KGIC Inc LGLTF

Loyalist Group Ltd. has made big strides recently

[alister33]

to ensure that it continues its aggressive roll-up strategy. Securing the new $18.5 million credit facility, the counsel of Waterfront Capital and the acquisition of Uhak are evident of that. Third-quarter earnings were record-breaking, and look very encouraging going forward.

The company continues to present small-cap value investors with a unique investment opportunity. It's an interesting consolidation story with little following and limited downside risk. Loyalist has grown its revenues from <$1 million in 2010 to ~$66 million (est.) in 2014, and is well positioned to continue its aggressive and accretive M&A activity in the sector.

To reiterate, here are my key investment highlights:

1. Under-appreciated story with little following that's yet to be fully understood by the market.
2. Excellent growth potential: The market is large and extremely fragmented, filled with "Mom & Pop" operators with no exit strategy; M&A has historically been accretive (acquisitions generally completed at 5x EV/EBITDA, but fall to ~3x after cost synergies are realized); and there is little evidence of a new consolidator entering the space.
3. Well-funded through a new $18.5 million cred facility, which is not only important to continue M&A, but previously, the company raised only equity capital to fund acquisitions. The new credit facility signifies a new phase in the maturation of the company.
4. Meaningful organic growth supported by three underlying factors: 1) Strong government-level support for this industry; 2) Market share gains as Loyalist's relative strength, size, and brand recognition increase; 3) New initiatives, such as the student housing program, franchising model, and expansion into South Korea via the purchase of Uhak, one of the largest student referral agencies in South Korea.
5. Targeting a 16.3% EBITDA margin and free cash flow of $0.05 per share by 2016E, with net cash on the balance sheet, as Loyalist has yet to realize the full impact of synergies from acquisitions.
6. My target price of $1.05 is derived by applying 10x EV/EBITDA to my F2015 forecasts.

Loyalist has released some great news recently, and as a result, the share price has had some excellent appreciation (up ~25% since my first article came out on October 15th). The debt offering provided the company with financial security, and removed any overhang in expectations from shareholders concerned about dilution.