Post by
TallerCraig on Dec 19, 2018 3:14am
Top Pick for 2019 – Steady Growth in Uncertain Times…
This is the exact type of market where I believe this company can thrive in. With all this global uncertainty around the world the US consumer seems to be the last man standing.
Lets Dive in;
Access to Capital
Part of why this story works is that this management team has done an excellent accessing capital. The reduction of interest rate firstly from 18% down to LIBOR + 7% makes each incremental deal so much more accretive and is a direct driver of cashflow growth.
Market forgot to look at the fact that they were able to increase their credit line from $75M up to $100M USD. This incremental $25M in growth capital in additional to internally generated cashflow will give them they ability the fund growth without any dilution for existing shareholders.
Continued Cashflow and EBITDA growth on a per share basis throughout 2019!!!
Growth Strategy
This is primarily a growth by acquisition story with its core business organic growth rate should follow US GDP. With US GDP growing 3% in 2018 and in the 2-2.5% range in 2019 the core business should remain strong and should supplement its acquisition strategy.
If you look at prior acquisitions they acquire gaming contracts at approx.. 1.5-2.0x Sales. In November they completed two more acquisitions one for $5M USD and another $4.5M USD. This equates to incremental sales of 5.5M and 2.2M in EBITDA (40% EBITDA margin).
These are the exact type of deals that are so accretive and why I like this story so much. Adding close to 10% to your annualized EBITDA without adding a single share to you share count.
They have the internally generated cashflow to pursue 15-20M USD a year in acquisitions out of internally generated cashflow without increasing balance sheet leverage and outstanding share count. This leaves a long run double digit growth rate for the foreseeable future on a per share basis!!!
Projecting Next Fiscal Year
This is where the rubber hits the road. Let’s assume you have a core business generating revenue of 72.5M USD in revenue and 30M in EBITDA with a core growth rate following GDP growth
ADD:
November Acquisitions – 5.5M in revenue and 2.2M in EBITDA + assumed continued acquisitions of annual revenue of 3M and 1.2M in EBITDA
EQUALS:
Revenue of 81M in revenue and 33.4M in EBITDA less NCI of 40% for Revenue attributable to QIC.V shareholders of 48.6M USD and 20M USD in EBIDTA
On Valuation
There has been a lot of consolidation in the physical gaming space showing the value in these steady state cash flow streams. If you look the peer group they trade at 8 – 10x EV/EBITDA. Using a net debt figure attributable to QIC.V shareholders of 40M USD looking out to next fiscal year gets me an enterprise value of 122M CAD.
On my 20M USD (26M CAD) in EBITDA figure the stock trades at 4.7x EV/EBITDA or half the value of the peer group!!!!
Putting that 8-10x EV/EBITDA peer group valuation on QIC.V gets me to a target of 1.85 – 2.45/share or 2.15/share at the midpoint for an upside scenario of 120% just on a peer group multiple.
These steady state predictable cash generative models is where you want to be in 2019 in a world of uncertainty and helps me sleep during the day.
Great little business that is not well known in the Canadian market.
LONG