ToffCap's Monday Monitor #5

ToffCap’s Monday Monitor provides a snapshot of the largest changes in our watchlist. New (potentially) interesting investments and trades are regularly added to the list, with a special focus on companies that screen cheaply and catalyst trades. 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.

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Overview

I. Company watchlist

II. Catalyst trades

III. Notable company results (mostly European)

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I. COMPANY WATCHLIST

Annotations for a selection of interesting companies with seemingly strong upside potential.

Additions this week:

• Calumet Specialty Products (CLMT US - $ 1.3bn). Interesting projects and plenty of self-help potential. Montana renewable diesel plant to be operational and cash flowing. Could massively increase ebitda generation. CLMT’s Specialty Chemicals looks underinvested, providing relatively easy improvements if attended to. Management turnover appears stabilized, and now focused on the longer-term. MLP wrapper and low liquidity weighing on stock. Some shareholders pushing for sale. Could earn >$700m ebitda in a few years; 3-5x potential at decent multiples.

• Kindred (KINDSDB Sweden - SEK 27.5bn). Online sports betting and casino. Major shareholder pushing for sale. New board announced to be exploring strategic alternatives, including full sale of company; hired financial advisors. Bloomberg reporting bids were due end of May. Looks like potential sale is imminent. No excessive valuation and relatively strong balance sheet compared to peers. Could fetch a nice premium.

• Sylogist (SYZ Canada - CAD 160m). Turnaround. Left for dead stock due to poor strategy, mainly from old CEO. New management implemented strategic review; strategy shift. Renewed focus on growth and value creation. If strategy shift is successful, margins will expand and earnings grow. Peers trading at 2-3x valuation.

• RCS Mediagroup (RCS Italy). RCS is one of our favorite long-term holdings. Stock -13% from highs (incl. 8% dividend). Classic paper-to-online transition with inflection. Risk that paper subs decline more rapidly than growth in online can compensate. However, brands are extremely strong in Italy + cheap already on FCF basis. Could catch a multiple in a few years. Good thread on thesis here. Buyback recently approved.

• Sintana Energy warrants (SEI-W Canada - CAD 67m). High risk / extremely high reward. Sintana (not an operator) has interests in multiple exploration blocks in the Orange Basin in Namibia. Current valuation assumes little/no success of projects. Should one or more of the projects be a success, shares could massively rerate - and warrants even more. 10-30x upside to warrants (depending on degree of success); 100% loss in case of failure.

• ADF Group (DRX Canada - CAD 115m). A ToffCap favorite. We reiterate our stance, as recently tweeted. ADF’s Q1 results were extremely strong, but have not (yet) shown the full extent of the company’s recent efficiency improvements. Going forward, ADF will double the amount of steel passing through the automation platform. This, combined with relatively more higher value-add projects on its record order backlog and a good amount of operating leverage, could lead to $40-50m ebitda in FY24 (current year). Stock could 2-3x over next ~18 months. Write-up here.

Previous additions (excl. companies no longer on the watchlist):

• 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.

• 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 down 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).

• 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 (TLNE 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. UPDATE. Now trading OTC, ticker TLNE US.

• 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.

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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.
  UPDATE: Dealreporter article stating LFCR has sent materials to a mix of strategic and financial potential bidders. Bids are expected to be collected by early July. LFCR being pitched using projected c. $70m ebitda. We estimate a potential sale price in the high-teens / low 20s.

• Aegon (AGN Netherlands). BIG share buyback to be announced soon (15-20% of market cap) after closing of ASR divestments.

• Millicom (TIGO Latam). Takeout candidate with plenty of interest. Dalius SSI background here.

• SBB weighing sale of Samhallsbyggnadsbolaget i Norden (SBBB Sweden). Yes, that’s a real company name!

• Glencore appears to be getting closer to increasing its offer for Teck Resources (TECK US).

• Pershing Square continues to add to HCC.

• MDU Resources (MDU US). Will spin Knife River into a stand-alone construction materials provider. Spin approved; distribution date set for 05/31.
  UPDATE: Knife River spin-off completed (KNF US). Classic period with no financials and no sell-side initiations.

• 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.
  UPDATE: Merger approved. Glencore CSA copper mine to trade on June 16. De-SPAC volatility could provide interesting entry point for LT copper bulls.

• Kindred (KINDSDB Sweden - SEK 27.5bn). Online sports betting and casino. Exploring strategic alternatives, including full sale of company. Bloomberg reporting bids were due end of May.

• Talen Energy (TLNE US). Nuclear energy play. Recently emerged from bankruptcy on 17 May. Great tailwinds.
  UPDATE. Now trading OTC, ticker TLNE US.

• DOF ASA (DOF Norway). Subsea offshore services. Will soon emerge from bankruptcy; relisting requested.

• Lastly, a reminder that the Russell 3000 will rebalance on June 23. Check out the list of deletions here. As always, quite a few will be impacted by the rebalancing, including good companies as well.

Previous additions:

• 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.

• Aston Margin Lagonda (AML UK). Geely increased stake in AML, fueling speculation regarding a potential takeover.

• 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.

• 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.

• 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.

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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.

Important: We are discontinuing this section (Notable Company Results). Though interesting for us to keep track of, we believe this section provides (much) less value to subscribers compared to the first two sections.