Redishred Capital Q2 2024 Update - $KUT.v
Quick update after Q2 2024
*Disclosure: I own shares in KUT.v. I am not a professional. Please do your own due diligence.
Price: $3.28 CAD
MC: 60 million CAD
EV: 91.4 million CAD
1 year performance: -5%
KUT reported yesterday after the close and held a call early this morning. It was the first day of school, so I had to listen to the replay. Results were ahead of my expectations and the stock is currently up 4.5%.
*all numbers in CAD unless stated otherwise
Quarter Recap
Revenue came in at 18 million.
EBITDA was 4.5 million or essentially flat vs last year.
EBITDA less recycling revenue was 2.9 million vs 2.2 million last year.
This is up 32%.
Cape for the quarter was 1.1 million, which is a nice confirmation of what they said on the Q1 call.
Organic shredding revenue growth was 10%
Call Notes
Shredding revenue up 17% or 2.1 million.
1.3 million of that was organic.
Feel there is still some room to improve margins from here.
SOC 2 impact to the business in the coming quarters as they have only recently reengaged customers who require it.
Q2 is when the start their annual price increases. It goes on into Q3 and Q4.
Sounds like over the medium term they are trying to smooth out the capex spend.
Sounds like the pipeline is robust and they have a few opportunities.
IT costs are still elevated, but should trend down from here.
SOC 2 Type 2 certification in about a year after SOC Type 1.
Valuation
I have KUT at 6.2x EV/ttm EBITDA and about 5.4x using my estimated 2024 numbers. This works out to about 10x EV/FCF on 2024 numbers. If they continue to densify routes and paper stabilized than EBITDA should ramp from here.
Closing Thoughts
I continue to hold KUT and will likely top up my position at these prices. I think this was an important quarter for the business. The impact of paper prices is reducing and they are executing. I know it isn’t the sexiest business but it generates cash. I don’t think a market multiple (15-16x) is an unrealistic expectation for this business. But I don’t need that to make money from here.
Thanks for reading.
Dean
* long KUT.v