ToffCap's Monday Monitor #33

Your regular monitor for interesting event-driven trades and companies

ToffCap’s Monday Monitor is our overview of interesting event-driven trades and companies we find while turning over many rocks. 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.

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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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This week’s additions, highlights and updates of event-driven trades

• MDU Resources (MDU US). After the recent spin of Knife River, MDU now also plans to spin its construction services business. Remaining company will be a pure-play energy delivery business. UPDATE (April 15, 2024) MDU provided an update of its intended spin of the construction business 'Everus'. Spin expected 'late 2024'.

  UPDATE (October 7, 2024) MDU is (finally) spinning off Everus (ticker ECG). Spin shares distribution on October 31.

• Gentoo Media (was Gaming Innovation) (GIG Norway). Operates two divisions; GiG Media which is going strong, recently achieving record revenue, player intake and ebitda growth, and Platform & Sportsbook a relatively more commoditized business. GIG is on track to split the units; the spin should be completed in Q2. Overall upside of >100% as >50% upside just on Media alone, while the rest is 'free'. UPDATE (September 2, 2024) We are finally in the final stages of the split of Gaming Innovation. It took some time, but first day of trading of the Platform & Sportsbook spin is expected to be October 1. GIG also reported solid results, with continued solid momentum of Media revenues and ebitda. The company also communicated FY25 targets for the separated Platform & Sportsbook division, targeting >EUR 44m revenues and at least EUR 10m ebitda by FY25.

  UPDATE (October 7, 2024) Split completed. Gaming Innovation (GIG) renamed Gentoo Media (G2M Sweden). Spin GiG Software (GIGSDB Sweden) so far roughly -6% over past few days. No coverage (and might take a while given micro-cap size). To note that large shareholder (Juroszek family) has been adding recently in the open market. Also, G2M is down >11% since the split.

• 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. UPDATE (April 8, 2024) To sell GRC software and service assets. After the deal, Marlowe will have a net cash position ~GBP200m (current market cap of c. GBP500m). The company will return at least GBP150m through share buybacks and/or dividends. There remains significant upside potential in our opinion. UPDATE (September 23, 2024) Optima Health spin on September 26. Anticipated market cap on admission of GBP 190m. Will trade on the AIM market.

  UPDATE (October 7, 2024) Optima Health (OPT) spin trading. Roughly -6% since spin (October 4). Classic pre-coverage period.

• TC Energy (TRP Canada). Recently approved the spinoff of the company’s Liquids Pipelines business. Shareholder to receive 0.2 shares in a new public company ('South Bow') per TC share.

  UPDATE (October 7, 2024) South Bow spin trading. Pre-coverage period.

• SITE Centers (SITC US). SITE Centers announced that its intends to spin-off its Convenience assets into a separate publicly-traded REIT to be named Curbline Properties ('CURB'). Interesting, unique growth company. Will list with a net cash (debt free) balance sheet. Timing H2 24. UPDATE (September 23, 2024) We note the upcoming spin of Curbline (CURB) on the first of October; ratio 2-1. Curbline will have a strong net cash position upon listing.

  UPDATE (October 7, 2024) Spin Curbline Properties (CURB) is trading. Pre-coverage period.

• Lightspeed Commerce (LSPD US). Lightspeed is working with bankers (JP Morgan) to conduct a strategic review of its business and operations. The company mentioned it is engaged in discussions relating to 'a range of potential strategic alternatives'. While the shares jumped ~15% on the news, this one could be very interesting to keep an eye on. While the shares have gone nowhere since 2019 (with plenty of vol though), LSPD has ~27% of its market cap in net cash (October 4) and revenue growth has been impressive. BB cons (fwiw) is eyeing ebitda break-even this year and strong growth thereafter. IF ccs pans out, LSPD is trading at ~20x FY25e ev/ebitda for >50% ebitda cagr over the medium term and a very strong b/s. Worth keeping assessed.

• Payfare (PAY Canada). Payfare announced that it will be initiating a strategic review to enhance value. The share price recently collapsed >75% after losing DoorDash as client. Despite this significant hit, the company seems to have relatively good prospects and is backed by a very strong net cash position.

• Helix Energy Solutions (HLX US). Helix is said to be exploring strategic options (which generally means a sale with these kind of assets). The space has seen decent M&A over the recent past, and we wouldn't be surprised to see an exit. Limited price action after the news.

• Akzo Nobel (AKZA Netherlands). Akzo Nobel recently announced that it will be reviewing its portfolio of paints, starting with its Indian asset base. The company basically told the market they intend to monetise its listed Indian subsidiary; Akzo owns ~75% of Akzo India (AKZO India).

• VOXX International (VOXX US). Announced a few months ago that it will explore strategic alternatives to maximise shareholder value. VOXX also announced that Gentex (GNTX) made an offer at $5 p/s. VOXX rejected the offer. Gentex recently strongly increased its stake to >30%. Seems like more is about to happen.

• American Outdoor (AOUT US). American Outdoor recently announced a $10m buyback, roughly 10% of the current market cap (October 4).

• Southwest Airlines (LUV US). Southwest not only announced a $2.5bn share buyback, roughly 13% of its market cap (October 4), but insiders recently acquired over $100m shares in the open market. That's a lot. Obviously in connection with the current activist pressures.

• Cantaloupe (CTLP US). We note the acceleration of open market purchases by insiders over the past weeks. Its always good to see that happening when share prices move strongly up (in this case after good results). Cantaloupe's operating leverage seems to be doing its work. At <13x FY24e ev/ebitda for >25% ebitda growth pa over the medium-term, the shares do not screen expensive. Mgt agrees it seems.

• Sportsman's Warehouse (SPWH US). Insiders have been very active in the open market over the past few months. Shares have been strongly pressured over the past years given deteriorating results and a pretty high debt load. The results and fundamentals don't exactly scream 'buy'; does management know something is coming?

• Culp (CULP US). Insiders and large shareholders continue to scoop up shares in the open market. More like 'backing up the truck' actually.

• European Residential REIT (ERE Canada). Company is winding down operations. Assets are being actively sold, with the company recently selling c. 50% of its assets at a very decent pricing (above NAV). If the latter is an indication for the rest of the portfolio, there could be an interesting upside. Current share price (CAD 3.2, October 4) is below IFRS NAV (at c. CAD 4.30). Should play our over next 12 months (probably sooner) (though keep an eye on potential taxes).

• Mammoth Energy Services (TUSK US). Mammoth Energy won a court case against PREPA (Puerto Rico) and was awarded almost ~$190m. Against all expectations, it received the first part of the settlement for a total of $150m from PREPA (which has a tendency to default). TUSK immediately repaid all its outstanding debt; the co is now debt free, with ~50% of market cap in net cash and another 25% coming. While this is not exactly a high quality company, the price action appears very underwhelming for such an impactful action.

• Powerfleet (AIOT US). We note the upcoming investor day of Powerfleet on Nov. 11. This should be an interesting one given the transformational acquisition of Fleet Complete. The combo should create a company with >20% revenue growth pa and +20% ebitda margins, which is certainly not reflected in today's (pro-forma) valuation. The investor day could be an interest catalyst.

• Viemed Healthcare (VMD US). Viemed is an old ToffCap acquaintance. After playing the spin back in 2018 we've largely ignored the company has we could not get comfortable with earnings visibility. Indeed, after roughly five years the stock is more or less where we left it. But VMD is not back on the radar. There are various drivers which should drive topline growth acceleration, and we still like the secular tailwinds. Trading at ~6.5x FY24e ev/ebitda with a healthy b/s and >15% ebitda growth pa over the medium-term, VMD is worth a look.

• Mulberry Group (MUL UK). Mulberry recently rejected a GBP 83m bid from its largest shareholder Frasers Group. MUL just finished raising some cash to finance a turnaround. Meanwhile, Frasers increased its stake a bit more to >37% of s/o. Seems like this story will continue.

• ContextLogic (LOGC US). Pro-forma the transaction with Qoo10, ContextLogic will be a shell with c. $6.5 per share in cash and NOLs, on a current share price of $5.30 (May 3). Interest on cash should cover ongoing expenses. Assuming the company looks for an acquisition candidate, and does not destroy even more capital in the process, its arguably a very compelling risk/reward at these levels.

  UPDATE (October 7, 2024) A reminder that LOGC is now trading as a shell with net cash (~$150m) and almost $3bn in (Federal) NOLs. Management clearly noted that it will return cash if no deal is completed. Should be an interesting 12-18 months.

• Emcore (EMKR US). Mobix Labs (MOBX) offered to take out Emcore for $3.80 p/s. While Emcore's share price jumped >100% on the news, at $2.45 (October 4) the spread is still pretty high. Emcore was in a process of evaluating 'a range of strategic and financial options to enhance shareholder value'.

• American Creek (AMK Canada). American Creek recently updated the markets on the progress the of the acquisition by Cunningham. The deal seems to be moving along well and on time. Spread still ~59%.

• Unified Post (UPG Belgium). Little, indebted UPG recently announced the sale of its e-transaction assets for ~€130m. If this deal closes, it would eliminate UPG's debt and, together with the proceeds from other asset sales, the company will have a comfy net cash position. Should it reach its targeted FCF break-even level, the shares could be very interesting.

• Reservoir Media (RSVR US). Acquires music publishing and recording rights. One of the few 2021 SPACs that actually met guidance. Big disconnect between private and public market valuation. If they get sold at a similar SONG multiple, could be >double. Activists engaging with management.

  UPDATE (October 7, 2024) The pressure is increasing at Reservoir, with Irenic Capital (~8% of s/o) pushing to company to initiate a strategic review (i.c. a sale).

• SoftwareOne (SWON Switzerland). Once again reports that the company is for sale. UPDATE (May 6, 2024) Current board replaced by founders. Action continues. Very bullish sell-side projections.

  UPDATE (October 7, 2024) Are we finally going to see some action in this perennial takeover candidate? Bloomberg recently reported that Apax and large SoftwareOne shareholders have been discussing structures that would allow them to take SoftwareOne and Crayon Group (CRAYN) private and merge. SWON shares have been under pressure lately as it was also suggested that SWON was weighing a deal to takeover Crayon. Overall, a lot of action here.

• Greenland Resources (MOLY Canada). Insiders have continued their buying spree over at Greenland Resources. Sooner or later we think something big is going to happen here.

  UPDATE (October 7, 2024) The news flow has been accelerating over the past months. MOLY now has clear leads to raise $700m in debt to finance capex (several LOIs from larger players). Also, the company noted that it expects a positive response on the exploitation license expected in October. In addition, the CEO continues to acquire as much shares as he can on the open market. Who knows when, but it seems MOLY is preparing for some serious action.

• Ubisoft (UBI France). Ubisoft was up strongly on Friday (October 4) as the news broke that Tencent and the Guillemot family are weighing to take the company private. Together they own ~25% of s/o. While product introductions have been a mess lately at Ubisoft, the company retains some very good franchises. With a bombed out valuation, we aren't surprised.

• XL Media (XLM UK). Pro-forma the sale of certain sports betting & gaming assets, XLM will be trading around net cash. High potential upside if you believe that the proceeds will not be wasted on M&A and that the company will be taken out.

  UPDATE (October 7, 2024) H1 24 results confirmed ~$20m cash balance (net after cost) excl. another $10m received on Oct. 2 and up to $12.5m to be received in April 2025. This on a ~$34m market cap (October 4). 'An initial return of capital to shareholders is expected in Q4'.

• TTEC (TTEC US). TTEC received an unsolicited proposal from the CEO to be taken private, at $6.85 p/s vs a current share price of $5.82 (October 4).

• Basic Fit (BFIT Netherlands). We note Buckley's Capital letter to the Board of Basic-Fit, pushing the company to initiate a strategic review and consider a sale. While BC is a small holder (<1%) compared to insiders owning much more, it is reflective of the sentiment in the stock. Might be interesting to keep an eye out for further action.

• Immofinanz (IIA Austria). Petrus Advisers is pushing Immofinanz to discuss strategic alternatives with its largest shareholder CPI Property. The share price action has been horrible over the past few months, which Petrus used to amass a 11.5% stake in IIA (according to BB).

• Grifols (GRF Spain). Founding family and asset manager Brookfield have made an approach to buy the company. Grifols’ share price has been quite turbulent (and a total loser) over the past years. Recently the shares took another plunge after Gotham City’s short report. Could be interesting to play the spread - i.c. buying the B shares and shorting the A shares. UPDATE (September 2, 2024) BB reported that Brookfield is working with banks to refinance Grifols' debt for a potential take-over. Might also be interesting to look at Grifols' debt.

  UPDATE (October 7, 2024) Brookfield recently reaffirmed its interest in taking the company private. The fund needs (a bit) more time to complete its due diligence.

• Desktop Metal (DM US). Merger arb. Old TMM highlight Desktop Metal is to be acquired by Nano Dimension for $5.50 p/s, roughly 35% above the current share price (16/08). However, the take-over price is subject to quite a few adjustments and could end-up much lower around $4.0 (hence the spread).

  UPDATE (October 7, 2024) Shareholders approve deal with Nano Dimension. This was a major hurdle. Transaction expected to close in Q4 24. Spread still ~13% (October 4).

• Covestro (1COV Germany). Rejected a $ 12bn offer from Abu Dhabi National Oil (ADNOC), but ‘open to discuss deal at higher price’. To keep in mind that Covestro is basically 100% free float. Potential fair price high 50s. UPDATE. Covestro confirmed its engaging with Adnoc regarding a potential take-over. Adds to previous reports on informally lifted 'proposals' towards €60/share as trigger for starting official negotiations. UPDATE (July 1, 2024) Covestro to enter concrete negotiations with ADNOC, sees €62 p/s as 'starting point'. Current share price ~€55 (June 28).

  UPDATE (October 7, 2024) ADNOC finally made a formal offer (€62 p/s). Deal signed. Spread still ~6%.

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