ToffCap's Monday Monitor #38

Interesting event-driven 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

• WH Group (288 Hong Kong). WH Group (global pork producer) shareholders approved the spin and US listing of Smithfield Foods. While Smithfield’s final price is yet to be set, WH Group said it expects to receive “no less” than its NAV of ~$5.38 billion (c. 10x p/e). Smithfield will also be streamlining its operations a bit pre-spin.

• Gentoo Media (G2M 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.

  UPDATE (December 9, 2024) The largest shareholder Mateusz Juroszek recently stated on X that he thinks that ‘at some point it will not make sense to stay public with this valuation. Great assets, top management.’

• Nixxy (NIXX US). A weird one. Keep in mind the current market cap. 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.

  UPDATE (December 9, 2024) Nixxy has withdrawn the record date for the CognoGroup spin-off, pending ao 'additional regulatory reviews' and 'optimisation of shareholder value'. The company also filed to raise 20m shares at $3.21 per share (a reminder that the share price was $2.5 a few weeks ago). The case remains interesting given all the action (and volatility).

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2. STRATEGIC ALTERNATIVES & REVIEWS

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

• Liberty Tripadvisor (LTRPA US). We note that Tripadvisor paused the buyback and is considering strategic alternatives which are focused ‘on the rationalisation of [the] capital structure’. A reminder that Liberty Tripadvisor owes Certares $325m, to be repaid by March 2025. Some complexity in a situation which clearly will bring some action. Also, Crimson continues to buy a LOT in the open market, and has recently disclosed its now at roughly 22%.

• Patterson (PDCO US). Announced that it will be reviewing strategic alternatives. While shares moved a bit after the announcement, they are just back at the level of a few months ago given the company's poor results. This one could be interesting. This NWC heavy company has been growing a lot via acquisitions in its ~GDP-growth end-markets. Just focusing on cutting costs and driving efficiencies could push FCF (much) higher even if growth stops (and there's currently little growth assumed in the valuation).

• CKX Lands (CKX US). CKX announced that it would be reviewing strategic alternatives back in August 2023. The company would be assessing a 'broad range of options' incl. a partial of full sale of the company. CKX is basically a land holdco. Since 2023 no many updates have been given, but some action at the management level might suggest that something might be imminent.

• 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.

  UPDATE (December 9, 2024) The share price recently dropped >15% as Bloomberg reported that the company plans to remain independent company. GXO also announced that the CEO will retire in 2025.

• Lightspeed Commerce (LSPD US). Lightspeed is working with bankers (JP Morgan) to conduct a strategic review of its business and operations. The company mentioned is 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, 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.

  UPDATE (December 9, 2024) Lightspeeds announced a reorganization, planning to cut 200 jobs. Shares dropped as the market might believe that the strategic review will not result in a sale. This could however just be an action to make the company more ‘pretty’.

• HilleVax (HLVX US). Massive (and we mean really massive) net cash busted biotech. Stock crashed as important trail did not meet endpoint. Could announce a strategic review, but this one is pretty early still. But nonetheless interesting to keep an eye on.

  UPDATE (December 9, 2024) Announced ao to cut ~70% of the workforce, incl. several executives. You know were this is headed.

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3. NOTICEABLE LARGE BUYBACKS

• Cabot (CBT US). Cabot recently increases its share buyback program 10m shares, c. ~18% of the current market cap.

• 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.

  UPDATE (December 9, 2024) Kelly recently announced a $50m buyback, roughly 10% of its market cap.

• Science Applications (SAIC US). Announced a whopping $1.2bn buyback, ~21% of the current market cap. While there isn't much growth in the software company, cash flow generation is very solid.

• AB Int. (ABQQ US). In the category Small, Weird but Interesting, AB recently announced that 300m shares will be bought back at a price of $0.0013 per share (roughly +18% vs today and 16% of the current market cap). Also, AB will spin its 'NFT MMM IP and AI Consulting division'.

• Movado (MOV US). Announced a $50m share buyback, c. 11% of the market cap. Movado has been struggling over the past few years, but the company continues to generate cash and has a strong net cash b/s.

• Diana Shipping (DSX US). Recently commenced a tender offer to acquire up to 15m shares, roughly 12% of s/o.

• Academy Sports (ASO US). Announced a $700m share buyback, ~20% of the current market cap.

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4. INTERESTING INSIDER PURCHASES

• DGL (DGL Australia). DGL’s CEO continues to be VERY active in the open market, recently buying up ~$1m worth of shares. We wrote this one up recently; we consider DGL to have strong secular compounder potential over the next five+ years.

• Liberty Latin America (LILA US). BIG purchases by insiders on the open market recently. The acquisitions come after the shares dropped >30% recently on poor results.

• SuRo Capital (SSSS US). SuRo is an investment company which has been insiders buying a lot of shares recently. It's always good to see insiders purchase shares even when the shares start to move up. Perhaps something's coming?

• FutureFuel (FF US). After several years of inaction, insiders have been buying quite a bit on the open market on this one. FF has been generating good cash flow in the past and has a pretty solid b/s - roughly $100m net cash (post special div) on a market cap of $200m (June14). If you believe that the dip in RINs is temporary (mgt does), than this is is very interesting to keep an eye on.

  UPDATE (December 9, 2024) More open market purchases by insiders. This time after the shares dropped ~17% on poor earnings. This remains an interesting, cash flow generative company with no coverage. Net cash is now up to c. 60% of the current market cap.

• Friedman Industries (FRD US). Quite some purchases from insiders. Interesting little company with a clean balance sheet. No coverage. Cyclical industry, which makes the insider action interesting. UPDATE (July 15, 2024) Another week, another batch of insider purchases at Friedman. UPDATE (September 23, 2024) A LOT of open market purchases by insiders recently, most notably by the CEO.

  UPDATE (December 9, 2024) Insiders continue to buy up shares in the open market over at Friedman. Again, this is a small cyclical company with no coverage; do the insiders see something that is not yet reflected in the share price? The shares have started to move.

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5. NOTABLE 'RUMORS' AND REPORTED INTEREST

• Interpublic (IPG US). The WSJ reported that Omnicom is in advanced talks to acquire IPG in a $13-14bn all-stock deal (c. 25% higher). The shares did not move a lot, which we attribute to the fact that this deal has been expected and discussed FOR AGES. But perhaps this time is different...

• Worldline (WLN France). Bloomberg reported that Worldline has been attracting takeover interest from PE firms, ao Bain Capital. The share price has been decimated over the past few years as growth completely disappeared. Notwithstanding the move on the news, WLN is trading at ~4x FY25e earnings, for solid assets and what should be resilient FCF generation.

• TuSimple (TSPH US). Steel Partners and Camac proposed to acquire TuSimple for $0.46 per share. Spread is 10%. Meanwhile TuSimple's co-founder is demanding a full liquidation of the company. The company has a ~$450m in net cash on the b/s (but is burning it very fast).

• 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.

  UPDATE (December 9, 2024) Bloomberg reported that Apollo-owned Novolex is exploring a takeover offer of Pactiv. Pactiv is a solid cash flow generating company with LT secular tailwinds, operating in a very fragmented market with plenty of m&a action. We wouldn’t be surprised to see it taken private.

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6. M&A / MERGER ARB

• Seven & I (3382 Japan). A LOT of action here given quite some offers to take the company private, with the main offers a Y9tn MBO and a Y7.1tn by Couche-Tard. The proposed MBO includes plans for an IPO of the company's NA convenience stores and gasoline stations. Could be interesting to keep assessed.

• Bigtincan (BTH Australia). Software company Bigtincan agreed to the Vector proposal over the previous IAAC spac offer. Vector will pay 22ct in cash. The spread is ~10% with the transaction expected to close in Q1 25. It's pretty clear that Bigtincan is up for sale, and downside seems mitigated by the strong interest in this company.

• 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.

  UPDATE (December 9, 2024) The EC approved the deal, which is expected to close by end of 2024. Spread shrunk to <3%.

• 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%.

  UPDATE (December 9, 2024) Shareholders voted and approved the deal with Cunningham. Spread has been narrowing but is still ~36%.

• 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%.

  UPDATE (December 9, 2024) All proposals (two, ao the deal) approved. Spread continued to widen, now +30%.

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7. ACTIVIST ACTION

• IF Bancorp (IROQ US). Stockholders approve Stilwell's non-binding proposal to promptly sell the company. Stilwell owns ~8.5% of the s/o.

• Five9 (FIVN US). Activist Anson Funds is urging the company to sell itself. Five9 shares are hovering at multi-year lows while the Street is expecting strong operating earnings inflection and cash flow generation. Based on BB estimates, the company is trading at c. 18x FY24e ev/ebitda for 30% ebitda growth pa over the medium-term.

  UPDATE (December 9, 2024) Five9 was reported to be close to a deal with Anson and other activists for a board seats. Activists have been pushing for action to increase the share price. We might finally see some structural changes.

• Kongsberg Automotive (KOA Norway). A group of shareholders representing ~17% of s/o have asked for an extraordinary general meeting, pushing for board changes. The EGM will be held on Dec. 12. Kongsberg is an interesting company currently pressured by very poor end-markets. A reminder that the time to buy cyclicals is when there's pain the markets. KOA does not screen expensive.

• HarbourVest (HVPE UK). Metage Capital has been demanding that HarbourVest changes its strategy to close the 45% discount to NAV. Proposals are ao to spend more on buybacks (quarterly tenders for 5% of the company's s/o').

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8. INTERESTING SITUATIONS

…but not exactly event-driven or special sit

• 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 esimated sum-of-the-parts. Share price also started to move, so market is liking it / catching onto the story it seems.

  UPDATE (December 9, 2024) Itafos wrapped their strategic review without recently. Itafos also announced the successful refinancing of its credit facilities, providing additional liquidity and financial flexibility. Now trading at <2x ev/ebitda on FY24e with a clean b/s and mine lifes well into 2030s.

• Eastman Kodak (KODK US). Our friend @kingdomcapadv noted that the KODK pension deal could be pretty nuts, especially coupled with their tariff win in October. The pension win will put them into significant net cash b/s position, and change in cash costs would make them FCF +.

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9. MISCELLANEOUS

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

• 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.

  UPDATE (December 9, 2024) With the share price reacting positively since the previous announcement, Datagroup is stepping up its efforts to increase shareholder value. The Board will soon decide on 'possible further measures such as another buyback offer or a return to the previous dividend policy'. Plenty to go.

• Englobal (ENGC US). Englobal was recently delisted from the Nasdaq and will trade OTC. Shares dropped >40% on the delisting; could be an interesting trade.

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December 9, 2024 Toffcap Monday Monitor #38

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