– Hair salon franchisor with 5,000 units.
– Covid-driven headwinds masked the fact that RGS has wrapped up a major business model transition to the franchised model.
– The business has bottomed out and is on the path to recovery.
– Worth $7, representing a 6x return.
– A recession-proof, asset-light business that is generating 30%+ EBITDA.
– The new CEO joined in 2022 and is successfully turning the business around.
– Both the business model transition and liquidity profile improvement have gone unnoticed by the street.
– RGS doesn’t screen well as it looks massively levered due to leases, but these leases are held in the franchisee’s name.
– Franchising model makes sense: asset-light business model, higher FCF generation, and 10-20% higher revenues in franchised units.
– Currently trades at 8.5x 2023 EBITDA.
– $7/share price target based on a 9.5x multiple on a 2025 EBITDA of $45m.
Exp. gain: 500%+
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