Current Run Rate Revenue Already Running $26M & $2M+ EBITDA…After yesterday and someone decided to flush out the stock, I thought now was a good as time as any to talk about the current run rate of the business because there has been a couple of significant developments that I think are being overlooked from organic growth, acquisition program and underlying core profitability of US operating segment.
Under 0.30/share I think it’s a screaming BUY, I was buying yesterday 0.25 – 0.26/share range yesterday.
I would like to first address a conceptual thought that is key to this growth story which I think is getting misunderstood.
Growth By Acquisition; there are two very different approaches to growth by acquisition, you rather grow and acquire out of internally generated cashflow and balance sheet capacity or you use your stock as currency to acquire businesses using equity diluting existing shareholders hence the accretive nature has to be looked at on a per share basis.
Nova Leap is the prior. All these small tuck ins have been executed without adding incremental shares hence every tuck in is accretive from day one because as there are no incremental shares issued your share as a shareholder of revenue and EBITDA/Cashflow increases.
Organic Growth or Internally Funded Acquisition two of the same thing.
26M Revenue Run Rate & 2M+ in EBITDA
This is critical to the growth story as now the story has gotten so cheap after the last two tuck in deals that the market has forgotten about.
Core Home Care Business – Q3 I have them generating revenue of $4,334,777 USD running at an organic growth rate running 8 - 10% range with margin expansion continuing to 6 – 8% for $303,434 USD EBITDA. ANNUALIZED - $17,339,108 USD w $1,213,738 USD EBITDA
South Central Acquisition - $1,420,000 USD revenue and given Nova Leap has EBITDA margins in its US operations division running now 12% that would add $170,400 USD EBITDA
Massachusetts Acquisition - $1,270,000 USD revenue and given Nova Leap has EBITDA margins in its US operations division running now 12% that would add $152,400 USD EBITDA.
So in total, this gets me to a run rate business at $20,029,108 and $1,536,538 USD EBITDA
Translate that into Canadian Dollars at 1.325 FX rate $26,538,568 and $2,035,913 EBITDA
Scary party I still think there is room to increase EBITDA margins 50 – 100% to get to the level AMED generates.
So I got a business trading at 0.55x Sales and 7.5x EBITDA when the US peer (AMED) at scale trades at 2.0x Sales and 16x EBITDA???
I put that multiple on Nova Leap and get a target price of 0.85/share on Sales multiple or 0.52/share on EBITDA multiple so split the difference and I get to 0.68/share.
Runway for Acquisition Plan
This is where I get so BULLED up on the story, given the business is asset light most EBITDA generation will flow right down to cashflow generation. Given their current business they now have the ability to fund their acquisition program out of internally generated cashflow.
What could that look like?
Given they have demonstrated the ability to acquire businesses at 0.3 – 0.5x Sales lets call it 0.4x Sales at the midpoint they have the ability to acquire $5,000,000 in revenue and $600,000 EBITDA a year.
This would add incremental growth of close to 20% to the topline without further adding incremental shares outstanding or adding incremental leverage. Given economies of scale the margin profile will continue to improve and as the business grows the net debt/EBITDA ratio comes down just due to the increased EBITDA generation.
They have the ability to grow the top and bottom line 20%+ through both organic and acquisitions for the next 1,3,5,10 years.
Now tell me, what is the difference between Nova Leap investing its excess cashflow to acquire additional businesses and a tech company like Apple investing in internal R&D to sell more products.
It’s the same thing!!!
Find these scalable asset light businesses and just hold on for dear life. They are great compounders of capital over the long term.
Under 0.30/share time to Load the Boat
LONG