ToffCap's Monday Monitor #37

Event-driven trades and special situations

ToffCap’s Monday Monitor is our regular overview of interesting event-driven trades and special situations.

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. 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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This week’s additions and highlights

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1. SPIN-OFFS

• 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.

  UPDATE (December 2, 2024) Select Medical (SEM) completed the spin of Concentra.

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2. STRATEGIC ALTERNATIVES & REVIEWS

(Potential take-outs, asset sales, M&A, etc.)

• Kronos Bio (KRON US). Net cash, negative ev, busted biotech Kronos is in the 'strategic review phase'. The company recently announced a new CEO and the reduction of the workforce by >80% (a standard step as the company is looking to liquidate / sell itself). As of Q3 24, Kronos had c. $100m net cash on the b/s.

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3. NOTICEABLE LARGE BUYBACKS

• Autodesk (ADSK US). We generally don't tend to flag very large cap companies, but we would like to highlight Autodesk. This is a very high quality company with defensive characteristics and plenty of growth left. Multi-year tailwinds, healthy recurring revenues, high margins and relatively asset light with strong cash flow generation, we think that ADSK's share price could continue its growth path for an extended period. The company recently announced a $5bn buyback, c. 8% of s/o.

• Atkore (ATKR US). Atkore recently announced a $500m buyback, c. 15% of the current market cap (Nov. 29). Atkore has been a true cannibal over the past years and seems to have no intention of stopping.

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4. INTERESTING INSIDER PURCHASES

• SmartRent (SMRT US). Shareholder Land & Buildings Investment Management is pushing SMRT to explore a sale of the company. L&B believes that SMRT could fetch up to >100% premium. Though growth has decelerated, SMRT is still growing quite nicely and appears to have reached earnings and cash flow break-even. SMRT has c. 40% of its market cap in net cash (May 21).

  UPDATE (December 2, 2024) Very strong insider purchases. We've seen very little of this in the past, but insiders have now been quite active since September.

• Shoals Technologies (SHLS US). We highlight renewable energy equipment company Shoals. Shoals has been suffering from project pushbacks, and its share price has been decimated (also as the green energy hype of the past years dissipated). Nonetheless, the company has been steadily growing operating earnings, and more recently more decent cash flow. Shoals focused on deleveraging, repaying ~$100m over the past few years. The company is trading at ~10x ev/ebitda on FY24e; if end-markets stabilise and growth accelerates, this does not look demanding at all, for what could be >30% ebitda growth p.a. for quite some years.

  UPDATE (December 2, 2024) The CEO and CFO bought shares for the first time in quite some time.

• Ventyx (VTYX US). Very large open market purchases by insiders in this net cash, negative ev busted biotech. To note that Ventyx is still expecting some trial results in 2025.

• Azenta (AZTA US). Very large purchases by insiders on the open market. Also notable that these were the first in quite some time. Azenta is a profitable and cash generating Life Sciences company with a very strong balance sheet (~21% of the current market cap - Nov. 29). Growth slowed down over the past few years but is projected to return next year, with strong operating leverage.

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5. NOTABLE 'RUMORS' AND REPORTED INTEREST

• Vistry (VTY UK). Rumors about Vistry attracting interest from PE (source: X). We would not be surprised; Vistry is one of those cases where you either believe in their transformation, or not. But for those that do (and there are plenty), the current share price is an absolute steal.

• Hasbro (HAS US). In a move that reminder us of the Twitter-case a few years back, Elon Musk recently asked 'How much is Hasbro?' on X. Musk to buy Hasbro?

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6. M&A / MERGER ARB

• Markforged (MKFG US). We note the upcoming EGM which will be held on December 5. Markforged is to be acquired by Nano Dimension for $69m. The transaction is expected to close early Q1 25. Spread still is +25%.

• Berry Global (BERY US). Berry, to be acquired by Amcor (AMCR), will sell its Specialty Tapes operations for roughly $540m. We appreciate it when confirmed deal targets still shed some assets as it often increases the attractiveness of the target and the possibility of the deal being closed. The spread is c. 6.7% with the transaction expected to close by H1 25.

• 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.

  UPDATE (December 2, 2024) Bloomberg reported that Brookfield abandoned plans to acquire Grifols over disagreements with the Spanish company’s board on valuation. Grifols also stated that the Family won’t back another bid by a third party to take Grifols private. The company also stated that it is in talks to refinance its debt. The shares are down ~20% since (Dec. 2).

• 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.

  UPDATE (December 2, 2024) Lifeway expanded on the reasons for rejecting the deal, basically reiterating the message that the offer was too low. We agree, given the healthy b/s and strong growth path ahead for this company. Interestingly, the board added that ' it is not, however, opposed to the sale of the company at any price' . In other words, Danone needs to pay up.

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7. ACTIVIST ACTION

• Healthcare Realty (HR US). Starboard Value recently acquired a ~6% stake mentioning the company to be undervalued and providing an interesting investment opportunity.

• Medical Facilities (DR Canada). In a recent letter to the board, shareholder Converium Capital noted that Medical Facilities remains 'meaningfully undervalued' at ~6x ev/ebitda (after NCI) compared to the recent sale of Black Hills at over 9x. Converium urges DR to 'continue aggressively repurchasing shares', which will ' likely result in a meaningfully higher share price'.

• Sleep Number (SNBR US). ~11% owner Stadium Capital (activist) is buying a LOT of shares recently. Interesting action to keep an eye on.

  UPDATE (December 2, 2024) Now that Stadium has its position, they’ve started to become more vocal. Stadium is ao seeking new board directors and a chairman. Seems like the action is just getting started.

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8. INTERESTING SITUATIONS

…but not exactly event-driven or special sit

• Kingsgate (KCN Australia). Kingsgate has (almost) completed its operational turnaround. The company started its mining operations which, backed by a very strong gold price, could pave the way to some significant cash flow generation over the next few years. To note that KCN already generated $130m revenues in FY23, up from zero in FY21. The market is clearly not yet buying this reset, and that's the opportunity. KCN is also assessing a potential separate listing of its Nueva Esperanza project (Chile).

• Kelly Services (KELYA US). We want to flag this one as the shares recently dropped >30% on pretty poor results. Kelly is a staffing company, and as such very cyclical. One can make good returns watching these drops. Also to note is a bit of insider acquisitions recently.

• Bpost (BPOST Belgium). We note the completely hammered share price of bpost, Belgium's postal operator. There's a ton going on here, with a relatively new mgt team, new national framework for delivery of newspapers and the (very large) acquisition of 3rd party logistics provider Staci. All this, incl. the previous' issues at the managerial level, have smashed the share price. UPDATE (August 19, 2024) bpost recently closed its transformative acquisition of Staci. To note that >50% of operating earnings are from 3rd party logistics services - and these earnings are currently cyclically depressed. Extremely large SOTP potential IF able to unlock.

  UPDATE (December 2, 2024) We note the rapidly bleeding share price. This is a company which has clearly been deemed uninvestable for the time being, and this could create interesting opportunities. We're not saying now is the right time (we like to see the shares creating a base) but keep in mind there's a price for everything.

• Thunderbird Entertainment (TBRD Canada). Large shareholder pushing TBRD to review strategic alternatives; buybacks and/or liquidity event. UPDATE (April 22, 2024) Voss Capital (c. 17% owner at April 4) continues to acquire shares in the open market.

  UPDATE (December 2, 2024) We note that the shares have been trending down over the past year (c. -17%) despite fundamentals continuing to move in the right direction. TBDR now has a strong net cash position (~16% of its market cap) and ebitda is growing towards c. $19m this year with further growth expected. The shares are now trading at <4x ev/ebitda for what could be >10% ebitda growth pa over the medium-term.

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9. MISCELLANEOUS

(Asset sales, out-of-bankruptcies, IPOs, up- and delistings, etc.)

• Lanxess (LXS Germany). Lanxess is (another) European chemicals producer that has been experiencing a tough time, with the subsequent share price erosion. But contrary to many of its peers, Lanxess now seems to be coming out of the trough operationally. Years of (M&A driven) transformation are now close to an end, with the company's auto exposure now drastically reduced (now only 10%). The focus will be more towards 'specialty' chems which should drive the ebitda margin >15% from ~9% today. A return to topline growth, margin expansion, cash flow generation and asset disposals are expected to bring leverage <2x by FY25. A reminder that cyclicals are to be bought when things are not going well. Lastly, today Einhorn reported a c 5% stake in the company.

• Amplify Energy (AMPY US). Oil & Gas company trading at ~4x ev/ebitda on FY24e. The shares are not moving despite major catalysts unlocking (a few remain to be unlocked over the next months), ao the results of Beta wells drilling which have been impressive. Cash flow is expected to grow significantly after FY25. The company also noted that 'low leverage, increased Beta production & operational optimization initiatives provide additional strategic optionality to enhance shareholder value and accelerate evaluation of capital return programs'. In short: cheap on current assets + we get strong Beta assets for free.

• Playa Hotels & Resorts (PLYA US). Playa owns resorts in Jamaica, Mexico and the Dominican Republic. Management has regularly stated that it considers its portfolio severely undervalued by the markets compared to peers and has been focussing on reducing the discount, mostly with disposals of lower quality assets and share buybacks. We can expect this to continue, and perhaps even result in a full sale of the company.

• Ipsos (IPS France). Bloomberg reported that market research company Ipsos is in talks to acquire Kantar Media. This would be a very large (~$1.3bn for $120m ebitda) and potentially transformative acquisition. Ipsos is a highly profitable and cash flow generative company, but has seen growth slow down significantly over the past few years, with the shares basically flat over the past three years.

• Gannett (GCI US). We highlight the interesting case of Gannett, which is slowly and steadily showing the results of its transformation to a digital media company. The company recently reiterated that it expects the revenue contribution from digital sales to inflect >50% next year. This inflection should bring the company back to growth, along with (strong) multiple expansion (currently c. 6x ev/ebitda on FY25e). An added kicker is the anti-trust case against Alphabet, which could bring in $0.5-1.0bn.

• Stellantis (STLA US). Stellantis CEO Tavares to step down immediately given a clear strategy dispute between him and the board. The shares are down c. 8% on the news. Like many auto markets, Stellantis is suffering from weak end-markets and a lack of strategic focus, with a strong share pressure as a results. This is very profitable and cash flow generating company; the current headwinds could create interesting entry-points for investors with a LT horizon.

• Vroom (VRMMQ US). Vroom recently filed for Ch 11 as was recently delisted to the OTC market. Might be interesting to keep an eye on eventual restructurings.

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December 2, 2024 Toffcap Monday Monitor #37

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