NRC: Recently Public Environmental Services Firm at Discount

Eric Gomberg of Dane Capital Management presented his in-depth investment thesis on NRC Group (NYSE: NRCG) at Best Ideas 2019.

Thesis summary:

NRC Group is a recently public environmental services company that trades at a substantial multiple discount to peers despite a superior growth outlook (20%+ EBITDA growth) over the next several years (at least through 2020). NRC is largely unknown due to becoming public via SPAC, but Eric believes strong fundamentals will quickly drive investor awareness.  The business has high barriers to entry, a diverse customer base of over 5,000 customers, and exceptional recurring revenue characteristics for non-discretionary spend, making the business largely anti-recessionary and defensive.

The company has three business units, a standby services segment for potential oil spills or other potential accidents, with 99% annual customer retention and incremental margins in excess of 75%, an environmental services unit, with over 3000 customers, for low cost (sub $10,000), non-discretionary remediation activities, and waste disposal, with EBITDA margins of ~50%. Post 2019, in which cap-ex will be elevated to complete three new landfills (which will have payback periods of 4-5 quarters), cap-ex will be 3-4%, resulting in tremendous free cash flow (2020 should exceed $60mn versus a sub-$300mn market cap).

At a current 6.2x 2019 EV/EBITDA, shares trade at over a four-EBITDA turns discount to comps (over 10x), which Eric believes is unsustainably low. Eric note significant insider ownership (JF Lehman, the “seller” still owns 65% of the company), and think it’s worth mentioning that the SPAC sponsor’s first transaction (BLBD) is up 90% since completion. Eric believes shares of NRCG have the potential to double over the next 6-12 months.

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About the instructor:

Eric Gomberg founded Dane Capital Management in 2014. The firm is a private investment company that focuses on value and special situations investments. Dane has a runs a long-biased, long-term oriented, concentrated portfolio. The firm seeks to identify substantial mis-pricings with an asymmetric risk/reward profile. Dane has identified SPACs as a segment of particular interest, frequently prone to mispricings, and will be discussing one today.