Franklin Covey: Well-Run Business with Recurring, High-Margin Revenue

Samir Patel of Askeladden Capital presented his in-depth investment thesis on Franklin Covey (US: FC) at Best Ideas 2019.

Thesis summary:

Franklin Covey is a leading provider of corporate training content in a highly fragmented $90+ billion global space.

Over the past three years, the company has transitioned from a discrete one-off sales model to a strategically embedded, recurring-revenue model with 90+% dollar renewal and 25-30% of new contracts being signed for multi-year periods, providing exceptional resiliency and a strong base from which to deliver accelerated growth. The company has high gross margins (70% consolidated, 80+% on content portion of the business), leading to 40+% incremental EBITDA margins.

With high single to low double-digit revenue growth, the company should deliver teens to twenties EBITDA growth for an extended period of time, yet the stock trades at ~10x EBITDA and ~1.4x revenue. A DCF suggests the stock is worth $46 per share, while both transaction and publicly-traded comparables also suggest a higher valuation.

Long-tenured management has high ownership and likes to use most cash flow to repurchase shares at attractive prices.

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About the instructor:

Samir Patel manages Askeladden Capital, the investment advisor to a limited partnership and separately managed accounts, utilizing a concentrated, long-only, value-oriented small-cap strategy. Outside of investing, he enjoys writing, cooking, listening to pop punk, hiking and backpacking, and reminding people he’s a native Texan.