Donnelley Financial Solutions, (DFIN) research, news, and more from GeoInvesting

Company description

Tue, 18 Oct 2016 12:12:30 GMT

Donnelley Financial Solutions, Inc. produces, distributes, and translates documents and electronic communications to support the capital, compliance, and investment markets for customers. It offers content management; multichannel content distribution; data management and analytics services; collaborative workflow and business reporting tools; and translations and other language services in support of its clients’ communications requirements. The company was formerly known as FINCo. Donnelley Financial Solutions, Inc. is based in the United States. Donnelley Financial Solutions, Inc. (NYSE:DFIN) operates independently of R.R. Donnelley & Sons Company as of October 1, 2016.

Research

Wed, 01 Mar 2017 16:20:19 GMT

DFIN ($23.11) DFIN reported results yesterday, missing expectations. DFIN is a name we have looked at and analyzed in the past, as we have a propensity to follow spin-off companies in an attempt to find situations where the market does not assign new companies proper valuations.

After speaking with management twice, we have held off on taking a position in DFIN, a decision that looked to be the right one, as management’s commentary on yesterday’s conference call painted a mixed picture about the future of dealmaking in 2017. Since DFIN works primarily in fee based services for companies that are public, the lack of dealmaking in 2016 and the shaky environmental outlook for 2017 keep us cautious on the name. We will keep DFIN on our radar and will update our members if new information becomes available.

Research

Fri, 24 Feb 2017 18:03:31 GMT

DFIN - We had a chance to read this fantastic article talking about how many of the “superinvestors” like to invest in spinoffs. One of the main reasons these investors look at spinoffs is because the point of spinning off a company is a point of volatility - one where the market may still take time to assign the right price to the newly formed independent entity. The article quotes investing heavyweights like Seth Klarman and Charlie Munger, who make comments like this one from Klarman,

“For reasons such as these, not to mention the fact that spinoffs frequently go unnoticed by most investors, spinoff shares are likely to initially trade at depressed prices, making them of special interest to value investors. Moreover, unlike most other securities, when shares of a spinoff are being dumped on the market, it is not because the sellers know more than the buyers. In fact, it is fairly clear that they know a lot less.”

Meanwhile, DFIN, a spin off that we have been following since its separation from parent R.R. Donnelly, has performed extremely well, up more than 12% over the last month.

You can read our continuing analysis of DFIN on our portal at this link, and we plan on keeping our eyes open for other attractive spinoff scenarios that we may want to take advantage of in the future.

Research

Mon, 23 Jan 2017 15:56:04 GMT

DFIN ($23.29) is a spin off of $RRD that started trading publicly a couple of months ago alongside $LKSD, a second spinoff of RR Donnelley that recently started trading. Donnelley Financial:

“...provides financial communications and data services for the investment and capital markets worldwide. It offers communication tools and services to allow its clients to comply with ongoing regulatory filings, primarily with the SEC; and communications services to create, manage, and deliver registration statements, prospectuses, proxies, and other communications to the SEC and its current and potential shareholders and investors.”

The company engages in helping smaller public companies with regulatory filings and administrative matters pertaining to being a public company. DFIN helps other companies IPO, it helps broker financing deals, and it works on preparing the administrative documentation for companies to file. Their business is predicated not only on the economic landscape, but the new IPO landscape.

We were interested in the spin-off of DFIN at the time that it occurred. We wrote in our October 17, 2016 e-mail to premium members:

“We are intrigued by Donnelley Financial Services, which we believe to be the better story of the two spin-offs. The company is a “financial communications services company that supports global capital markets compliance and transaction needs for our corporate clients and their advisors (such as law firms and investment bankers) and global investment markets compliance and analytics needs for mutual fund companies, variable annuity providers and broker/dealers.”

The book “One Up On Wall Street” by Peter Lynch, a book that kicked off Geo Co-founder Maj Soueidan’s investing career, stressed to always been on the lookout for spin off companies. They can often be ignored as investors have trouble parsing out the filings of the new company from the old company. It often takes longer for the market to digest and value a new spin-off before it starts to report consistent financial results. They also can be ignored since the spin-off company often has not exhibited attractive growth potential since resources cannot be efficiently allocated from its parent company.”

We eventually had a call with management to discuss the spin-off’s lackluster recent financial performance and lack of growth. We wanted to understand the vision on how the company planned on growing this division, which had seen stagnant growth, as an individual entity. Management communicated to us that a weak IPO market and a delay in formulating a strategy to adjust to an environment where an increasing number of capital market related business dealings (IPO’s, financings) are done digitally have been the main culprits to growth.

The company communicated to us that a reason for its stagnation in growth was a slowdown in transaction volume, the likes of which haven’t occurred since 2008.

We have seen an uptick in microcap transaction volume since Trump was won the 2016 Election, but we don’t think exploiting this opportunity is currently on management’s near-term agenda. A follow up call with management confirmed this conclusion. DFIN doesn’t seem to be focused on capturing a part of the microcap market just yet, and unless the company establishes an acquisition strategy for smaller microcap capital market names, we cannot be optimistic about expansion into this niche of the market just yet. The company reiterated to us that its priority right now is using most free cash to reduce leverage.

We still think the company is worth tracking since IPO transactions, being at 2008/2009 lows, are bound to pick up. We are going to monitor capital market transaction volume going forward to try and find an inflection point where DFIN may see an increase in business. Until we see such data, or the company is able to communicate a vision and plan for going digital and capturing new markets going forward, we are going to stay on the sidelines.

Reasons For Tracking

Mon, 23 Jan 2017 05:00:00 GMT

DFIN ($23.29) is a spin off of $RRD that started trading publicly a couple of months ago alongside $LKSD, a second spinoff of RR Donnelley that recently started trading. Donnelley Financial:

“...provides financial communications and data services for the investment and capital markets worldwide. It offers communication tools and services to allow its clients to comply with ongoing regulatory filings, primarily with the SEC; and communications services to create, manage, and deliver registration statements, prospectuses, proxies, and other communications to the SEC and its current and potential shareholders and investors.”

We were interested in the spin-off of DFIN at the time that it occurred. We wrote in our October 17, 2016 e-mail to premium members:

“We are intrigued by Donnelley Financial Services, which we believe to be the better story of the two spin-offs. The company is a “financial communications services company that supports global capital markets compliance and transaction needs for our corporate clients and their advisors (such as law firms and investment bankers) and global investment markets compliance and analytics needs for mutual fund companies, variable annuity providers and broker/dealers.”

The book “One Up On Wall Street” by Peter Lynch, a book that kicked off Geo Co-founder Maj Soueidan’s investing career, stressed to always been on the lookout for spin off companies. They can often be ignored as investors have trouble parsing out the filings of the new company from the old company. It often takes longer for the market to digest and value a new spin-off before it starts to report consistent financial results. They also can be ignored since the spin-off company often has not exhibited attractive growth potential since resources cannot be efficiently allocated from its parent company.”

The company communicated to us that a reason for its stagnation in growth was a slowdown in transaction volume, the likes of which haven’t occurred since 2008.

Research

Fri, 28 Oct 2016 18:29:23 GMT

DFIN ($22.23) - We recently had a chance to speak to DFIN management. DFIN is a financial services company that works with public companies and performs numerous capital market services. On October 17, we mentioned that we requested to interview management and would be providing further updates going forward. The company had piqued our interest as a recent spin-off of R.R. Donnelley. We interviewed management this week to try and get a better picture of what the company hopes to achieve as an independent company going forward. We are currently working on a note to members with our findings. We currently have no position.

Research

Tue, 18 Oct 2016 13:52:02 GMT

** Third Party Research on DFIN

DFIN ($24.08) - After yesterday’s morning email that went into reasons why we thought financial services firm DFIN was worth a look, we received a reply from one of our members that pointed us to an October 3, 2016 writeup by Clark Street Value, “Donnelley Financial Solutions: New RRD Spin, Asset-Light, Recurring Revenue”. The column makes a concise case that the stock is undervalued based on it currently trading at 7x EBITDA. You can see the full post here and is a great supplement to get added perspective about the spinoff.

We have a call set with management later this week.

Research

Mon, 17 Oct 2016 04:00:00 GMT

** Taking Closer Look at DFIN

We are taking a closer look at DFIN ($24.75), a spin off of $RRD. In October, RRD spun off two of its subsidiaries as it had announced it was going to be doing in mid-2015.

Donnelley Financial Services
LSC Communications

We are intrigued by Donnelley Financial Services, which we believe to be the better story of the two spin-offs. The company is a “financial communications services company that supports global capital markets compliance and transaction needs for our corporate clients and their advisors (such as law firms and investment bankers) and global investment markets compliance and analytics needs for mutual fund companies, variable annuity providers and broker/dealers.”

The book “One Up On Wall Street” by Peter Lynch, a book that kicked off Geo Co-founder Maj Soueidan’s investing career, stressed to always been on the lookout for spin off companies. They can often be ignored as investors have trouble parsing out the filings of the new company from the old company. It often takes longer for the market to digest and value a new spin-off before it starts to report consistent financial results. They also can be ignored since the spin-off company often has not exhibited attractive growth potential since resources cannot be efficiently allocated from its parent company.

After looking at the financials briefly, it's clear that the company was having trouble consistently growing its top line. Sales have been stagnant for at least 3 years.

Management can now focus solely on growing this portion of the business and we are going to be taking an in depth look at DFIN going forward. Interestingly, it looks like the company is selling at P/E of around 8. If we can determine that management has an achievable plan to grow its top line we presume meaningful P/E expansion could be in the cards.

We have already requested to interview with management and will be providing further updates going forward. We will also take a look at the other spin off, LSC (“a multichannel communications management company”) and perform basic valuation analysis to see if it could be mispriced to peers.