KGIC Inc (LRN-X)

(A Top Pick April 9/15. Down 97%.) (Formerly Loyalist Group.) The first word that comes to mind is fiasco. This was in the ESL market. Did well for a few years. Last year the CEO lied to people and vaporized $20 million of value. They brought in a new team that tried to turn it around, but were unsuccessful. There is a new team involved, but he is done with this one. Don’t go near it.

The CEO was fired. It has been renamed and a new team is running it. There is debt and the bank is mad at them. They cut out a lot of cost. There is still risk, but you could get some.

A great example of a rollup story gone horribly wrong. Everybody loved it and it was talked about a lot. In the last quarter, their revenue was not even close to what it was supposed to be. They revealed they had some debt covenants and the CEO left. They issued more shares to shore up the balance sheet, and now they have to regroup, refocus and get back on track. He would rather pay more for this company when everything is back on track.

He got out last year, breaking even. When he met with management he did not like the answers he was getting. There was no integration or consolidation after acquisitions they were making. He has no faith in the board, management or the business.

CFO got sick during the annual audit, so it was delayed for several weeks. When audit financials get delayed, there is always speculation that something is wrong. In this case, the CFO is definitely sick and not coming back. Expecting the results on Wednesday. What excites him is that it is an ESL operator with a whole bunch of schools. They bring about 16,000 students into the country every year for short-term study. Have just started to monetize lodging for the students. Once they get the real estate thing off the ground and the audit issue behind them, the stock should start to move up again. He would wait until the numbers come out just to be sure.

You are going to get a lot of volatility. The PE of 12 is reasonable. It has fallen off recently and would push him to the sidelines. Not a particularly compelling valuation.

(Market Call Minute.) Would be a little bit nervous on this right now. Have had some issues getting their audited financial statements done. The reason they gave is that their CFO was sick, but that always puts out a little bit of a red flag for him.

He is very confident that they are going to get their real estate division going and it will add incredible value. Their students come from overseas and they all need a place to live and this company has not addressed this before. Their parents don’t care how much their short term accommodations cost. He thinks you get the school business at a good price and the real estate business for free.

(A Top Pick Dec 10/13. Down 16.92%.) Just bought a lot more this week. Met with the CEO and thinks things are going to gel for them this year. A rollup story where they are trying to consolidate the industry. Great revenue growth and makes good money, but institutions are not going to buy a stock where they think there is going to be financing. Company has had a knack of telegraphing financing, but CEO has said there will be no financing until the stock is significantly higher. Has a student housing initiative that the CEO is going to get aggressive with. Did a pilot program last year that did well. This will probably be a spinoff from the company, which he thinks will derive a lot of value.

English as a 2^nd language schools, basically in Toronto, Vancouver and possibly Victoria. They have placement agencies in Korea where the students are coming from. Sold his holdings last fall for tax purposes. They’ve had good results operationally. Just announced another acquisition of another placement agency in the last week. Surprised the stock has not performed better than it has. Have had good results though and will continue to improve.

This has sold off in the last 6 months. They teach English as a 2^nd language to foreign students. Very simple business, and there is good demand for it even in bad times.

(Top Pick July 11/13, Down 24.17%) They still have an opportunity to come through. They missed on a couple of quarters.

Made a lot of acquisitions lately, and he wants to see the earnings power of the company. Revenues are there, but he wants to know where profitability comes in. Have talked about lodging students, but this doesn’t seem to be a priority in the short term.

This is a rollup story with regards to “English as a 2nd language school” and primarily based in Vancouver and Toronto. Has a lot of growth potential. Has grown its revenues through consolidation. He is waiting to see more evidence that they can take the top line growth, and translate it into operational and bottom-line growth in terms of their earnings.