Aug. 6 at 7:40 PM
$INSE It's a shame this name doesn't get more attention. It's a great business that has been streamlined with the sale of the holiday parks division. Displaying impressive results and operating leverage, especially when considering the higher online gaming taxes that went into effect in the U.K. in April. Still has plenty of room to expand beyond the U.K. market too.
I think one overlooked aspect here is the dual impact that debt paydown has on FCF over time. Every
$10M of debt paid down increases after-tax FCF by about
$0.75M every year going forward (add in an additional compounding effect if they use the interest expense savings to pay down even more debt). For a business that should do about
$25-
$30 of normalized free cash flow, that is a meaningful boost, without accounting for the growth of the actual business.
Layer on to this the reduction in interest rate by 0.25% when net leverage falls below the 2.60x mark, which is another
$0.6M of annual after-tax FCF.
Combining these two amounts accounts for a 4-5% growth in FCF on their own (assuming they only pay down
$10M of debt annually).
Then think about the momentum of the underlying business and you start to see how FCF can really start to snowball from here.
