset base of its asset management business to $10.7 billion. Yet, despite the increase in Dream's equity book value and earnings power of its asset management business, Dream's share price remains stubbornly undervalued at its current $1.1 billion price tag ascribed by the market. There are three reasonable explanations for this:
- Dream is difficult to value on a consolidated basis given the lumpy revenue stream and/or the underlying businesses have different earnings profiles.
- Certain market inefficiencies are creating a mispricing, including a lack of indexation and/or low float from this owner/operated business (CEO Michael Cooper owns ~30% and Dundee Corporation owns ~20%).
- Investors fear macroeconomic risk with respect to the Canadian housing market to which Dream is levered.
Whichever the case, Mr. Cooper and Dream remain steadfast in guiding investors to a $250 million pretax earnings stream by 2016 and investors can buy it for just over 4x today. Barring a black swan event in Canada, I continue to believe that Dream has an attractive asset base, an experienced management team and a well-articulated plan to execute on their goals. Recent news that Dream successfully set up a new $700+ million Alternatives Fund and made investments in attractive land and real estate in Ottawa (see pg. 23) and Toronto should help Dream achieve their stated 2016 goals.
So what is the point of this update? Don't worry about Dream's quarterly numbers - they looked ugly on the surface - and remember that Dream's lot/land/real estate sales are usually backloaded due to seasonality. Instead listen to Mr. Cooper's assessment of Dream's future prospects and keep your eyes on the long-term prize, the 2016 earnings report.
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