Stockchase InsightsDoman Building Materials Group Ltd.DBM.TOBUYAug 18, 2021

Trevor Rose’s Insights - Trevor’s most-liked answers from 5i Research

DBM operates as a wholesale distributor of building materials and home renovation products, and is now trading at 8.9x times' Forward P/E. In the last five years, growth was solid around 16% (one large acquisition in 2021), DBM recently experienced a revenue decline for the first time in many years; trailing twelve-month revenue declined around -13% compared to FY2022. The balance sheet is leveraged with net debt of $725M, and net debt/EBITDA is around 4.2x. Overall, a very cheap stock, but the leverage profile is still a possible concern, especially for a cyclical downturn (if interest rates and inflation remain challenging). For a cyclical name, we would be more comfortable waiting till the leverage level get down to a more sustainable level. Its small size also adds some risk, and based on consensus earnings are expected to be flat next year. 
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Distribution company, not a manufacturer. Capital structure tends to carry more debt, so don't get too worked up about it. Great company. Choppy stock, as it gets lumped in with other forestry companies. Pays a good dividend. Undervalued.

It changed names recently from Canwell Building Products. They run sawmills and distribute lumber wholesale across North America. This is closely tied to lumber prices; the lumber cycle is over. During the pandemic, lumber prices skyrocketed as people bought and renovated homes. Prices have now returned to Earth and he expects it to return to historic prices.