Down 80%, 75% Recurring Revenue, and Trading at 5x FCF
PoW #38 | A lovely roll up play acquiring regional monopolies in a very niche SaaS space
Sometimes in life, you find something extraordinary that blows your mind on both an intellectual and monetary level.
This is not one of those times, as this isn’t an idea we “found”, even though it has come up in a few screeners over the years. However, to be perfectly honest, we’re attempting to collab with a few Substack and newsletter creators, and in the process, you sometimes find one or two gems.
This one comes from the brilliant mind of fellow Substack writer Hugo Navarro.
Okay… happy now with the merit attribution, this is our write-up. So enough cheering on other people hahahaha!
As a quick summary, surprise, surprise: we have another great SaaS-pocalypse victim, this time one operating in what looks like effective regional monopolies, providing software to niche winners in a very specific field.
We’re talking massively aligned incentives, with revenues perfectly tied to those of their clients, 75%+ of revenues being recurring, and predictable YoY growth.
20% ROIC, sensible capital allocation, buying back shares and providing dividends as they see fit. Trading at less than 5x FCF. Very little and purpose-driven debt. ~6x revenues since 2018.
It’s down 80%+ since its top in 2021, but with a business that keeps expanding FCF margins and its moat through an extraordinarily sticky software suite.
This looks like an extensive triple-digit upside play to us. We don’t usually disclose this, but this one is quite extraordinary, and we’re looking at a projected per-share bump of +238% according to our DCF.
Let’s break it down.
As we now do every week for transparency and to provide full value, here is our list of Pick of the Week posts and their returns since publishing:
Equally weighted picks: +17.54%
Fund-allocated picks: +34.58%
Pick of the Week. A curated series of high-conviction research on companies currently under our microscope. We screen for specific dislocations where the market has mispriced the balance sheet or earnings power.
None of the following should be construed as investment advice. Please consult a financial advisor before making any investment decision. You will find a full disclaimer at the end of this post.
