ToffCap's Monday Monitor #15

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:

• Gaming Innovation Group (GIGSEK Sweden – SEK 3.7bn). Gaming Innovation is a rapidly growing company with (relatively) high-quality operations trading at an attractive valuation. The company has strong tailwinds from a rapidly growing market, should be able to continue to expand margins and has a solid management team in place. Earnings visibility is relatively high, which is not reflected in the valuation. The company operates two segments, Media and Platform/Sports. Media already has very strong ebitda margins and a high FCF conversion rate. Platform/Sports is a B2B platform servicing online casino and sports betting operators (perhaps the reason for the discount), and is now ramping up profitability. GIG is trading at ~6x 2023e ev/ebitda, for >20% ebitda cagr over the medium-term.

• Medical Facilities (DR Canada – CAD 220m). Medial Facilities is a very simple story. The company has controlling interests in (specialty) surgical hospitals and surgery centers. After a period of strong (inorganic) growth and leverage expansion, the company is now focused on rationalizing its portfolio, paying down debt and buying back shares. Not that leverage was high (it wasn’t), but the current valuation (~3.5x 2023e ev/ebitda) and solid cash flow generation potential make buybacks extremely attractive - pointing to solid capital allocation skills of management. Medical Facilities recently renewed its buyback program (~10% of shares outstanding), and has reduced s/o by roughly 17% over the past year. H/t @evfcfaddict for the idea.

• Zynex (ZYXI US – $ 311m). Zynex is VERY speculative opportunity. This is definitely NOT a high-quality company. Zynex is a (low-quality) med-tech company, selling electro therapy products for muscle stimulations, inferential and TENS devices. To be honest, we have big doubts if what the company is doing is sustainable, i.c. getting reimbursed (a lot) for what appears to be commodity products (80% of revenues appear to be batteries and related supplies that are offered at much lower prices at retail). One might call what Zynex is doing ‘regulatory arbitrage’ (that’s perhaps too kind). The point is that we feel that the CEO (>40% owner) knows that this game cannot continue (as a public company) and has initiated a strategic review, with we believe the intention to sell. This is a rapidly growing company trading at undemanding multiples (c. 11x 2023e ev/ebitda for >50% ebitda cagr - but for the previous explained reasons), which should not be public in our opinion.

• Cambium Networks (CMBM US – $ 131m). Cambium Networks is a developer and manufacturer of wireless broadband and Wifi networking infrastructure solutions. The shares have massively derated over the past year, reflecting poor operating performance. But, as we know from following Surgepays, there are going to be massive investments in networking infrastructure. The BEAD program alone is >$40bn, and Cambium stands to benefit from it. Indeed the company already received a big order from Nextlink (amount undisclosed). Cambium is trading at roughly 13x 2024e ev/ebitda, but growth might be on the cusp of significant acceleration. Cambium has a clean b/s and insiders have been adding.

II. CATALYST TRADES

Event-driven trades and ideas.

New additions and updates

• Solvay (SOLB Belgium). A reminder of the upcoming separation of Solvay's Essentials business (commodity products, Solvay) and specialty chemicals operations (Syensqo) on December 11. We recently posted a note on the blog discussing the separation. Interesting to keep an eye out given large differences in quality and growth of both companies.

• Newpark Recources (NR US). Initiated a strategic review for its Fluid Systems business, with options including selling the entire segment or winding down its working capital. Divestment could generate $200m, and will increase the quality of the business. H/t @ideahive for the idea.

• Clarus (CLAR US). Has received bids for certain assets of the companies. Does not appear to be a high quality company, but might be interesting in case of sale given relatively high leverage.

• Cazoo (CZOO US). A lot going on with this nano-cap; debt swaps, upcoming warrant distribution, reverse stock split. Should all be completed in the first week of December. Given nano-cap status, all this action could create a lot of volatility.

• Marlowe (MRL UK). Shares down strongly on recent results. Strategic review ongoing; company is considering sale or spin-off of TIC. Currently trading at ~6.3x FY23e ebitda, roughly 40% below peers. H/t @ValueSituations for the idea.

• abrdn European Logistics Income (ASLI UK). Launched a strategic review and is considering all options, including full sale. Trading at 30% discount to NAV. Looks like a very good chance for a deal (dividend target will have to be cut, but will reduce the already low liquidity). H/t @Estebanalbanil for the idea.

• Enhabit (EHAB US). Ongoing review of strategic alternatives, including full sale of the company. Sector deals have been performed at mid-teens ebitda multiples. A similar deal valuation would suggest 50-100% upside.

• Crescent Energy Company (CRGY US). Strong insider buying from the c-suite. Co trades at c. 2.5x ev/ebitda.

• GrowGeneration (GRWG US). Very strong insider buying in GrowGeneration. Company seems to be hitting a rough patch, but insiders appear to love it. Net cash b/s.

• Presidio Property Trust (SQFT US). Presidio (a REIT) announced a $10m buyback, on a $11m market cap. Plenty of insider buying recently.

• Brighthouse Financial (BHF US). Announced a $750m buyback, >22% of the market cap.

• Sohu.com (SOHU US). Chinese Sohu.com (with a net cash position of >$1bn on a $290m market cap), announced a $80m buyback program (c. 30% of market cap).

• Battalion Oil (BATL US). Continues to explore strategic alternatives. Battalion is trading at ~3x TTM ev/ebitda.

• Cambium Networks (CMBM US). Relatively strong insider buying. We highlighted CMBM in our interesting companies list as the stock has been under strong pressure but should have very strong tailwinds over the next few years.

• Howard Hughes (HHH US). Ackman (Pershing Square) continues to buy HHH; now at almost 38%. Company recently announced it would spin off its Seaport and other related assets. ~90% upside to NAV (according to HHH).

• Academy Sports and Outdoors (ASO US). Announced a new $600m buyback program, for a total of $700m, roughly 18% of the market cap.

• Docebo (DCBO US). Odd lot tender offer (potential $1000 to be made). Keep assessed.

• Aware (AWRE US). Announced a buyback of up to $10m (almost 30% of market cap). Aware is a (unprofitable) nano-cap with ~67% of its market cap in net cash.

• JOYY (YY US). Chinese JOYY (with a net cash position of $2.7bn on a $2.3bn market cap), announced a $530m buyback program (c.23% of market cap.)

• Limoneira (LMNR US). Launched a strategic review. Options include full sale of the company. Management believes that the current market value is not reflective of the company's inherent value.

• Vista Outdoor (VSTO US). Vista to sell its Sporting Products operations for $1.9bn (or about 5x ev/ebitda on the unit's FY24e). Spin off the table. 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.

  UPDATE: Activists ColtCZ disclosed a stake and launched a bit for $30 p/s and a $900m buyback, which the company rejected. Interesting to keep assessed, could continue to see some fireworks.

• Worthington Industries (WOR US). To spin Worthington Steel (ticker WS). Record date 21 November, 1-1 share ratio.

  UPDATE: Worthington Steel (WS) recently split from Worthington Industries (WOR). Interesting thread from @valuedontlie on spin.

• 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.

  UPDATE: Ampere IPO targeted Q2 24, at EUR 8-10bn valuation.

• Lionsgate (LGF/A US). Spin-off of the movie / TV studio business estimated in September. Spin targeted before year end.

  UPDATE: Bondholders formed a bond group to block the spin, and appear to be succeeding.

• Mallinckrodt (MNKTQ US). Planning to emerge from bankruptcy by end of year.

  UPDATE: Recently emerged from bankruptcy.

Overview of event-driven trades

SPIN-OFFS (and related)

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

LARGE BUYBACKS, INSIDER PURCHASES

MISCELLANEOUS (liquidations, merger arb., out-of-bankruptcy, uplistings, etc.)

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