ToffCap's Monday Monitor #13

Interesting companies and event-driven trades

ToffCap’s Monday Monitor provides a snapshot of interesting potential investments and event-driven trades we find while turning over many rocks, with a special focus on companies that screen cheaply and catalyst trades. The list is dynamic; it continues to grow and change. If you have interesting additions to the list, feel free to contact us at contact@toffcap.com or on Twitter.

Enjoy!

Disclaimer. ToffCap’s Monday Monitor is provided for informative purposes only. No due diligence has (yet) been performed on the names on this list. The list might change strongly on a regular basis. This overview does not constitute advice; always do your own due diligence.

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Overview

I. Company watchlist

II. Catalyst trades

I. COMPANY WATCHLIST

Interesting companies with seemingly strong upside potential we have looked at recently.

Additions this week:

• Aedas Homes (AEDAS Spain – EUR 667m). Real estate developer, screening great risk/reward. We have previously mentioned that we have been looking at companies with a relatively large balance sheet and strong (future) cash flow generation in a market / industry that is being pressured due to the macro environment. Aedas is an interesting company that fits this description. The share prices of many companies in the industry have been suffering, but the Spanish (end-)market continues to show relative resilience. Aedas’ pre-sales remained strong, giving visibility on future earnings generation. It even managed to increase pricing in this tough environment. Trading at c. 40% discount to NAV, >14% dividend yield and what looks promising cash flow generation. Potential target if the valuation remains pressured.

• Magellan Aerospace (Mal Canada – CAD 410m). Aerospace supplier, producing aircraft airframe components. Like many in the industry, Magellan’s operations were disrupted by covid (disruptions). The business is now back on track, and earnings seem poised to accelerate going forward given revenue acceleration due to industry tailwinds and margin optimization (both self help as well as easing impact of disruptions). The company is trading at <5x FY24e ebitda, with >20% ebitda growth pa expected over medium term, and peers trading at HSD multiples.

• Sandoz (SDZ Switzerland – CHF 10.4bn). Spin-off from Novartis completed. Sandoz is trading at <6x ev/ebitda on FY24 ccs, for mid-teens% ebitda growth pa. Not the highest quality (pipeline mostly commodity generics), but interesting long-term demographics tailwinds and relative large biosimilar opportunity (with Sandoz being one of the few biosimilar plays). Peers (there aren’t many) trade at (much) higher valuations and/or are not yet profitable.

• Bel Fuse (BELFB US – $ 650m). Bel Fuse manufactures and designs electronic components (e.g. integrated connectors modules, cable assemblies, aviation spares, powerline products, etc.). Interesting business given relatively sticky customers and strong end markets. Recent earnings indicate strong earnings growth momentum. Ebitda could double by 2025 given market tailwinds, as well as restructuring efforts, bringing margins closer to peers. Trading at <6x FY23e ev/ebitda vs. peers 13-18x. Seems a matter of patience and execution.

II. CATALYST TRADES

Event-driven trades and ideas.

New additions and updates

• Renault (RNO France). Intends to complete the spin-off of its EV business (‘Ampere’) in H1 24. Renault will hold a capital markets day on 15 November.

• Rain Oncology (RAIN US). Busted biotech, negative EV Rain Oncology received a buy-out offer from Concentra Biosciences (Tang Capital). Shareholders to receive (if accepted) $1.25 per share + a contingent value right (CVR). Tang already owns c.15% of the company. Current share price (27 October) is $1.07.

• Nano Dimension (NNDM US). Announced that it has received approval from the Israeli Court... to buy back up to $200m worth of its American Depositary Shares during the next twelve months. Nano has a BIG net cash balance (trading at negative EV).

• Overstock.com (OSTK US). Lots of action at Overstock.com, with several activists pressuring the company to launch strategic review and improve balance sheet (via eg asset sales). Name change to Beyond (ticker BYON). To keep an eye on given high volatility.

• Solitron Devices (SODI US ). Nano-cap with seemingly increasing business momentum. Sizable insider purchases by CEO and COO. CEO Eriksen active on X (@eriksen_tim). H/t @LogicalThesis for the idea.

• Micron Solutions (MICR US). Micron Solutions announced the approval to effect a 1-for-1,000 reverse stock split, followed immediately by a 1,000 to 1 forward stock split. Holders of <1,000 shares will be bought out at $1.50 / share vs. current share price of $1.33 (27 October).

• Webcentral (WCG Australia). Recently announced the sale of core business. Stock price was up sharply, but market seems to underestimate SOTP value. Current share price ~27ct vs potentially >45ct per share SOTP. Should play out over the next few months. H/t to @TheRealDavey2 and @ClarkSquareCap for the idea. See

  Clark Square Capital's Ultimate Value
  write-up here.

• EML Payments (EML Australia). Interesting SOTP investment thesis from @puppyeh1. EML appears to have relatively inefficient assets that could be sold off, or the company as a whole. STOP value / share could be >$1.70 vs $1.09 current share price. Strong indications of near-term catalysts. Refer to @puppyeh1 thread (Oct. 26) for a more detailed explanation.

• Cegedim (CGM France). Continued strong insider buying + share repurchases. 5x ev/ebitda FY23 for MSD-HDS% ebitda growth, though relatively levered. H/t @evfcfaddict for the idea.

• Sodexo (SW France). Sodexo to spin-off Pluxee in early 2024. Pluxee current growing much more rapidly at much higher margins than Sodexo. Might be interesting to keep an eye on. H/t @hurdle_rate for the idea.

• Nexi (NEXI Italy). Bloomberg mentioned CVC Capital Partners is in the early stages of considering a potential bid for European payments firm Nexi. Share price jumped, but got smashed again after the Worldline mess. Hellman & Friedman (PE ) has c.20% stake in Nexi, part of Fund VIII. Fund VIII is an old vintage (2014) and H&F is looking to wind this fund down.

• E2open (ETWO US). Recent blow up. Busted spac, (Low quality) software. Activists circling the company; Elliott recently upped its stake to 14%.

• Neogames (NGMS US). Merger arb. Signed merger agreement with Aristocrat ($29.5 p/s). ~16% deal spread, for 20-30% IRR in ~10 months. Old VIC write-up for background here.

• Albertson (ACI US). Merger arb. Great notes from Andrew Walker on a few merger arbitrage / antitrust special sits (incl. old TMM favorite SAVE). The first is Albertson, getting acquired by Kroger; see post. H/t @AndrewRangeley for the idea.

• iRobot (IRBT US). Merger arb. Second Andrew Walker merger arbitrage / antitrust special sit. iRobot to be acquired by Amazon; see post. H/t @AndrewRangeley for the idea. Same note here.

• Worldline (WLN France). Massive reaction after results, with shares dropping >50% to all-time lows. WLN adjusted all targets downwards; expect BIG cuts for 2024. Might be interesting to keep an eye on. PE very interested in the sector in the past (Network International 15x, Worldpay 10x ev/ebitda, Nexi PE interest - see below).

• Polaris (PII US). Adds $1bn buyback capacity. Total now ~$1.2bn, c.25% of market cap.

• Flex (FLEX US). Flex to spin-off 51% stake in NEXTracker (NXT US). NEXTracker is currently trading at a much higher valuation; potential large value unlock.

• Eurotelesites (ETS Austria). Telekom Austria's spin Eurotelesites continues to trade very poorly. Shares now c. -44% since spin. Might be interesting to keep an eye out.

• LianBio (LIAN US). Net cash biotech, announcing strategic review. Interest from BMS for HCM assets. BMS set to pay LianBio $350m in a one-off fee. C. 80% of market cap currently net cash.

• Mirati Therapeutics (MRTX US). To be acquired by BMS for $58 p/s + a non-tradeable contingent value right. Current share price c. $55; CVR could be valued $12 p/s. To play out in Q1 24. Prel. proxy statement filed.

• Northern Trust (NTRS US). BIG insider buying. Stock c. -30% YTD.

• Orchid Island (ORC US). Continued relatively large insider purchases by executive team. Stock is down 40% over the past few months as unrealized losses strongly increased.

• Grand Canyon Education (LOPE US). New short report from Citron Research.

• XPEL (XPEL US). In case you missed it, Culper Research recently published a new short report on XPEL. The shares are down >30% over the recent weeks.

• Vista Outdoor (VSTA US). Will spin its outdoor segment. Recently filed a Form-10, intention to spin in Q4. Could be interesting given underlying free cash flow generation + ‘anti’-ESG character of part of the assets. Outdoor Products segment to be called Revelyst, ticker GEAR.

  UPDATE: Vista to sell its Sporting Products operations for $1.9bn (or about 5x ev/ebitda on the unit's FY24e). Current public stockholders of Vista Outdoor to receive shares of Outdoor Products (recently rebranded as Revelyst) and approximately $750 million in cash in the aggregate. Also, activists getting involved. ColtCZ disclosed 5.7% stake. Interesting to keep assessed, could see some fireworks.

• Talen Energy (TLNE US). Filed to uplist to a major exchange. Recently exited bankruptcy and trading OTC. No coverage yet. Could be explosive given recent Uranium price spike.

  UPDATE: Announced a $300m buyback (~10% of market cap). Still a few catalysts ahead (uplisting, no coverage yet, buybacks).

• Yellow (YELLQ US). Currently in bankruptcy proceedings. Relatively valuable asset base with already some good bids; main uncertainty is pension liabilities. High risk/reward trade. H/t @AmadeusValue for idea and more info.

  UPDATE: Received approval to auction off and monetize the fleet over the next few months.

• Spirit Airlines (SAVE US). Merger arbitrage. Spirit / JetBlue merger uncertainty; airlines disagree with DOJ attempt to block the merger. The trial date has been set for October 16. Spirit shareholders to receive ~$ 33 / share if deal consummated (vs current share price ~$ 17). Companies confident in deal closing potential.

  UPDATE: DOJ trial upcoming (30/10). Spread still wide.

• Allfunds (ALLFG Netherlands). To explore strategic options, incl. sale, according to Vozpopuli. Hired Goldman and Citi, looking for 5bn. Makes no sense for this company to remain public, in our opinion.

  UPDATE: See Nexi note above. Allfunds is part of H&F Fund VIII as well , and H&F has also slightly more than 20% stake in Allfunds. Fund is old vintage (2014) with H&F looking to close this fund.

• Howard Hughes (HHH US). Ackman (Pershing Square) continues to buy HHH, now trading below $70. Company recently announced it would spin off its Seaport and other related assets. ~90% upside to NAV (according to HHH).

  UPDATE: Another week of Pershing (Ackman) buying HHH. At some point we will see fireworks if this continues.

• Party City (PRTYQ US). To exit bankruptcy soon. Expected to have reduced debt by $1bn and improved its store footprint.

  UPDATE: Recently exited Ch. 11 (week of 23 October). Significant debt reduction realized. Stay tuned for potential relisting announcements.

• BlackBerry (BB US). To separate IoT and Cybersecurity business units. Also lots of attention from Veritas Capital.

  UPDATE: IPO targeted for June 2024.

• Western Digital (WDC US). Western Digital to ‘ …fully evaluate a comprehensive range of alternatives, including options for separating its market-leading Flash and HDD franchises’. In talks to spin and merge with Kioxia, double listing in US and Japan. Timing Q3 / Q4 2023.

  UPDATE: Deal with Kioxia busted.

Overview of event-driven trades

SPIN-OFFS (and related)

STRATEGIC ALTERNATIVES, POTENTIAL TAKE-OUTS, ASSET SALES, M&A, etc.

MISCELLANEOUS (liquidations, large buybacks, significant insider purchases, out of bankruptcy, uplistings, etc.)

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