Seeking Alpha

RMG Networks soars; SA Pro sees potential multi-bagger

  • In an article embargoed until 5AM ET Friday, SA Pro author BuyTheDip, SellTheRip argues RMG Networks (RMGN +16.1%) is set to deliver strong organic revenue growth and Q/Q margin improvement over the rest of 2014 following a rough Q1 report.
  • The author thinks balance sheet concerns are overblown in light of management's efforts to address them, and declares shares trade "well below comparable multiples, private takeover valuation, and normalized earnings power."
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Comments (1)
  • TMT Investor
    , contributor
    Comments (120) | Send Message
     
    Nice write-up. I agree on the balance sheet as normalized cash flow for this company suggests it is maybe 1X levered from a total debt perspective. They have plenty of time to renegotiate their covenants if necessary and suspect you are right in that getting a junior facility of something like that should not be a stretch over the near to intermediate term. Annualizing fourth quarter results may be a little dangerous because it is seasonally strong, but given that the salesforce productivity won't be fully achieved until 1Q15 (12 months after they finished hiring salespeople) then there's no reason why they shouldn't grow another 20-30% in 2015 with normalized margins. On that basis $15M in EBITDA is highly achievable and even if the stock were to trade at 1X sales of $100M in 2015 that would equate to $7-$8 per share. None of the insiders who are LT warrant holders participated in the recent exchange offer for common shares at levels 2X where we are, which talks to significant upside given those are struck at $11.50. This has a ton of upside.
    6 Jun 2014, 09:51 AM Reply Like
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