Summary
- Dun & Bradstreet has seen solid momentum since going public this summer.
- The company has seen solid topline sales growth in the first two quarterly earnings reports and announced a nice and substantial deal as well.
- This and a sluggish share price performance make it look compelling, as I look to initiate a small position on dips from current levels.
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Dun & Bradstreet (DNB) has been on my radar since the company went public, after a very short period of time in which the company was privately-held subsequent to a leveraged buyout.
The latest update dates back mid-October as I have seen some green shoots emerging after a solid second quarter earnings report and good deal for Bisnode. Despite these positive developments, I believed the risk-reward did not look too promising just yet. With further good news arriving and shares on a net basis having come down a bit, I think the appeal is gradually improving.
The Thesis
Dun & Bradstreet is a well known name on Wall Street and in late 2018, it was acquired by Black Knight and Thomas H. Lee Partners, who took the company public again in July last year. The company was taken private in a $6.9 billion deal which closed early in 2019, with Dun & Bradstreet at the time generating $1.72 billion in sales on which adjusted EBITDA of $569 million was reported.
Its owners believed that there was much more value to be created with this global provider of data and analytics, often used for risk management, compliance and other services, with information gathered on more than 300 million customers. Less than 18 months after the deal to take the company private had closed, the company went public at $22 per share, in a deal valued at essentially $11 billion at the offer price!
At the same time sales actually fell from $1.72 billion to $1.60 billion, with EBITDA down modestly to $552 million, yet that is misleading with the company moving towards a SaaS model, and deferred revenues indeed showing an increase.
If we adjust for this, sales rose very modestly to $1.76 billion, although a $700 million adjusted EBITDA number looks already more spectacular. This was of course before the overall valuation ballooned to $13 billion as shares rose to $27 on their opening day. As I pegged leverage ratios above 3 times while earnings come in around $1 per share, valuations were quite full in my opinion, too full to be exactly.
