ToffCap's Monday Monitor #35
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
Magnera (Glatfelter) (MAGN US). Lots of action at GLT and Berry Global (BERY) given spin + assets movements. UPDATE (September 23, 2024) Important upcoming shareholder meeting (October 23) which should pave the way for the GLT-BERY transactions.
UPDATE (November 11, 2024) The deal is FINALLY completed. There has been some significant selling pressure on Magnera stock. This looks like an interesting opportunity to add at ~5.5x ev/ebitda for what should be trading at high single digit multiples in our view.
Nixxy (NIXX US). A weird one. Keep in mind the current market cap ($36m, Nov. 8). Nixxy will be spinning of Atlantic Energy Solutions (AESO) in January 2025. But the interesting part is that Nixxy intends to go on an acquisition spree, aiming to acquire companies with revenues of $10-100m and GP margins of >40%. It also targets an enterprise value of >$1bn over the next three years.
Vivendi (VIV France). Trying (again) to figure out ways to reduce the conglomerate discount. Now exploring a split of the company into several entities (Havas, Canal+ and an InvestCo). UPDATE: Recently provided an update on its spin project. So far Vivendi seems serious about the plans (and share price is reacting). UPDATE (July 15, 2024) Vivendi is said to be working on listing Canal+ in London. Target is IPO by year-end. This is yet another (good) step towards unlocking the significant SOTP value.
UPDATE (November 11, 2024) We flag the upcoming shareholder vote for the spin-off(s) on Dec 9 (Havas, Canal+, Louis Hachette), and the publication of the information document. Share price down ~10% over the past few days (Nov. 11).
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 Switserland. 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.
UPDATE (November 11, 2024) Sunrise (SNREV) now trading. Classic pre-coverage period. CHF 240m dividend targeted by H1 25.
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.
UPDATE (November 11, 2024) Spin Everus (ECG) now trading. Very strong performance after spin.
International Money Express (IMXI US). IMXI recently announced that it will start the process of reviewing strategic alternatives (i.c. will look to go private). While the shares were up ~12% on the news, they are basically back at the levels of a few months ago given the large correction in August. We think there's a good chance IMXI will be taken out. This is a steady growing, very profitable company trading at ~9x p/e on FY24e for what could be at least ~10% earnings growth p.a. in this very high returns business. To note that activist Voss Capital owns ~6%.
ESSA Pharma (EPIX US). Busted net cash, negative EV biotech exploring strategic reviews. While the upside doesn't seem much (20-30%) this one looks interesting because its fairly 'clean'.
Athira Pharma (ATHA US). As we know quite a few of your like busted, net cash, negative EV biotechs exploring strategic alternatives, we also present Athira with its $92m in net cash (at Q3).
Etsy (ETSY US). Buyback machine Etsy announced a new $1bn buyback program, ~17% of the current market cap (November 8). The shares have been on a downtrends since the 2021 hype. Etsy is now trading at <10x ev/ebitda on FY24e, while generating globs of cash. At some point something has to give.
Clearwater Paper (CLW US). Clearwater recently announced a $100m buyback, roughly 22% of the current market cap (November 8). While at first sight one might not jump from excitement on this one, Clearwater recently sold its tissue business for over $1bn. The deal should close before year end and will drastically change the financial profile (ao vastly reduce the debt).
Sleep Number (SNBR US). ~11% owner Stadium Capital (activist) is buying a LOT of shares recently. Interesting action to keep an eye on.
Cadiz (CDZI US). Another one where large owners are stepping up big time. Heerema International (~34%) bought over 2m shares recently. Cadiz was a pre-revenue company until a short time ago and recently started ramping up revenues.
Columbus McKinnon (CMCO US). Very large recent open market purchases (~$1m) by the CEO in this interesting stalwart.
Chorus Aviation (CHR Canada). We note the relatively large recent open market purchases by insiders. We always pay attention when insiders buy when the share price is actually doing pretty well and insider purchases are not very frequent.
Zegona Communications (ZEG UK). Zegona acquired Vodafone Spain and intends to turn it around, do a sale and leaseback and pay a (large) dividend. Interesting as many moving parts, relatively illiquid and you can be sure of volatility. Fwiw, the two analysts covering it are look for ~90% upside. H/t @tacoenthusiast2 for the idea.
UPDATE (November 11, 2024) We're rehashing this old TMM highlight as its starting to get some deserved attention, and there's still multi-bagger potential left. The monetization of Vodafone Spain assets has already started with the announcement of two deals. Not sure how much Zegona can raise, but it will help a lot with reducing debt. Also, there's a ton of potential in the turnaround of the poorly managed Vodafone Spain, led by Zegona management with a strong track record. You can play around with the numbers, but the opportunity remains compelling with multi-bagger upside in a bull case and relatively protected downside given a strong asset base. @tacoenthusiast2 also noted that the NetCo transactions will enable a 1.50 spec div which redeems the Pref, basically buying back ~75% of equity.
Cab Payments (CAPB UK). We note the recent busted deal with StoneX. Cab is now trading at c. 6.5x pe on FY24e for what could be a return to strong growth after a tough year.
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.
UPDATE (November 11, 2024) There is a clear acceleration of news lately, with another LOI signed by the company and more importantly the conclusion of the Social Impact Assessment. This was an important step. We expect soon (positive) news on the granting of the exploitation licence. In the meantime, the CEO continues to massively add in the open market. He also recently posted on X that 'more will come' (re good news).
PostNL (PNL Netherlands). The long time CEO (finally) left the company. Over the 12 years she's been chief, PostNL's share price dropped ~50% (incl. dividends). This is a company that should not be public with a pretty (though challenged) monopolistic position, making it an interesting target in our opinion. Indeed, just a few days after the announcement we already see the first activists building stakes (Saba Capital, 3%).
Southern Bancshares (SBNC US). @eriksen_tim highlighted SBNC. Taking today's FCNCA share price (November 8) and assuming ~20% taxes rate, we would end up with SBNC's ownership of FCNCA at roughly $4,800-5,000 per SBNC share. SBNC ex-FCNCA and $575m annualised earnings would get us to 3x earnings. Very low liquidity though.
Element Solutions (ESI US). Reported to be exploring a sale. We wouldn't be surprised to see 20-30% premium on today's price given the current valuation (~15x ev/ebitda) for a company exposed to secular growth drivers.
Integral Ad Science (IAS US). Bloomberg reported that IAS received takeover interest and is exploring a potential sale. Despite the share price only going down since the (expensive) IPO, fundamentals continued to improve strongly. IAS generates a healthy amount of cash and will turn a relatively large net debt position at IPO in 2021 into a net cash position soon. Does not screen expensive at ~10x ev/ebitda on FY24e for mid-teens% ebitda growth over the medium term.
Seplat Energy (SEPL UK). Our friend Alexander Eliasson provided this very interesting set up. After a 32-month delay, Seplat Energy has finally received regulatory and ministerial approval to complete the non-dilutive acquisition of ExxonMobil's assets in Nigeria. On its own, this acquisition will nearly triple Seplat's production. Additionally, this milestone coincides with the ANOH gas plant going online—one of the largest gas plants in West Africa, which has been six years in the making. In a base case scenario, Seplat is likely to triple its profits by 2025/2026 (using 2023 as the base year). The true kicker? The accumulated profits from the 32-month delay are in a "lockbox," set to be distributed between Seplat and Exxon once the deal is finalized. While the exact sum and allocation percentages remain unknown, we do know that MPNU (the acquired asset) generated $500 million in annual profits before the acquisition. If the distribution is 50% Seplat / 50% Exxon, the acquisition of MPNU could effectively cost Seplat nothing, while tripling its profits and adding an additional 500 million barrels of oil equivalent (MMBOE) to its reserves. With a P/E ratio of 2-3x and a 15% dividend yield by 2025 (assuming the deal is finalized by year-end), the outlook is highly promising. H/t @alexeliasson for the idea.
Pioneer Power Solutions (PPSI US). Pioneer is selling its Electrical Infra business for $50m (~11x FY23 ev/ebitda), compared to a current market cap of $64m (November 8). PPSI has c. $6m net cash on the b/s. That leaves us with a very cheap residual business, which is growing pretty rapidly; yoy growth of the order book has been impressive. There is some burn given investments for growth but that should not compared to all the available cash. We flagged PPSI on X. Also @everyonehatesp1 has done some work on it
ParkerVision (PRKR US). We highlight this interesting write-up of Yaron Naymark (@1MainCapital) on ParkerVision. In his words: 'ParkerVision is a mispriced option. Its patent infringement case against Qualcomm could be worth $8+ per share (~20x the $0.42 current price). This case, discussed in more detail throughout the writeup, should go to trial in 1H’25 and last 2-3 weeks, unless a settlement is reached earlier'. Pretty liquid stock despite the small size.
WillScot (WSC US). Activist TOMS Capital has built a stake in the company, pushing the company to initiate a strategic review.
Concentra (CON US). Owner Select Medical (SEM) approved the distribution of its Concentra stake (~82%) to shareholders. While Concentra is not much smaller, given the different operations and the size of the distribution we might see some selling pressure. Concentra is down ~16% since its listing in the summer. Not your exciting high growth company, but decent asset base with solid cash flow generation at <9x ev/ebitda on FY24e for high-teens / low DD% ebitda growth pa. Might make a good trade.
Rapid7 (RPD US). Another interesting company with inflecting operating earnings and takeover interest. There has already been interest in Rapid7 some years ago. Now activists (Java Partners) are reported to be pushing for a sale. Not surprising as the share price is ~30% lower over the past 5 years but cash flow generation seems to be ramping.
UPDATE (November 11, 2024) Reuters reporting that Rapid7 is in early-stage talks with private equity firms including Advent, Bain Capital and EQT regarding a potential sale. Company hired investment bankers.
Revance Therapeutics (RVNC US). The Crown/Revance deal spread blew out to 80% (give or take) after a 'going concern' disclosure at the recent result filing. This deal has been pretty dynamic to say the least, but it might be a good time to look at Revance; this biotech has strongly ramping revenues with >70% GPs and will soon be hitting operating profitability if it continues to grow a this pace.
Catalent (CTLT US). The acquisition by Novo is expected to be completed soon, 'expected by year end'. Deal spread still c. 7% (November 8) for what seems is just a matter of a few months.
Indivior (INDV US). Recently crashed (June 9) after slashing the FY outlook. Primary listing recently switched to US (from UK). There's a litigation overhang that is close to be over.
UPDATE (November 11, 2024) Oaktree (7.5%) pushing for changes to improve share price, ao board refresh.
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).
UPDATE (November 11, 2024) Bloomberg reported that Akzo is mulling to sell its India business at a valuation of $2.5-3.0bn.
Allovir (ALVR US). Classic example of a loser biotech. Share price <$1 means Nasdaq delisting is very likely (hence more forced selling). ALVR has $165m net cash on the b/s and recently significantly reduced opex (95% reduction of workforce) and the discontinuation of clinical development. Now the co is 'assessing strategic alternatives'. Next steps are potential reverse stock split to regain compliance, liquidation or take-over.
UPDATE (November 11, 2024) Announced a (apparently not so exciting) deal with Kalaris.
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I have always been somewhat leery of $PPSI because they are never able to file on time and have risked delisting on account of it.