ToffCap's Monday Monitor #3
ToffCap’s Monday Monitor provides a weekly snapshot of the largest changes in our watchlist. New (potentially) interesting investments and trades are regularly added to the list: companies that screen cheaply, catalyst trades and notable company results which might indicate changes in a company’s investment case. The list is dynamic; it will continue to grow and change going forward. 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 weekly basis. This overview does not constitute advice; always do your own due diligence.
Overview
I. Company watchlist
II. Catalyst trades
III. Notable company results (mostly European)
I. COMPANY WATCHLIST
Annotations for a selection of interesting companies with seemingly strong upside potential.
Additions this week:
Star Holdings (STHO US – $ 217m). Recent spin-off out of iStar / Safehold (SAFE US) merger. Sum-of-the-parts investment case, trading at a big discount to NAV: STHO holds SAFE shares (currently valued ~$ 360m), $ 50m cash, real estate (~$ 90m book value) and land development assets (~$ 250m book value); debt is ~$ 240m. Star is not an opco; plan is to monetise the assets over the medium-term (development and asset sales).
Azelis (AZE Belgium – € 5.3bn). Very high-quality compounder, with decade+ growth potential. Inherently asset light business model, with strong return and cash flow generation. Extreme market fragmentation allows plenty of inorganic growth. Recently announced € 200m capital raise to accelerate roll-up strategy. Given sell-side laziness to model m&a, results tend to beat consensus. Shares -15% YTD due to fears of earnings normalisation. More on the market here.
Kyndryl Holdings (KD US – $ 2.7bn). Recent Greenlight Capital pitch. IT services provider. Classic ‘bad business’ spin-off (from IBM). Levered and bad contract pricing. Company seems to have good product offering; contracts to be repriced going forward, improving margins. Deep value play with improving fundamentals (margin improvement and debt repayment should drive share price rerating).
Inspecs Group (SPEC UK – GBP 124m). Eyewear and lens designer. Recovery play. Fundamentals appear to be improving. Strong vertically integrated player, trading at ~8x 2023e ev/ebitda, for 10-20% p.a. earnings growth over the medium-term. Management focus on cost reduction and continued (organic) growth.
Surgepays (SURG US – $ 86m). We recently revisited the investment case. MVNO, provides wireless internet via under ACP program. Multi-bagger potential over next few quarters if company continues to exectute.
Previous additions:
Alfen (ALFEN Netherlands – $ 1.7bn). High quality company, providing energy storage systems and EV charging stations, and specialized in grid automation. Recent CMD provided mid-term outlook: at least doubling ebitda over the next 2/3 years. Guidance looks conservative. Trading at ~17x 2023e Bloomberg ebitda for >30% ebitda cagr. Clean balance sheet, self-funding growth. Quality pure-play on electrification / sustainability / ESG trends. Decade+ market tailwinds. Still relatively unknown outside of Europe.
PWSweb (PFSW US – $ 93m). Cheap, busted micro-cap. Trading at 3-4x 2023e ebitda. Stock buyback + strategic review ongoing.
Talen Energy (TLN US – TBD). Nuclear energy play. Recently emerged from bankruptcy. Many interesting assets, but mostly high quality Susquehanna power plant. Out-of-bankruptcy plays tend to be good opportunities given relatively cheap listed valuations (TLN Plan EV $4.5bn - $ 2.5bn equity cap) + nuclear renaissance theme is a major tailwind.
Atlas Energy Solutions (AESI US – $ 1.7bn). Recent IPO. The only public pure play Permian in-basin proppant provider. Screens cheaply. Net cash balance sheet. Sector decimated. AESI is developing the Dune Express, a 42 mile conveyor system. System would massively drop operating costs and generate strong cash flow. Potential to be valued more like midstream company (i.c. double the multiple) + multiple upside if sentiment turns + strong FCF generation potential.
Unit Corporation (UNTC US – c. $ 300m after spec div.). Oil & Gas company. Set for strong FCF generation given good market fundamentals. Could be valued at ~2x ev/ebitda 2023e and 20-30% FCF yield. Insiders own >40%. Shareholder friendly capital return policy.
Oddfjell Technology (OTL Norway – c. $ 200m). Offshore energy service provider. Relatively recent listing. Strong sector tailwinds providing plenty of runway. Cheap (relative) valuation. More info Alexander Eliasson (@alexeliasson).
FitLife Brands (FTLF US – $ 77m). Good progress on ecommerce transition. Acquisition of Mimi’s Rock at attractive valuation. Potentially transformative. Management aligned. Trading at <7x FCF 2023e for >20% growth of ecommerce channel.
Tempest Therapeutics (TPST US – $ 22m). Biotech gamble. Reverse merger in 2021. Recently published first set of promising results. Partnering with Roche.
II. CATALYST TRADES
Event-driven.
Additions this week:
Aston Margin Lagonda (AML UK). Geely increased stake in AML, fueling speculation regarding a potential takeover.
Cummings (CMI US). Spin-off Atmus Filtration expected share price range $ 18-21. Spin will trade under ATMU.
RCS Mediagroup (RCS Italy). Received buyback approval. RCS is one of our favorite long-term holdings.
Abacus Property Group (ABP Australia). Will spin-off its self-storage assets. Listing probably in August.
Imerys (NK France). Drilling results of Cornwall mine expected in the summer. Strong rerating potential on good results.
Previous additions:
Talen Energy (TLN US). Nuclear energy play. Recently emerged from bankruptcy on 17 May. Great tailwinds.
NCR Corp (NCR US). Spin-off of ATM-related business in Oct. 2023. Potential large SOTP value unlock.
Applus Services (APPS Spain). Three PE players as well as activists circling the company.
PFSweb (PFSW US). Strategic review ongoing. To be completed in 2023.
Merrimack Pharmaceuticals (MACK US). To receive $ 225m (vs. market cap. of ~$ 180m) from Ipsen after FDA approval for Onivyde (within 12 months). Cash to be returned to shareholders via special dividends.
MDU Resources (MDU US). Will spin Knife River into a stand-alone construction materials provider. Spin approved; distribution date set for 05/31.
Metals Acquisition Corp (MTAL US). Registration statement finally approved. Vote on 06/05. New copper mine to trade in the public markets; great LT copper tailwinds.
Cia Brasileira de Distribuicao (CBS US). Spin-off with remainco trading at negative value. Great write-up from Clark Square Capital.
Crane (CR US). Spin-off.
Lastminute.com (LMN Switserland). Exploring strategic alternatives.
Liquida Technologies (LQDA US). Patent litigation. Write-up.
III. NOTABLE COMPANY RESULTS (mostly European)
A selection of comments of company results, potentially indicating a notable change in a company’s investment thesis and / or a dislocation of the share price compared to fundamentals.
Additions this week:
Alfen. Horrible quarter for EV Charging, impacted by destocking. Bad outlook for Q2 as well. Long-term investment case unchanged, potentially good entry opportunity.
Inpost. Another set of strong results. Overall group-positive FCF already. Should driven continued rerating of shares if co. continues to exectute.
SFC Energy. Good results; fundamentals continue to improve, mainly in North-America. Guidance seems conservative.
Cherry. Slow start of the year for both Gaming and Professional. Destocking slower and longer than expected.
Azelis. Announced € 200m capita raise to accelerate roll-up strategy. Long-term, high-quality compounder.
Previous week:
Nexi. Results confirm solid trends; not reflected in the valuation. Valuation 8x NTM ebitda for 10-15% ebitda cagr and strong market position.
Alstom. Confirms ramp up in FCF generation.
Surgepays. $ 5m ebtida and $ 4.5m net income over just 1Q. Ramp up expected over the next few quarters, mainly 3Q and 4Q.
Tecnicas Reunidas. $ 150m refinancing completed. Good 1Q results underpinning acceleration of (market) momentum. Write-up here.
Fresenius SE. Strong 1Q, driven by Kabi. Looks to be stabilising.
Outokumpu. Very strong 1Q driven by core stainless steel activities. Lower pricing though much better volumes, indicating end of destocking.
Applus Services. Acceleration of organic growth; all divisions except Automotive. Continued disposal of subdivisions. Relatively cheap + PE circling the company.
Alfen CMD material was superb stuff. Their spearhead profit and growth engine has been EV charger but that tanked in q1. Sees BESS growth ahead which has half of the margin compared to EV charger.