ToffCap's Monday Monitor #34

Interesting event-driven and special situations

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.

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

• Titan Cement (TITC Greece). Titan is planning to list its America operations by Q1 25. Projections are floating around of €2.5-2.8bn enterprise value for Titan America (roughly 8-9x ev/ebitda). This compares to €3.3bn currently for the whole group (October 18). What remains (roughly €280-300m ebitda) is valued at low single digit multiples. Assume a higher valuation for Titan America and you get the rest of the assets for free.

• Sveafastigheter (SVEAF Sweden). We note the recent spin (18/10) of Sveafastigheter. This could be interesting as the name is so ugly and unpronounceable that investors might get rid of it so not to have it in the portfolio anymore.

• Liberty Global (LBTYA US). On May 2, 2024, Liberty held its quarterly earnings call where the CEO discussed the proposed spin of Sunrise GmbH to Liberty Global's shareholders. Following the successful integration and synergy delivery of the UPC combination, Sunrise should have a very strong FCF profile, offering an attractive shareholder remuneration framework. More detail at a CMD later this year. Sunrise will list in Switzerland. UPDATE (September 23, 2024) Liberty Global will spin off its Swiss telecoms operator Sunrise in Q2 2024. Liberty said it expects 'broadly stable revenues for 2024 and 2025', and adjusted free cash flow of CHF 360-370m Swiss for FY24 and CHF 370-390m for FY25. In the mid-term, it expects the figure to rise to >CHF 410m.

  UPDATE (October 21, 2024) Special meeting on Oct. 25. Sunrise spin distribution first day trading on Nov. 13.

• Scilex (SCLX US). Is exploring ways 'to maximize value'. Possibilities include the spin / separate listing of (a part of) its development pipeline. These actions generally create interesting (price) dynamics for those willing to do the works.

• Polestar (PSNY US). EV company Polestar announced that it will review strategic alternatives. The company has been growing rapidly, but funding is not enough to finance continued strong demand. Interesting and growing brand.

• Altus Power (AMPS US). Announced that it is reviewing strategic alternatives. "The ongoing disconnect between the share price and our view of intrinsic value gives the Board and management confidence that exploring alternative ownership structures is a prudent course to maximize value...". Altus is an interesting, rapidly growing busted de-SPAC with nice operating earnings and strong secular tailwinds. Though cash flow generation has been hampered by large debt burden (ao a consequence of acquisitions).

• Forward Air (FWRD US). In a letter to the company, activist Ancora urged Forward Air to initiate a strategic review and consider a sale. The letter notes that 'holders of approximately 22% of Forward Air’s outstanding shares have already independently disclosed support for a strategic review'.

  UPDATE (October 21, 2024) The pressure is increasing, with Alta Fox joining the active party. Alta Fox is asking for a strategic review to maximise value (i.c. sell). Also, Bloomberg reported that Forward hired bankers to lead the sales process.

• Boston Beer (SAM US). Highly profitable, cash generating, strong net cash b/s Boston Beer recently announced a $400m increase in its buyback capacity, to $1.6bn (current market cap $3.5bn - Oct. 18).

• Nexxen International (NEXN UK). Nexxen recently approved (and started) a $50m buyback, ~9% of the current market cap (Oct. 18). Nexxen has a very strong net cash position at >20% of its market cap and is trading at ~4x FY24e ev/ebitda on >10% ebitda growth pa based on consensus estimates.

• IZEA Worldwide (IZEA US). GP Investments (~20% owner) continues to back up the truck as much as possible in the open market at this net cash, negative EV online marketing company. Also, IZEA recently announced a $5m buyback, roughly 13% of the current market cap (June 28).

  UPDATE (October 21, 2024) Buyback increased to $10m, 23% of the current market cap (Oct. 18). $56m net cash on $39m market cap. IZEA should be back to yoy growth as of next quarter. Targets $76m revenues by FY26 (ebitda >0 in H2 26).

• Mill City (MCVT US). Micro financial Mill City recently announced a $2m buyback, roughly 15% of the current market cap (Oct. 18). Mill has a relatively large net cash position and see continuous growth ahead.

• AngioDynamics (ANGO US). We note the recent open market purchases of insiders in Angio. Insiders stepped up significantly, which does not happen often. Angio's share price has been suffering from deteriorating fundamentals, but growth is projected to return. Given the reasonable gross margins, the earnings potential could be interesting.

• Neogen (NEOG US). Insiders have been stepping up in the open market over the past months. Neogen is still digesting a big merger which levered the b/s big time. We should be seeing cash flow generation ramp as of next year.

• 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'.

  UPDATE (October 21, 2024) XLM to sell its remainco (ic North American) assets for $30m in cash, $20m upon completion (in Nov.) and another $10m payable in April. What remains is a cash shell, solely focused on the distribution of the funds. Still a big spread with cash position.

• Itafos (IFOS Canada). Phosphate fetilizer company, trading at <2x ev/ebitda on 2024e. Strongly reduced debt. Strategic review ongoing (since roughly a year). Just seems too cheap. UPDATE (May 21, 2024) Ended strategic review without a sale. Itafos is trading at <2x FY24e ev/ebitda with a solid balance sheet and cash flow generation.

  UPDATE (October 21, 2024) Itafos has been showing very decent operational trading and has now actively engaged in selling its international assets. Big gap to estimated sum-of-the-parts. Share price also started to move, so market is liking it / catching onto the story it seems.

• Zoo Digital (ZOO LN). We highlight perennial watchlist occupant Zoo Digital. Zoo provides services for subtitling and dubbing TV content. The business has been suffering quite a lot due to the Hollywood strikes, with continuing uncertainties re its cash necessities. But the company survived, and now that the strikes are over and the movie-slate is ramping up, this one could be interesting again. Q1 25 revenues were up +35% yoy and Zoo is guiding for positive H1 25 ebitda. At 3x FY26e (FY March) for what should be strong DD growth, Zoo screens attractive.

• Pactiv Evergreen (PTVE US). Pactiv has been actively closing and selling high(er) capital intensive operations. This path will bring much higher margins and attractive returns over the next few years. We believe that the share price has not been reflecting this transformation (at all). Interesting to check out.

• Triumph (TGI US). Bloomberg reported that Triumph is exploring options, including a sale. Despite the ~30% jump in share price, the shares have been roughly flat over 2024. While end markets are not that bad, Triumph's exposure to Boeing has worried the market. Also, its significant debt load has not been helping profitability. A sale would make sense from an asset perspective.

• Unitronix (UTRX US). Weird, weird company. So there's something like 20m fully diluted s/o (as far as we know), translating to a $1.7m market cap (but we could be way off), on >$40m asset base with what seems a decent b/s, profitable business and big buyback ongoing. (but we only gave it five mins - caveat emptor).

• GXO Logistics (GXO US). Bloomberg reported that GXO is considering a sale to unlock value. The shares jumped ~20% after the news, but the story remains interesting. Despite the current dip in earnings, GXO has a quite the visible, contracted earnings model. We wouldn't be surprised to see GXO fetch 13-15x ev/ebitda on our FY25e, putting the share price at $85-100.

• Pacific Current (PAC Australia). PAC seems to be on the verge of launching a tender for 50% of the market cap. PAC received several bids for the company at roughly AUD 11 per share that were rejected. NAV is at roughly AUD 12.2 vs the current share price of AUD 10.28 (June 14), suggesting the tender offer might come at a premium to the current share price.

  UPDATE (October 21, 2024) While the price shares barely moved since our initial highlight, Pacific continued to divest assets over the past few months. Wide gap with NAC remains and the company remains intent on closing it. PAC noted that a ruling from the Tax Office is expected 'later this year or early next'.

• Arabian Mills (ARABIANM Saudi Arabia). We note the upcoming IPO of Arabian Mills (September). Saudi Arabia has been hitting the IPO market quite a bit over the recent years (compared to almost never in the past). Might be interesting to keep an eye on.

  UPDATE (October 21, 2024) Now a busted IPO. Shares -10% since listing. No coverage yet.

• Kezar Life Sciences (KZR US). Ongoing battle for busted biotech Kezar. Kezar, with $150m net cash on a market cap of $60m (October 18), recently received an offer from Concentra for $1.1 per share + a CVR. The offer was rejected. Concentra recently disclosed a ~10% stake in Kezar. Seems like fireworks just started.

• Paltalk (PALT US). We like situations with a lot of moving assets. Paltalk has ~50% of its market cap in net cash (October 16), is divesting pretty much all its current operating assets and has a deal with NewtekOne to acquire its tech and consulting services operations. Oh, and there's also payment from a lawsuit coming up. Bottom line, a lot of moving parts. These situations tend to be wrongly reflected by the market until its all cleared.

• JFrog (FROG US). Bloomberg reported that the company attracting takeover interest. Interesting time for this rapidly growing, cash flow generating company with a very large net cash balance. Operating earnings are finally on the verge of inflecting. Lots of potential given >80% GMs. Does not screen cheap, but growth should remain strong.

• Gerresheimer (GXI Germany). Activists are circling Gerresheimer, with Eminence Capital building a ~5.4% stake in the company. The news comes after a big downgrade (and share price reaction). This happens every now and then at dear old 'we will increase return on capital' Gerresheimer. While Eminence has not said much, the company stated that it has been in ongoing dialogue with Eminence since June.

• Kinaxis (KXS US). The pressure is increasing with multiple activists reiterating the message that the company should explore a sale. Daventry Group recently noted that there's 'significantly inbound interest' in the company. Kinaxis is a rapidly growing, cash flow generating company. Share price has gone nowhere for several years.

• 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.

  UPDATE (October 21, 2024) Frasers increased its offer to 150p (~18% spread vs last price - October 18). Mulberry is 'working with advisers to consider the latest proposal'.

• Ocean Wilson (OCN UK). Investment holdco trading at a significant discount to NAV. Announced strategic review of Wilson Sons ($PORT3) which might unlock value. Strong upside in case of liquidation. UPDATE (April 8, 2024) Strategic review ongoing but company expects it to be completed in 2024. UPDATE (September 2, 2024) The company confirmed that it is in talks to sell its 57% stake in Wilson Sons to I Squared.

  UPDATE (October 21, 2024) Ocean is selling its stake in Wilson Sons for $768m (roughly $600m after taxes and transaction costs). This is on a $700m market cap and $1bn enterprise value (Oct 21).

• Westaim (WED Canada). Very interesting looking trade with a great risk / reward. Pro-forma the full sale of their Skyward (SKWD) position Westaim will have ~90% of their market cap in net cash. Management intends to decrease the discount to NAV (C$ BV 5.44 vs C$ 4.00 stock price (May 17)). Company has a history of paying out excess cash. UPDATE (September 23, 2024) Westaim completed the sale of its remaining interest in Skyward, adding US$ 79m to the balance sheet. This remains a very compelling case with a strongly protected downside given the massive cash balance, and its Arena investment which is starting to show growth.

  UPDATE (October 21, 2024) Westaim made quite the significant transformational announcements (too long to discuss), incl. a $250m investment from CC Cap at CAD 4.75 p/s and a $100m buyback at CAD 5.00-5.25 per share.

• Calumet (CLMT US). Calumet is preparing to spin its MR unit, targeting > CLMT's current EV. Management recently dedicated a slide to what they believe is an intrinsic value range for Calumet’s equity, $31-56 p/s. UPDATE (July 1, 2024) Transition to C-Corporation in July should provide some boost (increase the investor base) and pave the way for further action (like the long-awaited spin). UPDATE (July 15, 2024) Transition to C-Corp concluded. Focus is back on operational catalysts. Is something now (finally) going to happen at Calumet?

  UPDATE (October 21, 2024) The DOE loan is (finally) there. $1.44bn. Despite the recent share price moves, this should open up much more growth. CLMT remains interesting; we suggest to do the math.

• GAN (GAN US). GAN announced the CFIUS clearance for the SEGA deal. Quite a large spread still (>30%). Closing expected late 2024 or early 2025.

  UPDATE (October 21, 2024) Announced merger approval. Spread still ~8%.

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