RediShred Capital Quick Update - KUT.v

Quick update after Q1 2024

*Disclosure: I own shares in KUT. I am not a professional. Please do your own due diligence.

Price: $3.07 CAD

MC: 56.2 million

EV: 90.4 million

1 year performance: -19%

KUT reported yesterday and had a call this morning. Results were in line of my expectations and the stock was up 7.7% today.

*numbers are in CAD

Quarter Recap

• Revenue came in at 17.2 million or up 1%.

• EBITDA at 4.0 million vs 4.7 million last year.

• EBITDA less recycling (which removes paper prices) came in at 2.3 million vs 1.8 million.

• Looks like they estimate about 9 mil in FCF this year.

• MDK acquisition closed on Jan 2 so it’s in the quarter.

Call Notes

• Outlook was positive.

• Price increases being implemented (around 6%). We will see benefit of this in Q3.

• Should have Soc 2 Type 1 certification completed shortly. Soc 2 Type 2 will take an additional year from Type 1 certification.

  • This will open up the scanning business to additional customers.

• M&A pipeline strong.

  • Several franchisees are up for renewal this year.

Valuation

Using the estimated FCF number for 2024 I have them at around 6x FCF and10x EV/FCF.

Closing Thoughts

Not much to add here. Chugging along nicely. Hoping to get a bit of a re-rate as we lap better paper prices.

I think the narrative for KUT is that it’s a declining business, with low ROIC, no pricing power and success of the business is tied to paper prices. I think the recent price increases challenges that narrative to some degree.

The biggest risk to KUT in my mind is the share price ripping 50% and they announce a financing that kills the momentum.

Thanks for reading.

Dean

* long KUT.v