Kyndryl Inc. (NYSE:KD)

Intro
Kyndryl is a leading technology services company and the largest infrastructure services provider in the world, serving as a partner to more than 4,000 blue-chip customers in over 100 countries. Prior to November 2021, Kyndryl was wholly owned by IBM, which retained 19.9% of the shares. IBM intends to dispose of any retained common stock in the year 2022.
Kyndryl is a world leader in designing, building, managing and modernizing mission-critical information systems spanning the digital transformation journey. Due to the separation, Kyndryl enjoys new freedom to invest for growth while expanding its ecosystem of strategic partners as well as service capabilities and enhancing customers' access to a wider range of technology solutions.
As a standalone company, Kyndryl is expected to generate around $19bn in annuity-like annual revenues with EBITDA margins of approx. 15%.

Valuation
In 2020, Kyndryl indicated its free cash flow to be around $0.7bn, which is a bit difficult to reproduce since it was still part of IBM.
For 2021, the company is guiding for around $2.8bn in adjusted EBITDA. Deducting approx. $0.9bn in CAPEX and $0.1bn for cash interest results in adjusted free cash flow before taxes of ~$1.8bn.
The balance sheet is rock solid as well and after the issuance of long-term debt in October, net debt stands at roughly $1.2bn without any material maturities in the years. With a market cap of $4.1bn, the enterprise value is $5.3bn – which is less than 2x EV/EBITDA!

What’s next?
As with every spin-off or separation, a lot of costs as well as non-recurring items incur, and the transaction has to be digested. Typically, the “fair” earnings power will only come to light after 2 to 3 years.
The strategy after the separation is first to stabilize and then growing revenues as well as expanding margins. As a separate company, Kyndryl can better invest into its own business and also look for potential acquisition opportunities.
This year will be of great interest, since IBM will likely dispose of its 19.9% stake which may offer very attractive prices to buy Kyndryl in the public market.
If Kyndryl will be able to focus on its own business, grow it from there and may add a few other companies to its portfolio, the current valuation should at least be double for such a stable and profitable business.

Current Price
$18.10 per share

Disclosure
As with most shares discussed on here, the author is long KD.