ToffCap's Monday Monitor #36
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.
Important notice. We would like to publish the TMM on a weekly basis, but we need a more critical mass. If you value this service, please like and hit the “share” button below. Thank you.
This week’s additions, highlights and updates of event-driven trades
SPIN-OFFS
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).
UPDATE (November 25, 2024) We note the upcoming shareholder vote re the spin of Havas, Canal+ and LH (Dec .9), with trading expected around Dec. 16.
STRATEGIC ALTERNATIVES & REVIEWS
(potential take-outs, asset sales, M&A, etc.)
Rubis (RUI France). French fuel distributor Rubis is exploring options including a potential sale. Shares have been strongly pressured over the past years. Good earnings growth and profitability (partly due to m&a).
IQE (IQE UK). Will perform a strategic review. Options include a full sale.
Golden Entertainment (GDEN US). Golden Entertainment said it is considering strategic alternatives for its business, including a sale-leaseback of The Strat, its Strip-area property, and even the potential of a corporate merger.
Aclaris (ACRS US). Aclaris is another one (i.c. net-cash busted biotech, -45% workforce reduction, 'evaluating strategic alternatives'). Guesstimating (mainly assumptions for cash burn going forward and value NOLs), we can see a bear-bull case of $1-3 per share here, or -20% to +140%. UPDATE (July 15, 2024) We note the VERY strong acceleration of open market purchases by BML Investment Partners (Leonard Braden) in recent weeks. Like, a LOT. Will not take long. UPDATE (August 19, 2024) Aclaris announced a few asset sales, and BML continues its open market purchase spree.
UPDATE (November 25, 2024) ACRS continues to make big moves, with the latest on the drug developer agreeing to license two immunology assets from Biosion. Aclaris also sold 35.6m shares in a private placement at $2.25. It is important to keep in mind that at ~$1.2, ACRS was trading at classic biotech liquidation levels - nothing more was prices in. Now the market is just starting to price in all the news, and doing the works has a good chance of providing an edge.
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'.
UPDATE (November 25, 2024) Now that Frasers withdrew the offer, Mulberry is doing a strategic review, with the aim of cutting costs and rightsizing the business. Perhaps making it a bit more efficient and then giving it another go in a sales process?
NOTICEABLE LARGE BUYBACKS
TreeHouse Foods (THS US). THS renewed its buyback, $400m - roughly ~22% of the market cap (Nov. 22). The company has been buying back shares each quarter since Q3 23.
Global Life (GL US). This insurer recently announced a $1.8bn buyback. GL has been a cannibal for quite some years, but recently increased the pace of buybacks.
Chegg (CHGG US). Chegg recently approved a $300m buyback, which is more than the current market cap. While topline growth is suffering, Chegg expects to continue to generate healthy cash flow. The pressure + BB + some debt could create interesting dynamics.
INTERESTING INSIDER PURCHASES
GrowGeneration (GRWG US). GrowGeneration is exploring strategic opportunities for its benching, racking, and storage business, MMI. Screens like an interesting play given (under the radar) ramp of distribution and e-commerce business. UPDATE (August 19, 2024) Insiders have recently been buying in the open market, which doesn't happen very often. GrowGeneration recently unveiled a restructuring plan to cut $12m costs.
UPDATE (November 25, 2024) More buying in the open market by the CEO and President. Again, this has not happened often in the past.
OneWater Marine (ONEW US). A flurry of insider purchases in August after a long period with little activity. OneWater is experiencing some market headwinds, but insiders seem confident this will not last.
UPDATE (November 25, 2024) Insiders (ao the CEO) are back at it again, in size. Something's cookin'…
Dexterra (DXT US). Always good to see insiders buying in the open market as the share price moves up, particularly after the price has gone nowhere for several years. Dexterra has been showing consistent growth in revenues and earnings. Now trading at ~5x ev/ebitda on FY24e.
SolarEdge (SEDG US). We note the strong insider buying at this renewable energy equipment company. The share price has been an absolute disaster, and insiders had many timely sells. But we note that insiders stopped selling since June '23 (which was more or less the top) and have been buying since.
NOTABLE 'RUMORS' AND REPORTED INTEREST
RCS MediaGroup (RCS Italy). Newspaper publisher, owning (ao) the big brands of Gazzetta dello Sport and Corriere della Sera. Cheap and cash flow generative, with solid transition to digital. RCS was recently reported to spin off its sports division (ao Gazzetta dello Sport, Giro d'Italia). Roughly 4x ev/ebitda.
Bakkt (BKKT US). Trump Media (DJT) was reported to be in talks to acquire crypto trading platform Bakkt (BKKT). While the shares jumped ~150% on the news, Bakkt is a very rapidly growing but busted SPAC. While not cash flow positive yet, LTM revenues grew >200% yoy to almost $2bn, compared to an EV of $440m (Nov. 22).
Veradigm (MDRX US). Strongly pressured stock price. Growth has been declining but stability looks ahead. Strong share price potential if Veradigm can indeed get back to growth (and uplist again). Good cash flow generation.
UPDATE (November 25, 2024) A consortium of companies (ao Oracle and Thoma Bravo) are said to be among the final firms in talks to acquire Veradigm. The company is still trading at <6x ev/ebitda on FY24e.
Compass Minerals (CMP US). After the horrible share price performance, 17% shareholder Koch Industries filed a 13D and 'intends to discuss operational and strategic matters… including strategic alternatives'. Koch to take CMP private?
UPDATE (November 25, 2024) CMP has been reported to be in advanced discussions with several firms for a potential sale. A deal could be announced over the next few weeks.
M&A / MERGER ARB
Piedmont Lithium (PLL US). Lithium producer Piedmont and Sayone Mining (ASX) intend to merge with Sayona resulting in the ultimate parent. Lots of moving parts here, ao with raises and placements expected before and after the deal. Plus, fundamentals are now weakish in the lithium market. All this might create interesting opportunities if your LT bullish on lithium.
Grifols (GRF Spain). Founding family and asset manager Brookfield (BAM) 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.
UPDATE (November 25, 2024) BAM made a non-binding offer to acquire Grifols for €10.5 per A share and €7.62 per B share. The company rejected the offer, mentioning it would undervalue the company. Clearly not the last piece of action.
Lifeway Foods (LWAY US). Lifeway rejected a (revised) proposal made by Danone to acquire the company for $27.00 per share as it would 'substantially undervalue' the company. LWAY is a net cash, rapidly growing and profitable company; the proposal implies ~15x FY24e ev/ebitda, for what could be >20% ebitda growth pa over the medium term. To note that two major shareholders from the big family (~30%) are pushing the board to 'evaluate and negotiate a transaction' with Danone.
INTERESTING SITUATIONS
…but not exactly event-driven or special sit
WonderFi (WNDR). We reiterate this interesting little company. WonderFi is a regulated crypto trading platform, (finally) starting to show some serious revenue growth. Might be interesting to keep assessed as crypto moons once again. The company has been reporting sharp spikes across trading volume and revenue, transacting user count and weekly signups. Easy to track performance. Also, the company has a buyback in place and we have seen some decent insider purchases over the past few months.
InPost (INPST Netherlands). Advent (PE) sold another stake (5%) to PPF. PPF now owns ~22%, with option for the another 10%. Shares have reacted positively (again) as 'shareholder overhang' is reduced. UPDATE (April 22, 2024) Advent sold another stake to PPF. PPF now owns c. 29% of InPost shares. UPDATE (September 23, 2024) Advent continues to sell down its stake in InPost; now ~10% remaining. This comes on the back of yet another quarter of very strong growth. All seems to move in the right direction for this company, with continued strong growth ahead.
UPDATE (November 25, 2024) Although clearly announced, InPost introduced its new cross-border services. This initiative will add another significant revenue stream, not at all reflected in the current the valuation.
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).
UPDATE (November 25, 2024) Clearwater recently completed the deal. CLW already utilised c. $850m of the net proceeds to pay down debt and now $275m (4.75% '28 notes) is left. What remains is a healthy (though cyclical) company trading at ~mid-single digit ev/ebitda. The company is targeting 13-14% ebitda margins (across the cycle) and 40-50% FCF conversion.
MISCELLANEOUS
(asset sales, out-of-bankruptcy, IPOs, uplistings, activist action, etc.)
DCC (DCC UK). Our friend Conor (@ValueSituations) shared this interesting SOTP case. DCC is a UK-listed (FTSE 100) conglomerate break-up event situation. Long-regarded as a high-quality, serial-acquirer/compounder name, DCC’s share price has stalled in recent years as investors lost interest in the stock amid concerns around the prospects for its Energy division and headwinds impacting its smaller Healthcare and Technology businesses. However, last Tuesday management surprised the market with the news that it intends to break-up DCC’s long-standing conglomerate structure to focus on its highest-growth, highest return division, DCC Energy. The break-up has the potential to unlock significant value for shareholders; I estimate the divestments of the Healthcare and Technology divisions could raise ~£2.2bn / 41% of DCC’s entire market cap, implying the remaining DCC Energy business (which accounts for c.75% of DCC’s operating profits) is valued at just 6.8x EBITDA (a near trough multiple for the stock and compares to DCC’s historic average multiple of 11.8x), which just seems too low for a c. 19% ROIC, c. 10% earnings growth business with strong FCF generation (~7.5% FCFE yield). Management have stated that surplus cash from the break-up will be returned to shareholders, with the RemainCo well positioned for a market re-rating as a simplified energy-growth story, supported by energy security and energy transition tailwinds. I estimate the stock offers 95% upside from here vs. -12% downside, implying a highly asymmetric risk/return profile.
Mansei (7565 Japan). Mansei recently bought back 29% of its stock, and the share price did not move much. Solidly profitable, consistent cash flow generator. Massive cash balance left.
Just Eat Takeaway.com (TKWY Netherlands). Sold Grubhub for $650m EV, the weak asset in the portfolio with declining order trends. TWKY continues to shrink into a better company (after a horrible few years). The company will have a much cleaner b/s going forward.
Datagroup (D6H Germany). Datagroup recently adopted 'a comprehensive package of measures to increase shareholder value'. This included a buyback of up to ~10% of the share capital and a potential spin-off of subsidiary Almato AG. Instead of the previous year’s dividend of €12.5m, up to €34.4m will be returned directly to shareholders through the share buyback. Datagroup is trading at roughly 6x FY24e ev/ebitda and has pretty decent FCF generation.
Harmonic (HLIT US). Harmonic is being pressured by Ancora (from Forward Air fame) to pursue strategic alternatives, i.c. explore a sale. Ancora believes that Harmonic could fetch $20 per share in a sale. This compares to a current share price of ~$12 (Nov. 22).
Henry Schein (HSIC US). Activist Ananym Capital has been pressuring HSIC to ao make board changes, cut costs, explore asset sakes (medical distribution segment).
YouGov (YOU UK). Gatecore Capital is pushing YouGove to sell itself. The activist believe the company could fetch a >50% premium.
Evotec (EVT Germany). Bloomberg reports that Evotec hired defense advisers as various PE firms have been targeting the company. We are not at all surprised. Like many companies in this sector, Evotec's suffering from bad end-market demand. This is a cyclical industry, the market will return at some point but these are the moments when sharks start (or better, should be) circling.
UPDATE (November 25, 2024) Evotec received an offer from Halozyme (HALO) for EUR 2bn in cash. On Nov. 22, Halozyme withdrew its proposal. Evotec's share price dropped quite a bit (to note that HALO dropped >20% on the news of the deal; might be interesting to look at HALO as well). But recently, Triton Partners increased its stake and now owns ~10%, rumored to be considering acquiring a take-out.
Vopak (VPK Netherlands). Aegis Vopak Terminals filed for a $415m IPO in India. The company will use the funds to repay debts and capex.
Download this week’s TMM
If you value this service, please like and hit the “share” button below. Thank you.