I might add dilution, debt, and work from home to that list of worries, but at 10% trailing free cash flow yield and ~6x EV/EBITDA vs 12x historically it looks pretty priced in. Same price as the pandemic. I don't really understand. Small caps across the board doing nothing though, might have nothing to do with Redishred. I don't know. Thanks for the post
Thanks for the comment. You are right that debt and dilution worries are playing a role here. I think they are done with the capital raises for awhile and they can swallow a few franchisees without any concern from here.
I think if KUT did a press release stating anything with AI they would get a better bid lol.
Maybe if they announce they'll be shredding Nvidia's paper they'll get multiple expansion !
I did a little dilution/debt estimate. CEO said in late 2021 they were thinking of adding $20B of EBITDA by acquisition, and that they usually pay around 5x for it. So that's $100B in acquisition costs. They have ~$6M in cash now, and will probably make around $45M in free cash over the next 5 years, so around $51M of the $100B is taken care of.
So they have to get $49M from debt or dilution to pay for acquisitions. Currently they have around $36M in debt, if KUT were to finance future acquisitions with just debt they'd have around $84M of debt in 2027. If the past is indicative of the future, they'll have around $25M in EBITDA, for a Debt-to-EBITDA ratio of 3.3x. Currently, it's around 2x.
So the amount of dilution vs debt looks like it will depend on what amount of leverage management is comfortable with. I guess we'll just have to see.
I might add dilution, debt, and work from home to that list of worries, but at 10% trailing free cash flow yield and ~6x EV/EBITDA vs 12x historically it looks pretty priced in. Same price as the pandemic. I don't really understand. Small caps across the board doing nothing though, might have nothing to do with Redishred. I don't know. Thanks for the post
Thanks for the comment. You are right that debt and dilution worries are playing a role here. I think they are done with the capital raises for awhile and they can swallow a few franchisees without any concern from here.
I think if KUT did a press release stating anything with AI they would get a better bid lol.
Maybe if they announce they'll be shredding Nvidia's paper they'll get multiple expansion !
I did a little dilution/debt estimate. CEO said in late 2021 they were thinking of adding $20B of EBITDA by acquisition, and that they usually pay around 5x for it. So that's $100B in acquisition costs. They have ~$6M in cash now, and will probably make around $45M in free cash over the next 5 years, so around $51M of the $100B is taken care of.
So they have to get $49M from debt or dilution to pay for acquisitions. Currently they have around $36M in debt, if KUT were to finance future acquisitions with just debt they'd have around $84M of debt in 2027. If the past is indicative of the future, they'll have around $25M in EBITDA, for a Debt-to-EBITDA ratio of 3.3x. Currently, it's around 2x.
So the amount of dilution vs debt looks like it will depend on what amount of leverage management is comfortable with. I guess we'll just have to see.