ToffCap's Monday Monitor #4
ToffCap’s Monday Monitor provides a weekly snapshot of the largest changes in our watchlist. New (potentially) interesting investments and trades are regularly added to the list: companies that screen cheaply, catalyst trades and notable company results which might indicate changes in a company’s investment case. The list is dynamic; it will continue to grow and change going forward. 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 weekly basis. This overview does not constitute advice; always do your own due diligence.
Overview
I. Company watchlist
II. Catalyst trades
III. Notable company results (mostly European)
I. COMPANY WATCHLIST
Annotations for a selection of interesting companies with seemingly strong upside potential.
Additions this week:
Allfunds (ALLFG Netherlands – € 4bn). The largest B2B fund platform in Europe. Offers a menu of third-party funds from banks and/or insurance companies. It is basically a distribution platform for funds. Allfunds has more distributors, fund managers and assets-under-administration on its platform than any of its competitors. Very young market (~10-15% market share for fund platforms), growing rapidly. Efficient, highly scalable model, >60% ebitda margin in a few years. Strong FCF generation. Screens cheap + benefits from rising ECB rates.
eDreams Odigeo (EDR Spain – € 650m). One of Europe’s largest OTA. Currently transitioning from transactional to subscription business model with its PRIME loyalty program. Should lead to higher margins, visibility and resilience. Trough seems to have been reached, and key metrics should continue to improve. Stock cheap due to skepticism of model change + company using non-standard financials metrics. Could 3-5x in a few years if successful.
Brunswick (BC US – $ 5.4bn). Cool boats (and parts). Outboard engines continue to gain market share, and Brunswick is profiting from this trend. Vertically integrated. Duopoly with Yamaha. 7-8x p/e despite industry headwinds, strong ROICs. Many thanks to Roojoo for this idea.
DSM-Firminich (DSFIR Netherlands – € 30bn). Recently closed merger. Givaudan, IFF, Croda, Novozymes peer. Now one of the most integrated players, full product offering. Plenty of synergy potential over medium-term. Near-term market tailwinds from destocking, LT secular growth trends (healthy / organic foods and ingredients, sustainability, rising market complexity and regulation, etc.). 15-20% ebitda growth p.a. Decent valuation for LT compounder.
Previous additions (excl. companies no longer on the watchlist):
Star Holdings (STHO US – $ 217m). Recent spin-off out of iStar / Safehold (SAFE US) merger. Sum-of-the-parts investment case, trading at a big discount to NAV: STHO holds SAFE shares (currently valued ~$ 360m), $ 50m cash, real estate (~$ 90m book value) and land development assets (~$ 250m book value); debt is ~$ 240m. Star is not an opco; plan is to monetise the assets over the medium-term (development and asset sales).
Azelis (AZE Belgium – € 5.3bn). Very high-quality compounder, with decade+ growth potential. Inherently asset light business model, with strong return and cash flow generation. Extreme market fragmentation allows plenty of inorganic growth. Recently announced € 200m capital raise to accelerate roll-up strategy. Given sell-side laziness to model m&a, results tend to beat consensus. Shares -15% YTD due to fears of earnings normalisation. More on the market here.
Kyndryl Holdings (KD US – $ 2.7bn). Recent Greenlight Capital pitch. IT services provider. Classic ‘bad business’ spin-off (from IBM). Levered and bad contract pricing. Company seems to have good product offering; contracts to be repriced going forward, improving margins. Deep value play with improving fundamentals (margin improvement and debt repayment should drive share price rerating).
Inspecs Group (SPEC UK – GBP 124m). Eyewear and lens designer. Recovery play. Fundamentals appear to be improving. Strong vertically integrated player, trading at ~8x 2023e ev/ebitda, for 10-20% p.a. earnings growth over the medium-term. Management focus on cost reduction and continued (organic) growth.
Surgepays (SURG US – $ 86m). We recently revisited the investment case. MVNO, provides wireless internet via under ACP program. Multi-bagger potential over next few quarters if company continues to execute.
PWSweb (PFSW US – $ 93m). Cheap, busted micro-cap. Trading at 3-4x 2023e ebitda. Stock buyback + strategic review ongoing.
Talen Energy (TLN US – TBD). Nuclear energy play. Recently emerged from bankruptcy. Many interesting assets, but mostly high quality Susquehanna power plant. Out-of-bankruptcy plays tend to be good opportunities given relatively cheap listed valuations (TLN Plan EV $4.5bn - $ 2.5bn equity cap) + nuclear renaissance theme is a major tailwind.
Atlas Energy Solutions (AESI US – $ 1.7bn). Recent IPO. The only public pure play Permian in-basin proppant provider. Screens cheaply. Net cash balance sheet. Sector decimated. AESI is developing the Dune Express, a 42 mile conveyor system. System would massively drop operating costs and generate strong cash flow. Potential to be valued more like midstream company (i.c. double the multiple) + multiple upside if sentiment turns + strong FCF generation potential.
Unit Corporation (UNTC US – c. $ 300m after spec div.). Oil & Gas company. Set for strong FCF generation given good market fundamentals. Could be valued at ~2x ev/ebitda 2023e and 20-30% FCF yield. Insiders own >40%. Shareholder friendly capital return policy.
Oddfjell Technology (OTL Norway – c. $ 200m). Offshore energy service provider. Relatively recent listing. Strong sector tailwinds providing plenty of runway. Cheap (relative) valuation. More info Alexander Eliasson (@alexeliasson).
FitLife Brands (FTLF US – $ 77m). Good progress on ecommerce transition. Acquisition of Mimi’s Rock at attractive valuation. Potentially transformative. Management aligned. Trading at <7x FCF 2023e for >20% growth of ecommerce channel.
II. CATALYST TRADES
Event-driven.
Additions this week:
Lifecore Biomedical (LFCR US). Involved in potential buy-out. Demand for similar CDMO assets is high. Large shareholders pushing for sale. Potentially 75-100% upside.
Hurricane Energy (HUR UK). Received buy-out offer (a.o.) from Prax for total consideration up to 12.5p/share. Current share price 7.8p, mainly due to complex pay-out.
NFT Investments (NFT UK). The company has disclosed plans for a tender offer to be executed in ~12 months. Screens large discount to NAV.
Solvay (SOLB Belgium). Will split in EssentialCo (commodity products) and SpecialtyCo (specialty chemicals). Split to be effective in December, more info end of June / early July.
Cummings (CMI US). Spin-off Atmus Filtration expected share price range $ 18-21. Spin will trade under ATMU. UPDATE: ATMU now trading. Looks like decent valuation for what should be steady FCF generating business.
Cineworld (CINE UK). To emerge from bankruptcy in July.
Lionsgate (LFG US). Spin-off of the movie / TV studio business estimated in September.
Starbreeze (STARA Sweden). Rights subscription running until June 15.
Previous additions:
Aston Margin Lagonda (AML UK). Geely increased stake in AML, fueling speculation regarding a potential takeover.
RCS Mediagroup (RCS Italy). Received buyback approval. RCS is one of our favorite long-term holdings.
Abacus Property Group (ABP Australia). Will spin-off its self-storage assets. Listing probably in August.
Imerys (NK France). Drilling results of Cornwall mine expected in the summer. Strong rerating potential on good results.
Talen Energy (TLN US). Nuclear energy play. Recently emerged from bankruptcy on 17 May. Great tailwinds.
NCR Corp (NCR US). Spin-off of ATM-related business in Oct. 2023. Potential large SOTP value unlock.
Applus Services (APPS Spain). Three PE players as well as activists circling the company.
PFSweb (PFSW US). Strategic review ongoing. To be completed in 2023.
Merrimack Pharmaceuticals (MACK US). To receive $ 225m (vs. market cap. of ~$ 180m) from Ipsen after FDA approval for Onivyde (within 12 months). Cash to be returned to shareholders via special dividends.
MDU Resources (MDU US). Will spin Knife River into a stand-alone construction materials provider. Spin approved; distribution date set for 05/31.
Metals Acquisition Corp (MTAL US). Registration statement finally approved. Vote on 06/05. New copper mine to trade in the public markets; great LT copper tailwinds.
Cia Brasileira de Distribuicao (CBS US). Spin-off with remainco trading at negative value. Great write-up from Clark Square Capital.
Crane (CR US). Spin-off.
Liquida Technologies (LQDA US). Patent litigation. Write-up.
III. NOTABLE COMPANY RESULTS (mostly European)
A selection of comments of company results, potentially indicating a notable change in a company’s investment thesis and / or a dislocation of the share price compared to fundamentals.
Additions this week:
eDreams. Good results. All metrics moving in the right direction. Strong growth in booking.
Allegro. Good Q1, soft outlook for Q2. Market headwinds + higher costs from Mall 1P/3P conversion.
CTS Eventim. Another good quarter. Clearly back to recovery + further growth.
Compagnie des Alpes. Good footfall and pricing dynamics. Potential of M&A.
Previous week:
Alfen. Horrible quarter for EV Charging, impacted by destocking. Bad outlook for Q2 as well. Long-term investment case unchanged, potentially good entry opportunity.
Inpost. Another set of strong results. Overall group-positive FCF already. Should driven continued rerating of shares if co. continues to exectute.
SFC Energy. Good results; fundamentals continue to improve, mainly in North-America. Guidance seems conservative.
Cherry. Slow start of the year for both Gaming and Professional. Destocking slower and longer than expected.
Azelis. Announced € 200m capita raise to accelerate roll-up strategy. Long-term, high-quality compounder.