*Liberated Syndication Inc. (LSYN)
Liberated Syndication (Libsyn) is a profitable podcast and website hosting company, growing at a double digit clip. As the business does not require much capex, it generates significant free cash flow. An activist recently won a proxy fight with management and has undertaken a strategic review for the company. The conclusion is expected to be announced soon.
Libsyn has two businesses: podcast hosting and website hosting. Both businesses are excellent as the vast majority of revenue is recurring and capital requirements are low. Podcast hosting is its primary business (accounts for 59% of revenue) and is the key growth driver. It grew 15% in 2019, but I expect it to grow 20% in 2020. The website hosting business represents 41% of business. It grew 4% in 2019, and I expect a similar level of growth in 2020.
In 2020, I’m expecting revenue to grow by 10%, consistent with 2019. I’m expecting modest margin expansion as the company continues to leverage its fixed cost base. As a result, I’m expecting EBITDA to grow by 15% and EPS to grow by 28% to $0.20 (shares outstanding will decline due to cancelled equity grants).
Libsyn is not dirt cheap, but trades at a very reasonable valuation given its secular growth, recurring revenue, and strategic alternatives. Currently, the company trades at an EV/2019 sales multiple of 3.1x, and EV/2019 EBITDA multiple of 8.6x, 10
and a price/2019 EPS multiple of 18.7x.
My 12 month price target is $6.00 as I believe LSYN deserves to ultimately trade at 30x my 2020 EPS estimate of $0.20.
Make sure to use limits when buying LSYN as the stock is very illiquid. My rating for LSYN is Buy Under 3.35.
Richard Howe, CFA, The Stock Spin-off Investing Newsletter, stockspinoffinvesting.com, 617-750-7454, June 10, 2020
*TOMI Environmental Solutions, Inc. (TOMZ)
TOMI Environmental is a global provider of disinfection and decontamination essentials through its premier Binary Ionization Technology® (BIT™) platform, under which it manufactures, licenses, services and sells its SteraMist® brand of products.
These products have experienced significant growth recently as a result of the COVID-19 pandemic. Quarterly revenues jumped 463% year-over-year and management is expecting an exceptional second quarter.
Quarterly net income increased to $2.6 million from a net loss of $934,532 in the prior year period. SteraMist® revenues were the biggest factor in the shift, with product based revenues jumping 545%.
One small yet noteworthy factor in TOMZ’s above-average cash flow is the TOMI Service Network (TSN)—a network of outside professionals exclusively licensed and trained to use the SteraMist® products. TSN drives a continuous revenue stream through recurring purchases of the BIT™ solution. Recurring revenue is very beneficial for cash flow and almost guarantees healthy financials if management keeps the shareholders’ interests in mind.
In FY19, TOMZ added three new items to its growing product pipeline. Management also mentioned that by expanding its research and development partnership with a safety cabinet manufacturer, it has now produced a custom-built decontamination solution. The solution is now being field tested at a federal government site for a youth with xenobiotics research project.
We hope to see TOMZ’s product pipeline continue to expand and generate ongoing successful new launches in the future to sustain growth.
The main catalyst for TOMI Environmental is not necessarily the COVID-19 pandemic, but rather the overall change in infectious disease protocols.
Just six weeks into the second quarter, revenues have already surpassed the total from the first quarter.
While TOMZ’s share price has appreciated substantially, there is still a clear opportunity for sustainable growth.
Faris Sleem, The Bowser Report, thebowserreport.com, 757-877-5979, June 2020