Radiant Logistics RLGT
February 14, 2011 - 4:56pm EST by
conway968
2011 2012
Price: 1.26 EPS $0.09 $0.12
Shares Out. (in M): 30 P/E 14x 10.5x
Market Cap (in $M): 38 P/FCF 8.0x 10.0x
Net Debt (in $M): 7 EBIT 4 8
TEV ($): 44 TEV/EBIT 10.0x 13.0x

Sign up for free guest access to view investment idea with a 45 days delay.

Description


Radiant Logistics
 

Overview


Radiant Logistics ("RLGT") is an early-stage roll-up in a favorable industry run by a hungry CEO who owns 33% of the company. If the company successfully executes its low-risk growth strategy, it should trade to $2-$3 within the next 18 months.

CEO Bohn Crain started RLGT as a pink sheet reverse merger.  His backers gave him ~ $5mm of initial capital and a 20% stake in the company in mid-2005.  Bohn has taken that capital and grown the business to $164mm in revenue and $5.4mm in EBITA over the last 12 months through two large acquisitions and strong organic growth.  The company operates as a non-asset based logistics provider, which essentially means they operate a network of  "travel agents" for goods shipment, with services such as freight forwarding and other supply chain management.  The business is well-diversified, split roughly 50/50 between domestic and international shipping.  The company provides services through a network of 70+ company-exclusive agent offices across North America.  Several offices are company owned, but most operate in what could be called a franchise model, with RLGT provided pricing power and back office services in exchange for ~10% of revenues.  This industry is extremely fragmented, and RLGT's business plan is to consolidate many of the small providers together.

Financials

Shares Outstanding:

 30 Million

Share Price:

~1.15

Debt:

$6mm on a $20mm Credit line at B of A

Total Revenue(LTM):

 $164MM

Total Revenue Growth Rate(last 3 years):  

24%

EBITDA (LTM):

$5.8MM

EBITDA Compound Growth Rate (last 3 yrs):

59%

EV/EBITDA:  

7.8

 


 

 

2Q-2008


3Q-2008


4Q-2008


1Q-2009


2Q-2009



3Q-2009


4Q-2009


1Q-2010



2Q-2010



 3Q-2010

 4Q-2010

Revenue

$25.8

$32.4

$42.5

$29.7

$32.4

$34.0

$39.1

$32.9

$40.7

$46.4

$44.5

COGS

$16.3

$21.2

$29.0

$19.0

$22.2

$23.5

$27.6

$22.5

$27.5

$32.2

$30.3

Gross Profit

$9.5

$11.2

$13.5

$10.7

$10.1

$10.5

$11.5

$10.3

$13.2

$14.1

$14.2

Other Operating Exp.

$9.4

$10.6

$12.6

$10.5

$9.9

$10.4

$10.9

$9.9

$12.0

$12.8

$12.9

Operating Income

$0.1

$0.6

$0.9

$0.3

$0.3

$0.2

$0.6

$0.5

$1.3

$1.3

$1.3

Net Income

($0.1)

$0.3

($10.2)

$0.3

($0.1)

$0.1

$0.5

$0.4

$0.8

$0.8

$0.7

EBITDA

$0.3

$0.9

$1.4

$0.8

$0.8

$0.6

$1.0

$0.8

$1.7

$1.7

$1.7

EBIT

$0.1

$0.6

$0.9

$0.3

$0.3

$0.2

$0.6

$0.5

$1.3

$1.3

$1.3





Radiant currently trades at around $1.20 a share.  With the stock trading in the 15-50 cent range over the last few years, the company and CEO have taken maximum advantage of the stock price.  The company has repurchased 10% of shares, the CEO has personally purchased 13% of the company, and stock has been used extremely sparingly for M&A.  Instead, Bohn has taken advantage of the trapped working capital inherent to this business and used it as the main source of funding for acquisitions.  Their BAC credit line now stands at $20mm, of which only a few million is drawn, and allows them to borrow on a receivables-backed basis at L + 3%.


Expansion Plans


As is evidenced by its recent margin expansion, RLGT can create significant value by expanding to capture economies of scale.  Its core back office infrastructure can handle twice the current business without adding significant costs, and we should see the company do deals to onboard this capacity.  Because this fragmented industry was created by the 1979-80 transportation regulatory overhaul, many of the early entrepreneurs are nearing retirement and ready to sell.  RLGT should be able to acquire $1-2mm EBITDA companies at 3-4x EBITDA pro forma for synergies.  Small deals should mostly come from reverse inquiry, as RLGT is gaining a reputation for such deals and they can easily finance the deals through debt and earn outs.  Larger deals may require equity, but management will not use equity unless the deal is highly accretive.  So far the acquisition model has worked. In their purchase of Adcom they were able to replace 34 back office employees with just 3, generating $1.4mm in extra EBIT.

Also worth noting that while CEO plans to expand aggressively, his disagreement with the CEO at Stonepath was over Stonepath's overzealous expansion and acquisition plan, which eventually brought down the company. As a result, the CEO seems very aware of the risks of growing too rapidly (when asked he described it as the biggest risk to the business).


Comps


(mm, USD)

EXPD

CHRW

XPO

 RLGT

Market Cap

$11,370

$12,230

$74.8

$38

Revenue (2010)

$6,071*

$9,274

158.0

$164

EBITDA  (2010)

$598*

$652.2

$9.8

$5.8

TEV/ EBITDA (LTM)

17.26*

18.1

8.2

7.8

Gross Margin

12% (Sep'10)

9.0%

17.3%

31.5%

*EXPD data is Estimated for 4Q'10

EXPD and CHRW, are significantly larger and more diversified than Radiant, and trade at much higher multiples than RLGT. They tend to do significantly more ocean cargo and a large amount of imports with most of their revenues coming from Asia. Radiant is US focused and does mostly domestic transport or air cargo exports. This partly explains why their revenues held up so much over the last several years while the bigger guys saw 20%+ drawdowns in revenues, as exports from the US held up a lot better than imports during the financial crisis.

XPO is the closest comp to Radiant on a size basis. They trade on the AMEX, and until very recently traded at around 10X EBITDA multiple, which is the near term goal for Radiant. Only half of XPO's business is the same asset-light forwarding business as Radiant, the rest is an expedited delivery service for making emergency cargo deliveries. This business is very asset heavy, and took a huge hit during 2009, whereas RLGTs held up much better over this period.

It's worth noting that gross margins are a lot lower for Radiant than its competitors, and this is due some unique aspects of Radiant's business model. Unlike its competitors whose agents are all internal employees, Radiant's agent-based forwarding model is more like a franchisor/franchisee relationship. RLGT's income statement is composed of owned and franchise topline revenue, which is what they bill the shipper. When you take out the cost of transport you get the gross margin, averaging 30%, which is approximately the same or higher than the rest of the industry.  The thing that is unique is the agent based forwarding network. Radiant has to pay out agent commissions, which is what they pay each of their agents or "franchisees" for the business they bring in. The comps don't have this line-item, because they are company owned, not station-based, thus EBITDA/gross revenue will be lower for RLGT than for its comps.

Another factor that affects margin differences within the industry is product mix. Radiant has 2 categories of services, domestic and international.  The domestic service is roughly a 35% margin business, whereas international is a 20-25% margin business. The main reason for this difference is that when an international shipment is made a portion of the margin is shared with the offshore counterparty. Margins also vary by mode, as air has higher margins than ocean freight. Currently Radiant does about 30% international and the rest is domestic.

Catalysts
  • Listing on the AMEX, which should improve the trading of the stock and bring Radiant's multiple more in line with its peers
  • Accretive and synergistic acquisitions
  • Continued 20% organic EBITDA CAGR
  • Multiple expansion in-line with RLGT's peers


Risks
  • Business is very asset light and relationship dependent.  While both of those factors can be advantages, they also do little to protect the downside in the event things go wrong.  One large bad deal could destroy a lot of value.
  • The CEO has not bought stock above 40 cents (not surprising, since he was purchasing large amounts of stock at 11 cents a couple years ago).  The stock could certainly drift lower, even with good results, if the market chooses to ignore.
  • The risk of accounting improprieties is higher in small companies and in roll ups.  The company appears well run, but there remains a chance of operational or accounting issues  

Catalyst

Catalysts
  • Listing on the AMEX, which should improve the trading of the stock and bring Radiant's multiple more in line with its peers
  • Accretive and synergistic acquisitions
  • Continued 20% organic EBITDA CAGR
  • Multiple expansion in-line with RLGT's peers
    show   sort by    
      Back to top