Author Topic: LSYN - Liberated Syndication  (Read 3208 times)

knight933

  • Newbie
  • *
  • Posts: 21
LSYN - Liberated Syndication
« on: February 07, 2018, 07:45:30 AM »
Just wanted to see if anyone else out there has done any work on LSYN (Libsyn)? After doing some work on this name, I think Libsyn is one of the most attractive set-ups I have seen in the micro-cap stock universe in quite some time. [We can address management’s in a second].

I believe Libsyn at $1.50 - $1.60 is a rare “gift” that Mr. Market gives us with smallcaps. ~$40M market cap podcast hosting company. It is growing revenue ~20% a year, has 40%+ EBIT margins, and is asset-light with minimal capital expenditures. Based on my rough estimates I believe it is trading between 5.5x – 7x normalized earnings (post-tax) after you factor in the most recent acquisition they made. Incremental margins are very high and if you pull the financials you would see this is a cash-generating machine that can grow for years to come with minimal incremental capital. This should trade at LEAST for a market multiple.   

The market is clearly pricing this as if it is a media company, when in fact it is the dominant hosting platform in this high-growth industry. Libysn is like a toll-both collector for the podcast industry. LSYN has been a leader at providing detailed operating stats for podcast creators. Over the past few months, there have been developments in the podcast industry to come up with industry measurement statistics that I believe will ultimately bring a lot more advertisers to the format. (Apple recently turned on a long-promised analytics feature)   

It does not make sense that despite announcing an accretive M&A deal that will more than DOUBLE Libsyn's earnings, the stock is down -24% from its recent high ($1.80's) right after the deal came out. Management said they are going to host a conference call sometime during Q1 so I expect that to be the next catalyst. I realize there are a lot of concerns around management but the underlying Podcasting business at LSYN is totally separate from the accounting issues that happened at FAB Universal in China. And the fact the bank let LSYN borrow at 3.4% for the Pair Networks M&A deal I mentioned above suggests they believed this to be a strong credit. This is a real business, providing a real service that is dominant in its space. If the stock continues to print FCF like this, the price will not stay this low for long. It seems like only a matter of time before LSYN is acquired by a strategic acquiror.

Management incentives are aligned with shareholders to a very high degree. Mgmt stands to get paid if they can get the stock price up to $3, $5, and $7 respectively - compared to a current price of $1.50 - $1.60.
« Last Edit: February 07, 2018, 12:27:20 PM by Parsad »


knight933

  • Newbie
  • *
  • Posts: 21
Re: Liberated Syndication - LSYN
« Reply #1 on: February 07, 2018, 08:35:57 AM »
To help others with their research and contribute to the community here, I'm posting my model output here. Would love to get others thoughts but I believe my valuation (see yellow box) is conservative with the stock at 5.4x - 8x earnings, pro forma. LSYN will move to the NASDAQ sometime in 2018 so this should not stay undiscovered for long. (Excel should be attached)

writser

  • Hero Member
  • *****
  • Posts: 1418
Re: Liberated Syndication - LSYN
« Reply #2 on: February 07, 2018, 08:49:32 AM »
No opinion myself, but this blogger was slightly less enthousiast a year ago: https://www.valueinvestingblog.net/liberated-syndication/ . Might be interesting for you.
When you are dead, you do not know you are dead. It's only painful and difficult for others. The same applies when you are stupid.

knight933

  • Newbie
  • *
  • Posts: 21
Re: Liberated Syndication - LSYN
« Reply #3 on: February 07, 2018, 08:57:25 AM »
Hi - Thank you for sharing that article, and yes I have read it. (Several folks have sent it to me)

No disrespect to you other the blogger, but the stock was at $+0.48 last year and now it is $1.50-$1.60 almost a year later, so clearly the author got a LOT of things WRONG here. Haha

I am happy to discuss any specific points anyone may have, but the business has grown and gotten a lot stronger since they wrote that blog post. If anyone wants to talk about the present and the accretive M&A deal they recently did, then I am all ears. But I don't see much value in critiquing an analysis that clearly was very flawed.

I think a lot of folks have read that blog posted, and never bothered to do any more work. Case in point - at the time of me writing this, this thread has been viewed 150 times but only 2 people bothered to download my spreadsheet which has the actual analysis. 

I think that is partly why this stock is still so cheap despite continuing to execute and build up cash; this is a Free Cash Flow machine.
« Last Edit: February 07, 2018, 09:08:01 AM by knight933 »

Tim Eriksen

  • Lifetime Member
  • Hero Member
  • *****
  • Posts: 659
Re: Liberated Syndication - LSYN
« Reply #4 on: February 07, 2018, 09:13:31 AM »
I owned some in a personal retirement account late in 2016.  Paid $0.40 and sold out at $0.59 six months later. I clearly sold too soon.  It was cheap when I bought (1.5x earnings net of cash) and still cheap when I sold (3x earnings net of cash).  I sold because of management not valuation. 

At $1.60 and net debt, it is now trading at 8 times earnings.  For most companies that is cheap.  But most companies don't have a lousy track record like this management team does -  excessive compensation, poor acquisitions, Nevada incorporation, previous reverse split, etc.  LibSyn is growing, while pair Networks is showing a revenue decline.  Combined they should still grow. 

The key here is to meet with management.  I never did, but should have.  Find out if they are trustworthy.  If they are, the buyer will probably do well.  If not, well who knows.   

writser

  • Hero Member
  • *****
  • Posts: 1418
Re: Liberated Syndication - LSYN
« Reply #5 on: February 07, 2018, 09:15:23 AM »
Fwiw when a stock triples I wouldn't instantly dismiss an old analysis as 'WRONG' and laugh about it. From the LSYN insiders one has been detained by Chinese authorities a few years ago and the current CEO and CFO have just settled a case in which they were accused of securities fraud. That's not something you can capture in a spreadsheet. Have you looked at stock compensation the past few months?
« Last Edit: February 07, 2018, 09:23:01 AM by writser »
When you are dead, you do not know you are dead. It's only painful and difficult for others. The same applies when you are stupid.

Schwab711

  • Hero Member
  • *****
  • Posts: 1194
Re: Liberated Syndication - LSYN
« Reply #6 on: February 07, 2018, 09:42:32 AM »
No opinion myself, but this blogger was slightly less enthousiast a year ago: https://www.valueinvestingblog.net/liberated-syndication/ . Might be interesting for you.

I should probably bring the discussion here.

Presumably at the time of this post (12/15/2016) LSYN showed up under the Gregory & Associates, LLC (Salt Lake City, UT) listing, but it is now listed under a firm in Ocean City, MD with the same name (unrelated firms).

A couple of years ago, I tried to submit information on behalf of a company to OCTMarkets.com to remove the "No Information" label but they refused. They said all information must be submitted by the listed firm through their portal. The weird thing is both of the FABU spin-offs changed the address of auditor. I don't know if it means anything but I thought it was interesting.

knight933

  • Newbie
  • *
  • Posts: 21
Re: Liberated Syndication - LSYN
« Reply #7 on: February 07, 2018, 10:05:03 AM »
FWIW– If we can’t have the intellectual honesty to admit that when a stock moves in the OPPOSITE direction by +200%, MAYBE there was something missing with your analysis, I don’t know what to tell you. If your boss lets you be 200% wrong with no consequences, more power to you. If you think this is a fraud, why don't you short it?

Everyone is free to read up on FAB Universal and draw their own conclusions as to where the fault ultimately lies with what went wrong, but from my understanding the shady dealings were going on in China, and with business units unrelated to LYSN.

When this scandal in question was happening, Liberated Syndication was a tiny piece of the company at the time, run separately out of Pittsburg. The company has been a pioneer in podcasting since before the iPhone was invented. Long before this management team got involved.

Do some more research on the company and they have a real product, with a real value added that is a big player in this growing market. Some of the biggest names in Podcasting are their clients. I think this was a case of good business / bad business.

From what I can tell, Liberated was a healthy piece of business that was carved out of the rot that was FAB Universal. The current management team got lucky and fell into a life raft of sorts. There is a reason why this was spun-off as a separate company.

And yes – I have looked at stock compensation. Have you? As I said above – if this is a fraud, then management is doing a horrible job at it. Management only stands to get paid if the stock reaches targets FAR higher than it is today. They ONLY get stock if LSYN hits $3, $5 and $7. The stock is at $1.60 today. I do not pretend to speak to their character but the only way they win is if I win along with them.

Schwab711

  • Hero Member
  • *****
  • Posts: 1194
Re: Liberated Syndication - LSYN
« Reply #8 on: February 07, 2018, 10:21:42 AM »
No one said fraud. Fraud does not necessarily mean that no product exists. Fraud does not necessarily mean the financials are incorrect. There are a lot of ways to lose money (despite how well the underlying company is performing) without there being fraud, under the legal definition.

The fact that you are getting criticism on your post means that people are trying to help. Most posts on small stocks get no response, ever. Probably 90% of the traffic on this site is from non-members who cannot respond. If all you want is folks to tell you that you are right then what's the point? Just my two cents.

Quick thoughts on your model:
1. I have no idea where the 25% synergy is coming from (I checked their filings and I don't see any mention - maybe I missed it?)
2. Extrapolating 1 quarter and 3 quarter results with 10% future growth can make a lot of companies look cheap.
3. The mgmt comp issue brought up by Tim is the reason EBIT margins have declined at LSYN. Since you extrapolated the last Q for LSYN, you are over-estimating LSYN, imo. As a quick reasonableness check, you assume full-year run-rate G&A expense for LSYN is less than actual G&A expense for 9m YTD.
4. If you expect the stock price to hold or increase in the future then your valuation ignore known dilution that would result from that assumption
5. As to the 10% growth assumption, does that assume Pair Networks reverses its decline, LSYN grows by 20%+, or some combination? Your model implicitly assumes the growth is perfectly gross margin-weighted, which is probably not what you meant and seems unlikely.
« Last Edit: February 07, 2018, 10:24:03 AM by Schwab711 »

knight933

  • Newbie
  • *
  • Posts: 21
Re: Liberated Syndication - LSYN
« Reply #9 on: February 07, 2018, 10:25:28 AM »
Trust me, I realize everyone's concerns. But here is some more evidence LSYN is in the “this is not a fraud” category.

Attached here is the 8K they filed when they did the latest acquisition of Pair Networks. They took out about $10 million in loans from First Commonwealth Bank.

Whenever you apply for a bank loan, the bank does their own deep dive on due diligence on both the parent and the target. Nobody is perfect, but the bank has access to private information that we will never see as investors. After all their due diligence, they did the deal at LIBOR + 175, or 3.44%. (See page 168 of the attachment here)

Even in a low-interest rate world, 3.44% is a very low rate by any standards, suggesting that after they looked under the hood, the bank believed this to be a very strong credit. Debt investors are much more savy than equity investors. If this was so "shady" they could have easily charged much more in interest. Pittsburgh-based Capital Foundry, LLC acted as advisor to the Company and Arranger for the Bank Facility. Notice that everyone involved is local and from Pittsburgh. There are not many public companies located in Pittsburgh. I don't think anyone was tricked here.   

Having done several of these due diligence processes myself to obtain a bank loan, I GUARANTEE you that the issues with FAB and the CEO/CFO were brought up during the discovery process. I have some comfort that despite all of this, they saw real value in the business. For this to be a fraud, a LOT of people would need to be fooled.

Lastly you said 8x earnings, but that is trailing. There are very real synergies to be had once you fold the two companies together. That’s why I think the real multiple here is closer to 5.5x – 6.5x.