ToffCap's Monday Monitor #42
Interesting event-driven and special situations
ToffCap’s Monday Monitor is our weekly overview of interesting and carefully selected 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
1. SPIN-OFFS
FAT Brands (FAT US). FAT announced that its special stock dividend of its Twin Hospitality spin will be distributed on Jan. 29, with trading of the shares the subsequent day (ticker TWNP).
DuPont (DD US). DuPont is bringing forward the spin-off of the Electronics unit, now targeting November 1, 2025.
Titan Cement (TITC Greece). Titan is planning to list its America operations by Q1 25. Projections are floating around of €2.5-2.8bn enterprise value for Titan America (roughly 8-9x ev/ebitda). This compares to €3.3bn currently for the whole group (October 18). What remains (roughly €280-300m ebitda) is valued at low single digit multiples. Assume a higher valuation for Titan America and you get the rest of the assets for free.
UPDATE (January 20, 2025) Titan filed for its US IPO. All seems on track. Significant upside still despite the strong share price action since our flag a few months ago. We also note that the company is currently very active on the open market on its buyback.
2. STRATEGIC ALTERNATIVES & REVIEWS
(Potential take-outs, asset sales, M&A, etc.)
Ingevity (NGVT US). Ingevity announced that it will review its product lines. This is a classic move in such companies, given the large differences in end-market growth, profitability and eventual valuation between commodity chemicals and (more) specialty chemicals. Interesting timing also given that end-markets have been suffering over the past few years after a very strong 2021/2022 period. At ~9x ev/ebitda on FY24e we believe there definitely should be value to unlock by reviewing the portfolio.
Apartment Investment and Management (AIV US). AIV announced that it will be exploring options to enhance shareholder value. The company believes that the shares 'continue to trade at a meaningful discount to our estimate of private market value' and intends to close the gap. AIV already stepped up its efforts to close the gap, announcing the sale of assets for $520m in Dec. Proceeds will be returned to shareholders.
UPDATE (January 20, 2025) Land & Buildings Investment has been calling for the company to just sell itself, estimating the NAV of the remaining portfolio at $11.50 p/s.
3. NOTICEABLE LARGE BUYBACKS
Concentrix (CNXC US). Concentrix increased its buyback to $600m, ~19% of the current market cap. The share price had a pretty rough year given disappointing results. The company is guiding for increased free cash flow generation. At <5x ev/ebitda there's extremely little growth priced in for this company. Not much is needed to have this one move strongly.
Ready Capital (RC US). Recently approved a $150m share buyback, roughly 13% of the company's market cap.
4. INTERESTING INSIDER PURCHASES
STAAR Surgical (STAA US). STAAR's biggest shareholder, Broadwood Cap (~22%) has been very active in the open market lately. STAAR is an interesting company. A high quality developer and manufacturer of visual implants with ~20% of the market cap in net cash. The shares significantly derated over the past year, and the company is now trading at ~22x ev/ebitda on FY24, for what should be pretty strong ebitda growth (as in >30% cagr) over the next years given solid market growth and operating leverage.
Designer Brands (DBI US). Quite some action from the largest shareholder Stone House Cap, recently upping its stake to almost 14% in the open market. Pretty high short interest as well compared to the float (~26% of the float). Seems we could get quite some action here soon.
Tile Shop (TTSH US). If you want to see a crazy chart, check out the purchases of Fund 1 Investments in the open market at Tile. The activist continues to scoop up shares like crazy and is now at ~26%. Something's definitely going on.
VersaBank (VBNK US). Continued purchases from insiders in this small bank. 10x forward p/e for >40% growth pa over the medium term (based on Bloomberg ccs).
Dexterra (DXT Canada). 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.
UPDATE (January 20, 2025) Insiders continue to buy as the share price moves up. Always good to see this, particularly at cyclical companies like these.
5. LIQUIDATIONS
XL Media (XLM UK). Pro-forma the sale of certain sports betting & gaming assets, XLM will be trading around net cash. High potential upside if you believe that the proceeds will not be wasted on M&A and that the company will be taken out. UPDATE (October 7, 2024) H1 24 results confirmed ~$20m cash balance (net after cost) excl. another $10m received on Oct. 2 and up to $12.5m to be received in April 2025. This on a ~$34m market cap (October 4). 'An initial return of capital to shareholders is expected in Q4'. UPDATE (October 21, 2024) XLM to sell its remainco (ic North American) assets for $30m in cash, $20m upon completion (in Nov.) and another $10m payable in April. What remains is a cash shell, solely focused on the distribution of the funds. UPDATE (December 16, 2024) Proposed to undertake an initial tender of up to $20m in the New Year, representing ca half the potential total available cash after taking account of expected costs, liabilities and further receipts due from the disposals (both deferred consideration and projected earn out). Cash at the end of October was $17.7m, with gross proceeds received in November of $20m. XLM will receive $7.5m on 1 April 2025 and estimates earn-outs of $3-4, possibly up to $5m. BUT XLM estimates its costs to be $11-13. Stock down big-time (scared by relatively high costs).
UPDATE (January 20, 2025) Launching the Tender Offer for GBP 16m at a fixed price of 11.5p, ~17% higher vs the current share price. TO to expire in one month.
6. NOTABLE 'RUMORS' AND REPORTED INTEREST
Sage Therapeutics (SAGE US). Sage is a busted, net cash, negative EV biotech that recently received an offer from Biogen for $7.50p/s. A few days ago, Sage sued Biogen (its largest shareholder and partner on the Zurzuvae drug) to 'preserve our rights and enforce the standstill provision previously agreed'. It seems that Biogen wants to steal this one.
7. M&A / MERGER ARB
Henlius (2696 Hong Kong). Henlius has been selling off recently, now at HKD 19 p/s. This seems like a very interesting opportunity given a take private offer at HKD24.9. Voting will take place this week and the deal should close early Feb. Before the deal the shares were trading at ~HKD 18. Spread at +31%.
Beacon Roofing Supply (BECN US). Received an offer for $124.25 p/s from QXO, which the company rejected the offer as it would 'significantly undervalue the company'. Seems more to come.
8. ACTIVIST ACTION
Smiths Group (SMIN UK). Engine Capital is pushing for the company to explore a split-up or full sale. The activist mentioned that the upside in such as scenario could be over 60%.
InMode (INMD US). DOMA Perpetual is a.o. pushing the company to immediately execute a tender offer for 30% of the company and a 10% buyback. InMode is interesting because while growth died out, this is clearly reflected in the valuation (~5x ev/ebitda on FY24e), while cash flow generation is expected to remain extremely strong, which would come on top of a net cash position of ~50% of the market cap.
ModivCare (MODV US). Lots of activist action over at ModivCare. The shares has been decimated over the past few years given the large debt burden and activists are clearly smelling blood. Coliseum Cap increased its holding to over 31%. Also, AI Catalyst Fund recently disclosed a ~10% stake, pushing for a strategic review, ao a split or full sale of the company. Given the leverage, this one might be explosive if a deal is struck.
Sabana Industrial (SSREIT Singapore). Sabana received a letter from shareholders owning over 10% of the company, pushing for a strategic review and arguing that a break-up would create value.
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'.
UPDATE (January 20, 2025) Launched a $80.75m buyback (~30% of the current market cap) via a tender. Price range $15.50-17.00 p/s. Tender expires on Feb 24.
9. INTERESTING SITUATIONS
…but not exactly event-driven or special sit
East Side Games (EAGR Canada). Interesting micro-cap. Back to yoy top-line growth with a good number of game releases in the pipeline. <3x ev/ebitda on FY24e, with ~20% of the market cap in net cash, combined with high insider ownership and stock buybacks makes this a very interesting case.
Turtle Beach (TBCH US). Turtle Beach seems completely back on track after the game changing DPD deal. Pretty good 2024 and what seems continued growth ahead. ~8x ev/ebitda on FY 24e for 15-20% ebitda growth pa over the next few years. A reminder that Donerail Group (who previously bid $32.86 / share and $36.50 / share), now has 5/7 of the BOD seats.
Bragg Gaming (BRAG US). Peer GAN to be taken out at >100% premium. Bragg is higher quality and profitable, trading at large discount to implied (similar) deal valuation. UPDATE (April 8, 2024) Reviewing strategic alternatives, which may include the sale of the company or of its assets, a merger, financing, further acquisitions, or other strategic alternatives. No timetable to complete the strategic review process has been established. UPDATE (December 16, 2024) Bragg concluded its review without a sale, stating that they "received multiple non-binding proposals", but that “none of the proposals received reflect the company's intrinsic value or current and projected financial performance”. However… the co came out with a pretty bullish statement, mentioning ao significant insider purchases and reiterating a bullish FY25 outlook. This does not feel like its over.
UPDATE (January 20, 2025) Quite some developments over at Bragg, with a.o. insiders purchasing stock in the open market for the first time after quite a while, the company announced a few very interesting deals. A reminder that the co mentioned 'liquidity initiatives' to remain a key priority this year. Clean out and sell soon?
Genasys (GNSS US). Lots of interesting action at Genesys, with insiders buying on the open market after the recent strong share price drop and appointing new directors, the latter also pushed by activists. Genasys has seen growth strongly inflect over this year (over >100%) and is expected to continue to remain high. This is expected push operating earnings back into positive territory. ~10x ev/ebitda looking roughly one year out, which doesn't seem much if this growth is sustained.
10. MISCELLANEOUS
(Asset sales, out-of-bankruptcies, IPOs, up- and delistings, etc.)
Duos Technologies (DUOT US). Our friend @Mike10947310 flagged this interesting set-up over at Duot. Fortress deal for APR Energy assets. Duos Energy Corp, who is made up of former APR execs (sub of DUOT) has a 5% stake in the power gen assets (increases alignment with Fortress). Based on recent market pricing of mobile gas turbines, I get to c. 870k per MWh for new orders. If you apply similar pricing (or even a haircut), you get to $36m in value. Then there's the $42m asset management agreement, which I'd assume is cash flow positive. At DUOT ~$55m EV seems like a free call option on further DUOT biz/rest of firm.
Ioneer (IONR US). Another flag from our friend @Mike10947310. Ioneer recently received a $996m US loan for its Rhyolite Ridge Lithium-Boron project. This project has massive potential and is even more interesting given the now clear financing and US based assets.
Millicom (TIGO Sweden). We flag old TMM highlight Millicom. Millicom will delist in Sweden and relist in the US over the coming months, which might bring some turbulence. A lot of interesting stuff is going on here (solid margin expansion and CF generation, buybacks, reinstating regular dividends at ~10%). ~4.5x ev/ebitda on FY24e; might be interesting to check out.
Zenvia (ZENV US). It seems like a big transformation is near for Zenvia. The company recently announced the launch of Zenvia Customer Cloud, which is projected to grow 25-30% in 2025 at positive ebitda margins. There will be a strong focus on this and Zenvia will look to divest assets outside of this core (which seem quite substantial). Indeed, they already announced a ~15% workforce reduction. Very interesting action. Our friend ClarkSquareCap has done quite some work on this name.
Magnolia Bancorp (MGNO US). We flag this tiny new listing (in connection to a conversion to a federal stock S&L). We spent five mins on this at get ~$10m market cap at an $11 share price, for ~$24 pro-forma TSE per share as at June 2024.
Genius Group (GNS US). We note that upcoming rights offering. The rights will trade freely for a period of three weeks (Jan 23 - Feb 13). 1-1 offering at $0.50 subs price.
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Thanks. Always an interesting read.
Millicom. Interesting.