The Weekly Wrap-Up provides summaries of recent publications from Hidden Opportunities including links to the full-length research reports.  If you haven’t engaged with the research over the past seven days, the Weekly Wrap-Up will quickly update you on our newest and highest conviction ideas. 

HIGH-CONVICTION RECOMMENDATIONS (LONG):

• Garrett Motion Inc. (GTX)
• Luxfer Holdings PLC (LXFR)
• Newpark Resources, Inc. (NR)
• TFI International Inc. (TFII)

RECENT INITIATIONS:

• Luxfer Holdings PLC (LXFR)

LATEST PUBLICATIONS & UPDATES:

UPDATE – Newpark Resources (NYSE: NR)

August 6, 2024

NR beats across the board in 2Q 2024 as strength at the higher-margin Industrial Solutions (IS) segment offset weakness at Fluid Systems (FS)

Newpark Resources posted 2Q 2024 consolidated sales down 2.35% to $179 million (compared with consensus of $169.25 million) with adj. EBITDA up ~18% to $23.4 million (compared with consensus of $18.5 million) on 230 basis points of margin improvement to 13.1%. Adjusted EPS increased ~50% to $0.12 (compared $0.08 in the prior year period and consensus of $0.08) while free cash flow (FCF) was ~$21.9 million (versus ~$0.6 million in 2Q 2023 and consensus of $5.2 million).

By segment, Fluid Systems posted 2Q 2024 sales down ~17% to $112.2 million (in-line with previous commentary) with adj. segment EBITDA of ~$5.2 million (compared with $8.6 million in the year ago period), implying ~200 bps of margin deterioration to 4.6%.  Industrial Solutions posted 2Q 2024 sales up ~39% to $66.8 million, driven by strength in both product sales and specialty rentals, with adj. segment EBITDA growth of ~$36.5% to ~$24.8 million, implying 60 bps of margin contraction to 37.1%.

The company maintained its initial guidance for the Industrial Solutions segment, which calls for sales of $230-$240 million, implying growth of ~11%-16%, with adj. segment EBITDA of $80-$85 million, suggesting growth of 7.5%-14%. Total Industrial Solutions segment capital expenditures are expected to be $30-$35 million in 2024E of which ~75% is anecdotally expected to be deployed towards growth in the rental fleet.

Management indicated that while taking longer than expected, it is optimistic the on-going strategic review of its Fluid Systems business (managed by Lazard) will be completed by the end of 3Q 2024 (versus previous commentary targeting mid-year 2024). Net working capital at Fluid Systems was ~$160 million at the end of 3Q 2024.  We estimate a deal would precipitate a significant re-rating of NR shares toward a valuation more in-line with specialty rental & services peers as opposed to a legacy oilfield services provider (i.e., high single-digit to low double-digit multiples versus low- to mid-single digit-type valuations).

Our base case fair value for NR remains ~$10 per share based on an 8.5x blended multiple on 2025E adjusted EBITDA of $99.2 million (previously $98.1 million), reflecting a 5.0x multiple at Fluid Systems (previously 5.5x) and 9.5x (unchanged) at Industrial Solutions, while accounting for corporate costs and projected net debt/cash (see Exhibit #1 on page 2).

Radar Screen – September 2024

Monthly publication providing ongoing analysis on companies where we see potential for a value-unlocking event

Companies discussed this month:  Albany International (AIN), Alphabet Inc. (GOOG), APi Group Corp. (APG), Bloomin’ Brands (BLMN), California Resources Corp. (CRC), Carrier Global Corp. (CARR), Crown Castle Inc. (CCI), FedEx Corporation (FDX), Goodyear Tire & Rubber, Inc. (GT), Masimo Corp. (MASI), Matthews International Corp. (MATW), Natura & Co. (NTCO), Netgear Inc. (NTGR), Newpark Resources (NR), RCI Hospitality Inc. (RICK), Stanley Black & Decker (SWK), TFI International Inc. (TFII), TriMas Corporation (TRS)

Product Specialist

Rich Albanese
ralbanese@pcsresearchgroup.com
+1 646-839-5566

The Weekly Wrap-Up provides summaries of recent publications from the Spin-Off Report including links to the full-length research reports.  If you haven’t engaged with the research over the past seven days, the Weekly Wrap-Up will quickly update you on our newest and highest conviction ideas.

UPCOMING SPIN-OFFS AND EXPECTED COMPLETION DATES:

• Jacobs Solutions Inc. (J) / Critical Mission Solutions – 3Q 2024
• Spectrum Brands (SPB) / Home & Personal Care Business – 3Q 2024
• Western Digital (WDC) / HDD Business – 2H 2024
• MDU Resources Group (MDU) / Construction Services – 2H 2024
• Berry Global Group Inc. (BERY) / HH&S And Films Businesses (to merge w/ Glatfelter) – 2H 2024
• Holcim Ltd. (HOLN SW) / North American Business – 1H 2025
• DuPont Inc. (DD) / Electronics and Water Business – 2H 2025

RECENT PUBLICATIONS:

UPDATE: Baxter International (BAX) Agrees to Sell Vantive Kidney Care to Carlyle; Drop Coverage

August 13, 2024

BAX Agrees to Sell its Vantive Kidney Care Business to Carlyle for $3.8 billion; Drop Coverage Effective Immediately

On August 13, 2024, before the market open, Baxter International (NYSE: BAX) announced a definitive agreement to sell (rather than spin) its Vantive Kidney Care business to Carlyle (NASDAQ: CG) for $3.8 billion (of which ~$3.5 billion will be paid in cash).

Upon closing, which is expected in “late 2024 or early 2025”, BAX expects to receive net after tax proceeds of ~$3.0 billion.

Following the transaction, standalone Baxter is targeting operational sales growth of 4%-5% annually and an operating margin of ~16.5% in 2025. Additionally, the company expects to achieve its investment grade leverage target of less than 3.0x by the end of 2025.

For context, in January 2023 Baxter announced that it would spin-off its Kidney Care business into a standalone publicly traded company; subsequently, in March 2024, following reports in the business press, management disclosed in an 8-K filing that “it has been in recent discussions with select private equity investors to explore a potential sale of the Kidney Care asset in lieu of the proposed spin-off of the business.”

Given the sale announcement, we DROP coverage of Baxter International (BAX) effective immediately. Our prior estimates and fair value for BAX should no longer be relied upon.

Update:  Howard Hughes Holdings Inc. (NYSE: HHH)

August 1, 2024

HHH completes the spin-off of Seaport Entertainment (SEG)

On July 31, 2024, at 11:59 pm (ET), Howard Hughes (NYSE: HHH) completed the separation of Seaport Entertainment (NYSE American: SEG), which primarily owns real estate assets centered in and around New York City’s South Street Seaport (along with a 25% stake in Jean-Georges Restaurants, air rights above the Las Vegas Fashion Mall as well as ownership of The Las Vegas Aviators, a Triple-A minor league baseball team) into a separate, publicly traded company via a tax-free spin-off.

Shareholders received one share of SEG for every nine shares of HHH owned. (Cash will be paid in lieu of fractional shares, which, while the overall transaction was tax free could trigger a taxable gain/loss for some shareholders.)

While noting that we think a fair degree of value has seemingly been pulled forward ahead of the separation, we do think the transaction better positions post-spin HHH (i.e., the parent) both from a simplification and cash flow perspective, which should make it more attractive to investors and benefit its valuation over time. To those ends, the separation of SEG positions post-spin HHH as a pure-play real estate company (i.e., MPCs, landbank and development) and removes the “cash drag” of the money losing Seaport business (i.e., it generated an ~$18 million NOI loss in 1H 2024 and ~$32.5 million when including the losses from unconsolidated joint ventures, such as The Tin Building by Jean-Georges), which should facilitate incremental capital allocation options (e.g., buybacks and/or investments in its MPCs).

As for the Seaport, low occupancy, negative cash flow, and the need to fund the 250 Water Street project will likely remain a concern for those outside of deep value real estate-focused investors.
Overall, in approaching valuation, we acknowledge the majority of value in both the parent and post spin entities is largely derived from the future value of land along with the earnings potential of its operating assets (versus HHH’s current earnings profile). As highlighted in management’s estimated NAV, the largest ascribed value is placed on future MPC land sales, some of which are forecasted to persist into 2086, which obviously requires myriad assumptions to be made (all are subject to challenge but ultimately it seems the assets clearly have some value).

For additional information please see our initiation reported dated July 8, 2024

Radar Screen – August 2024

Monthly publication providing ongoing analysis on companies where we see potential for a value-unlocking event

Companies discussed this month:  Albany International (AIN), Alphabet Inc. (GOOG), APi Group Corp. (APG), Bloomin’ Brands (BLMN), California Resources Corp. (CRC), Carrier Global Corp. (CARR), Crown Castle Inc. (CCI),  FedEx Corporation (FDX),  Luxfer Holdings (LXFR)*, Goodyear Tire & Rubber, Inc. (FLT), Masimo Corp. (MASI), Matthews International Corp. (MATW), Natura & Co. (NTCO), Netgear Inc. (NTGR), Newpark Resources (NR), PAR Technology Corp. (PAR), RCI Hospitality Inc. (RICK), Stanley Black & Decker (SWK), TFI International (TFII), TriMas Corporation (TRS)

*New Entry this Month

Spin-Off Report Calendar – August 2024

Published monthly, The Spin-Off Calendar provides one-page summaries of every spin-off under coverage from the announcement date, followed by the filing of the Form 10 and continuing 60 days post completion.

Spin-Off Report Compendium – August 2024

Murray Stahl’s commentary on various investing themes and single stock recommendations.

European Spin-Off Compendium – July 2024

Murray Stahl’s commentary on various investing themes and single stock recommendations in Europe. 

Bits & Pieces – August 2024

Covers mispriced stub securities, tracking stocks and other arbitrage opportunities.

Product Specialist

Rich Albanese
ralbanese@pcsresearchgroup.com
+1 646-839-5566

The Weekly Wrap-Up provides summaries of recent publications from Hidden Opportunities including links to the full-length research reports.  If you haven’t engaged with the research over the past seven days, the Weekly Wrap-Up will quickly update you on our newest and highest conviction ideas. 

HIGH-CONVICTION RECOMMENDATIONS (LONG):

• Garrett Motion Inc. (GTX)
• Luxfer Holdings PLC (LXFR)
• Newpark Resources, Inc. (NR)
• TFI International Inc. (TFII)

RECENT INITIATIONS:

• Luxfer Holdings PLC (LXFR)

LATEST PUBLICATIONS & UPDATES:

UPDATE – Newpark Resources (NYSE: NR)

August 6, 2024

NR beats across the board in 2Q 2024 as strength at the higher-margin Industrial Solutions (IS) segment offset weakness at Fluid Systems (FS)

Newpark Resources posted 2Q 2024 consolidated sales down 2.35% to $179 million (compared with consensus of $169.25 million) with adj. EBITDA up ~18% to $23.4 million (compared with consensus of $18.5 million) on 230 basis points of margin improvement to 13.1%. Adjusted EPS increased ~50% to $0.12 (compared $0.08 in the prior year period and consensus of $0.08) while free cash flow (FCF) was ~$21.9 million (versus ~$0.6 million in 2Q 2023 and consensus of $5.2 million).

By segment, Fluid Systems posted 2Q 2024 sales down ~17% to $112.2 million (in-line with previous commentary) with adj. segment EBITDA of ~$5.2 million (compared with $8.6 million in the year ago period), implying ~200 bps of margin deterioration to 4.6%.  Industrial Solutions posted 2Q 2024 sales up ~39% to $66.8 million, driven by strength in both product sales and specialty rentals, with adj. segment EBITDA growth of ~$36.5% to ~$24.8 million, implying 60 bps of margin contraction to 37.1%.

The company maintained its initial guidance for the Industrial Solutions segment, which calls for sales of $230-$240 million, implying growth of ~11%-16%, with adj. segment EBITDA of $80-$85 million, suggesting growth of 7.5%-14%. Total Industrial Solutions segment capital expenditures are expected to be $30-$35 million in 2024E of which ~75% is anecdotally expected to be deployed towards growth in the rental fleet.

Management indicated that while taking longer than expected, it is optimistic the on-going strategic review of its Fluid Systems business (managed by Lazard) will be completed by the end of 3Q 2024 (versus previous commentary targeting mid-year 2024). Net working capital at Fluid Systems was ~$160 million at the end of 3Q 2024.  We estimate a deal would precipitate a significant re-rating of NR shares toward a valuation more in-line with specialty rental & services peers as opposed to a legacy oilfield services provider (i.e., high single-digit to low double-digit multiples versus low- to mid-single digit-type valuations).

Our base case fair value for NR remains ~$10 per share based on an 8.5x blended multiple on 2025E adjusted EBITDA of $99.2 million (previously $98.1 million), reflecting a 5.0x multiple at Fluid Systems (previously 5.5x) and 9.5x (unchanged) at Industrial Solutions, while accounting for corporate costs and projected net debt/cash (see Exhibit #1 on page 2).

Radar Screen – August 2024

Monthly publication providing ongoing analysis on companies where we see potential for a value-unlocking event

Companies discussed this month:  Albany International (AIN), Alphabet Inc. (GOOG), APi Group Corp. (APG), Bloomin’ Brands (BLMN), California Resources Corp. (CRC), Carrier Global Corp. (CARR), Crown Castle Inc. (CCI), FedEx Corporation (FDX), Luxfer Holdings (LXFR)*, Goodyear Tire & Rubber, Inc. (GT), Masimo Corp. (MASI), Matthews International Corp. (MATW), Natura & Co. (NTCO), Netgear Inc. (NTGR), Newpark Resources (NR), RCI Hospitality Inc. (RICK), Stanley Black & Decker (SWK), TFI International Inc. (TFII), TriMas Corporation (TRS)

*New Entry This Month

Product Specialist

Rich Albanese
ralbanese@pcsresearchgroup.com
+1 646-839-5566

The Weekly Wrap-Up provides summaries of recent publications from Hidden Opportunities including links to the full-length research reports.  If you haven’t engaged with the research over the past seven days, the Weekly Wrap-Up will quickly update you on our newest and highest conviction ideas. 

HIGH-CONVICTION RECOMMENDATIONS (LONG):

• Garrett Motion Inc. (GTX)
• Luxfer Holdings PLC (LXFR)
• Newpark Resources, Inc. (NR)
• TFI International Inc. (TFII)

RECENT INITIATIONS:

• Luxfer Holdings PLC (LXFR)

LATEST PUBLICATIONS & UPDATES:

UPDATE – Newpark Resources (NYSE: NR)

August 6, 2024

NR beats across the board in 2Q 2024 as strength at the higher-margin Industrial Solutions (IS) segment offset weakness at Fluid Systems (FS)

Newpark Resources posted 2Q 2024 consolidated sales down 2.35% to $179 million (compared with consensus of $169.25 million) with adj. EBITDA up ~18% to $23.4 million (compared with consensus of $18.5 million) on 230 basis points of margin improvement to 13.1%. Adjusted EPS increased ~50% to $0.12 (compared $0.08 in the prior year period and consensus of $0.08) while free cash flow (FCF) was ~$21.9 million (versus ~$0.6 million in 2Q 2023 and consensus of $5.2 million).

By segment, Fluid Systems posted 2Q 2024 sales down ~17% to $112.2 million (in-line with previous commentary) with adj. segment EBITDA of ~$5.2 million (compared with $8.6 million in the year ago period), implying ~200 bps of margin deterioration to 4.6%.  Industrial Solutions posted 2Q 2024 sales up ~39% to $66.8 million, driven by strength in both product sales and specialty rentals, with adj. segment EBITDA growth of ~$36.5% to ~$24.8 million, implying 60 bps of margin contraction to 37.1%.

The company maintained its initial guidance for the Industrial Solutions segment, which calls for sales of $230-$240 million, implying growth of ~11%-16%, with adj. segment EBITDA of $80-$85 million, suggesting growth of 7.5%-14%. Total Industrial Solutions segment capital expenditures are expected to be $30-$35 million in 2024E of which ~75% is anecdotally expected to be deployed towards growth in the rental fleet.

Management indicated that while taking longer than expected, it is optimistic the on-going strategic review of its Fluid Systems business (managed by Lazard) will be completed by the end of 3Q 2024 (versus previous commentary targeting mid-year 2024). Net working capital at Fluid Systems was ~$160 million at the end of 3Q 2024.  We estimate a deal would precipitate a significant re-rating of NR shares toward a valuation more in-line with specialty rental & services peers as opposed to a legacy oilfield services provider (i.e., high single-digit to low double-digit multiples versus low- to mid-single digit-type valuations).

Our base case fair value for NR remains ~$10 per share based on an 8.5x blended multiple on 2025E adjusted EBITDA of $99.2 million (previously $98.1 million), reflecting a 5.0x multiple at Fluid Systems (previously 5.5x) and 9.5x (unchanged) at Industrial Solutions, while accounting for corporate costs and projected net debt/cash (see Exhibit #1 on page 2).

Radar Screen – August 2024

Monthly publication providing ongoing analysis on companies where we see potential for a value-unlocking event

Companies discussed this month:  Albany International (AIN), Alphabet Inc. (GOOG), APi Group Corp. (APG), Bloomin’ Brands (BLMN), California Resources Corp. (CRC), Carrier Global Corp. (CARR), Crown Castle Inc. (CCI), FedEx Corporation (FDX), Luxfer Holdings (LXFR)*, Goodyear Tire & Rubber, Inc. (GT), Masimo Corp. (MASI), Matthews International Corp. (MATW), Natura & Co. (NTCO), Netgear Inc. (NTGR), Newpark Resources (NR), RCI Hospitality Inc. (RICK), Stanley Black & Decker (SWK), TFI International Inc. (TFII), TriMas Corporation (TRS)

*New Entry This Month

Product Specialist

Rich Albanese
ralbanese@pcsresearchgroup.com
+1 646-839-5566

The Weekly Wrap-Up provides summaries of recent publications from the Spin-Off Report including links to the full-length research reports.  If you haven’t engaged with the research over the past seven days, the Weekly Wrap-Up will quickly update you on our newest and highest conviction ideas.

UPCOMING SPIN-OFFS AND EXPECTED COMPLETION DATES:

• Jacobs Solutions Inc. (J) / Critical Mission Solutions – 3Q 2024
• Spectrum Brands (SPB) / Home & Personal Care Business – 3Q 2024
• Western Digital (WDC) / HDD Business – 2H 2024
• MDU Resources Group (MDU) / Construction Services – 2H 2024
• Berry Global Group Inc. (BERY) / HH&S And Films Businesses (to merge w/ Glatfelter) – 2H 2024
• Holcim Ltd. (HOLN SW) / North American Business – 1H 2025
• DuPont Inc. (DD) / Electronics and Water Business – 2H 2025

RECENT PUBLICATIONS:

UPDATE: Baxter International (BAX) Agrees to Sell Vantive Kidney Care to Carlyle; Drop Coverage

August 13, 2024

BAX Agrees to Sell its Vantive Kidney Care Business to Carlyle for $3.8 billion; Drop Coverage Effective Immediately

On August 13, 2024, before the market open, Baxter International (NYSE: BAX) announced a definitive agreement to sell (rather than spin) its Vantive Kidney Care business to Carlyle (NASDAQ: CG) for $3.8 billion (of which ~$3.5 billion will be paid in cash).

Upon closing, which is expected in “late 2024 or early 2025”, BAX expects to receive net after tax proceeds of ~$3.0 billion.

Following the transaction, standalone Baxter is targeting operational sales growth of 4%-5% annually and an operating margin of ~16.5% in 2025. Additionally, the company expects to achieve its investment grade leverage target of less than 3.0x by the end of 2025.

For context, in January 2023 Baxter announced that it would spin-off its Kidney Care business into a standalone publicly traded company; subsequently, in March 2024, following reports in the business press, management disclosed in an 8-K filing that “it has been in recent discussions with select private equity investors to explore a potential sale of the Kidney Care asset in lieu of the proposed spin-off of the business.”

Given the sale announcement, we DROP coverage of Baxter International (BAX) effective immediately. Our prior estimates and fair value for BAX should no longer be relied upon.

Update:  Howard Hughes Holdings Inc. (NYSE: HHH)

August 1, 2024

HHH completes the spin-off of Seaport Entertainment (SEG)

On July 31, 2024, at 11:59 pm (ET), Howard Hughes (NYSE: HHH) completed the separation of Seaport Entertainment (NYSE American: SEG), which primarily owns real estate assets centered in and around New York City’s South Street Seaport (along with a 25% stake in Jean-Georges Restaurants, air rights above the Las Vegas Fashion Mall as well as ownership of The Las Vegas Aviators, a Triple-A minor league baseball team) into a separate, publicly traded company via a tax-free spin-off.

Shareholders received one share of SEG for every nine shares of HHH owned. (Cash will be paid in lieu of fractional shares, which, while the overall transaction was tax free could trigger a taxable gain/loss for some shareholders.)

While noting that we think a fair degree of value has seemingly been pulled forward ahead of the separation, we do think the transaction better positions post-spin HHH (i.e., the parent) both from a simplification and cash flow perspective, which should make it more attractive to investors and benefit its valuation over time. To those ends, the separation of SEG positions post-spin HHH as a pure-play real estate company (i.e., MPCs, landbank and development) and removes the “cash drag” of the money losing Seaport business (i.e., it generated an ~$18 million NOI loss in 1H 2024 and ~$32.5 million when including the losses from unconsolidated joint ventures, such as The Tin Building by Jean-Georges), which should facilitate incremental capital allocation options (e.g., buybacks and/or investments in its MPCs).

As for the Seaport, low occupancy, negative cash flow, and the need to fund the 250 Water Street project will likely remain a concern for those outside of deep value real estate-focused investors.
Overall, in approaching valuation, we acknowledge the majority of value in both the parent and post spin entities is largely derived from the future value of land along with the earnings potential of its operating assets (versus HHH’s current earnings profile). As highlighted in management’s estimated NAV, the largest ascribed value is placed on future MPC land sales, some of which are forecasted to persist into 2086, which obviously requires myriad assumptions to be made (all are subject to challenge but ultimately it seems the assets clearly have some value).

For additional information please see our initiation reported dated July 8, 2024

Radar Screen – August 2024

Monthly publication providing ongoing analysis on companies where we see potential for a value-unlocking event

Companies discussed this month:  Albany International (AIN), Alphabet Inc. (GOOG), APi Group Corp. (APG), Bloomin’ Brands (BLMN), California Resources Corp. (CRC), Carrier Global Corp. (CARR), Crown Castle Inc. (CCI),  FedEx Corporation (FDX),  Luxfer Holdings (LXFR)*, Goodyear Tire & Rubber, Inc. (FLT), Masimo Corp. (MASI), Matthews International Corp. (MATW), Natura & Co. (NTCO), Netgear Inc. (NTGR), Newpark Resources (NR), PAR Technology Corp. (PAR), RCI Hospitality Inc. (RICK), Stanley Black & Decker (SWK), TFI International (TFII), TriMas Corporation (TRS)

*New Entry this Month

Spin-Off Report Calendar – August 2024

Published monthly, The Spin-Off Calendar provides one-page summaries of every spin-off under coverage from the announcement date, followed by the filing of the Form 10 and continuing 60 days post completion.

Spin-Off Report Compendium – August 2024

Murray Stahl’s commentary on various investing themes and single stock recommendations.

European Spin-Off Compendium – July 2024

Murray Stahl’s commentary on various investing themes and single stock recommendations in Europe. 

Bits & Pieces – August 2024

Covers mispriced stub securities, tracking stocks and other arbitrage opportunities.

Product Specialist

Rich Albanese
ralbanese@pcsresearchgroup.com
+1 646-839-5566

The Weekly Wrap-Up provides summaries of recent publications from Hidden Opportunities including links to the full-length research reports.  If you haven’t engaged with the research over the past seven days, the Weekly Wrap-Up will quickly update you on our newest and highest conviction ideas. 

HIGH-CONVICTION RECOMMENDATIONS (LONG):

• Garrett Motion Inc. (GTX)
• Luxfer Holdings PLC (LXFR)
• Newpark Resources, Inc. (NR)
• TFI International Inc. (TFII)

RECENT INITIATIONS:

• Luxfer Holdings PLC (LXFR)

LATEST PUBLICATIONS & UPDATES:

UPDATE – Newpark Resources (NYSE: NR)

August 6, 2024

NR beats across the board in 2Q 2024 as strength at the higher-margin Industrial Solutions (IS) segment offset weakness at Fluid Systems (FS)

Newpark Resources posted 2Q 2024 consolidated sales down 2.35% to $179 million (compared with consensus of $169.25 million) with adj. EBITDA up ~18% to $23.4 million (compared with consensus of $18.5 million) on 230 basis points of margin improvement to 13.1%. Adjusted EPS increased ~50% to $0.12 (compared $0.08 in the prior year period and consensus of $0.08) while free cash flow (FCF) was ~$21.9 million (versus ~$0.6 million in 2Q 2023 and consensus of $5.2 million).

By segment, Fluid Systems posted 2Q 2024 sales down ~17% to $112.2 million (in-line with previous commentary) with adj. segment EBITDA of ~$5.2 million (compared with $8.6 million in the year ago period), implying ~200 bps of margin deterioration to 4.6%.  Industrial Solutions posted 2Q 2024 sales up ~39% to $66.8 million, driven by strength in both product sales and specialty rentals, with adj. segment EBITDA growth of ~$36.5% to ~$24.8 million, implying 60 bps of margin contraction to 37.1%.

The company maintained its initial guidance for the Industrial Solutions segment, which calls for sales of $230-$240 million, implying growth of ~11%-16%, with adj. segment EBITDA of $80-$85 million, suggesting growth of 7.5%-14%. Total Industrial Solutions segment capital expenditures are expected to be $30-$35 million in 2024E of which ~75% is anecdotally expected to be deployed towards growth in the rental fleet.

Management indicated that while taking longer than expected, it is optimistic the on-going strategic review of its Fluid Systems business (managed by Lazard) will be completed by the end of 3Q 2024 (versus previous commentary targeting mid-year 2024). Net working capital at Fluid Systems was ~$160 million at the end of 3Q 2024.  We estimate a deal would precipitate a significant re-rating of NR shares toward a valuation more in-line with specialty rental & services peers as opposed to a legacy oilfield services provider (i.e., high single-digit to low double-digit multiples versus low- to mid-single digit-type valuations).

Our base case fair value for NR remains ~$10 per share based on an 8.5x blended multiple on 2025E adjusted EBITDA of $99.2 million (previously $98.1 million), reflecting a 5.0x multiple at Fluid Systems (previously 5.5x) and 9.5x (unchanged) at Industrial Solutions, while accounting for corporate costs and projected net debt/cash (see Exhibit #1 on page 2).

Radar Screen – August 2024

Monthly publication providing ongoing analysis on companies where we see potential for a value-unlocking event

Companies discussed this month:  Albany International (AIN), Alphabet Inc. (GOOG), APi Group Corp. (APG), Bloomin’ Brands (BLMN), California Resources Corp. (CRC), Carrier Global Corp. (CARR), Crown Castle Inc. (CCI), FedEx Corporation (FDX), Luxfer Holdings (LXFR)*, Goodyear Tire & Rubber, Inc. (GT), Masimo Corp. (MASI), Matthews International Corp. (MATW), Natura & Co. (NTCO), Netgear Inc. (NTGR), Newpark Resources (NR), RCI Hospitality Inc. (RICK), Stanley Black & Decker (SWK), TFI International Inc. (TFII), TriMas Corporation (TRS)

*New Entry This Month

Product Specialist

Rich Albanese
ralbanese@pcsresearchgroup.com
+1 646-839-5566

The Weekly Wrap-Up provides summaries of recent publications from the Spin-Off Report including links to the full-length research reports.  If you haven’t engaged with the research over the past seven days, the Weekly Wrap-Up will quickly update you on our newest and highest conviction ideas.

UPCOMING SPIN-OFFS AND EXPECTED COMPLETION DATES:

• Jacobs Solutions Inc. (J) / Critical Mission Solutions – 3Q 2024
• Spectrum Brands (SPB) / Home & Personal Care Business – 3Q 2024
• Western Digital (WDC) / HDD Business – 2H 2024
• MDU Resources Group (MDU) / Construction Services – 2H 2024
• Berry Global Group Inc. (BERY) / HH&S And Films Businesses (to merge w/ Glatfelter) – 2H 2024
• Holcim Ltd. (HOLN SW) / North American Business – 1H 2025
• DuPont Inc. (DD) / Electronics and Water Business – 2H 2025

RECENT PUBLICATIONS:

UPDATE: Baxter International (BAX) Agrees to Sell Vantive Kidney Care to Carlyle; Drop Coverage

August 13, 2024

BAX Agrees to Sell its Vantive Kidney Care Business to Carlyle for $3.8 billion; Drop Coverage Effective Immediately

On August 13, 2024, before the market open, Baxter International (NYSE: BAX) announced a definitive agreement to sell (rather than spin) its Vantive Kidney Care business to Carlyle (NASDAQ: CG) for $3.8 billion (of which ~$3.5 billion will be paid in cash).

Upon closing, which is expected in “late 2024 or early 2025”, BAX expects to receive net after tax proceeds of ~$3.0 billion.

Following the transaction, standalone Baxter is targeting operational sales growth of 4%-5% annually and an operating margin of ~16.5% in 2025. Additionally, the company expects to achieve its investment grade leverage target of less than 3.0x by the end of 2025.

For context, in January 2023 Baxter announced that it would spin-off its Kidney Care business into a standalone publicly traded company; subsequently, in March 2024, following reports in the business press, management disclosed in an 8-K filing that “it has been in recent discussions with select private equity investors to explore a potential sale of the Kidney Care asset in lieu of the proposed spin-off of the business.”

Given the sale announcement, we DROP coverage of Baxter International (BAX) effective immediately. Our prior estimates and fair value for BAX should no longer be relied upon.

Update:  Howard Hughes Holdings Inc. (NYSE: HHH)

August 1, 2024

HHH completes the spin-off of Seaport Entertainment (SEG)

On July 31, 2024, at 11:59 pm (ET), Howard Hughes (NYSE: HHH) completed the separation of Seaport Entertainment (NYSE American: SEG), which primarily owns real estate assets centered in and around New York City’s South Street Seaport (along with a 25% stake in Jean-Georges Restaurants, air rights above the Las Vegas Fashion Mall as well as ownership of The Las Vegas Aviators, a Triple-A minor league baseball team) into a separate, publicly traded company via a tax-free spin-off.

Shareholders received one share of SEG for every nine shares of HHH owned. (Cash will be paid in lieu of fractional shares, which, while the overall transaction was tax free could trigger a taxable gain/loss for some shareholders.)

While noting that we think a fair degree of value has seemingly been pulled forward ahead of the separation, we do think the transaction better positions post-spin HHH (i.e., the parent) both from a simplification and cash flow perspective, which should make it more attractive to investors and benefit its valuation over time. To those ends, the separation of SEG positions post-spin HHH as a pure-play real estate company (i.e., MPCs, landbank and development) and removes the “cash drag” of the money losing Seaport business (i.e., it generated an ~$18 million NOI loss in 1H 2024 and ~$32.5 million when including the losses from unconsolidated joint ventures, such as The Tin Building by Jean-Georges), which should facilitate incremental capital allocation options (e.g., buybacks and/or investments in its MPCs).

As for the Seaport, low occupancy, negative cash flow, and the need to fund the 250 Water Street project will likely remain a concern for those outside of deep value real estate-focused investors.
Overall, in approaching valuation, we acknowledge the majority of value in both the parent and post spin entities is largely derived from the future value of land along with the earnings potential of its operating assets (versus HHH’s current earnings profile). As highlighted in management’s estimated NAV, the largest ascribed value is placed on future MPC land sales, some of which are forecasted to persist into 2086, which obviously requires myriad assumptions to be made (all are subject to challenge but ultimately it seems the assets clearly have some value).

For additional information please see our initiation reported dated July 8, 2024

Radar Screen – August 2024

Monthly publication providing ongoing analysis on companies where we see potential for a value-unlocking event

Companies discussed this month:  Albany International (AIN), Alphabet Inc. (GOOG), APi Group Corp. (APG), Bloomin’ Brands (BLMN), California Resources Corp. (CRC), Carrier Global Corp. (CARR), Crown Castle Inc. (CCI),  FedEx Corporation (FDX),  Luxfer Holdings (LXFR)*, Goodyear Tire & Rubber, Inc. (FLT), Masimo Corp. (MASI), Matthews International Corp. (MATW), Natura & Co. (NTCO), Netgear Inc. (NTGR), Newpark Resources (NR), PAR Technology Corp. (PAR), RCI Hospitality Inc. (RICK), Stanley Black & Decker (SWK), TFI International (TFII), TriMas Corporation (TRS)

*New Entry this Month

Spin-Off Report Calendar – August 2024

Published monthly, The Spin-Off Calendar provides one-page summaries of every spin-off under coverage from the announcement date, followed by the filing of the Form 10 and continuing 60 days post completion.

Spin-Off Report Compendium – August 2024

Murray Stahl’s commentary on various investing themes and single stock recommendations.

European Spin-Off Compendium – July 2024

Murray Stahl’s commentary on various investing themes and single stock recommendations in Europe. 

Bits & Pieces – August 2024

Covers mispriced stub securities, tracking stocks and other arbitrage opportunities.

Product Specialist

Rich Albanese
ralbanese@pcsresearchgroup.com
+1 646-839-5566

The Weekly Wrap-Up provides summaries of recent publications from Hidden Opportunities including links to the full-length research reports.  If you haven’t engaged with the research over the past seven days, the Weekly Wrap-Up will quickly update you on our newest and highest conviction ideas. 

HIGH-CONVICTION RECOMMENDATIONS (LONG):

• Garrett Motion Inc. (GTX)
• Luxfer Holdings PLC (LXFR)
• Newpark Resources, Inc. (NR)
• TFI International Inc. (TFII)

RECENT INITIATIONS:

• Luxfer Holdings PLC (LXFR)

LATEST PUBLICATIONS & UPDATES:

UPDATE – Newpark Resources (NYSE: NR)

August 6, 2024

NR beats across the board in 2Q 2024 as strength at the higher-margin Industrial Solutions (IS) segment offset weakness at Fluid Systems (FS)

Newpark Resources posted 2Q 2024 consolidated sales down 2.35% to $179 million (compared with consensus of $169.25 million) with adj. EBITDA up ~18% to $23.4 million (compared with consensus of $18.5 million) on 230 basis points of margin improvement to 13.1%. Adjusted EPS increased ~50% to $0.12 (compared $0.08 in the prior year period and consensus of $0.08) while free cash flow (FCF) was ~$21.9 million (versus ~$0.6 million in 2Q 2023 and consensus of $5.2 million).

By segment, Fluid Systems posted 2Q 2024 sales down ~17% to $112.2 million (in-line with previous commentary) with adj. segment EBITDA of ~$5.2 million (compared with $8.6 million in the year ago period), implying ~200 bps of margin deterioration to 4.6%.  Industrial Solutions posted 2Q 2024 sales up ~39% to $66.8 million, driven by strength in both product sales and specialty rentals, with adj. segment EBITDA growth of ~$36.5% to ~$24.8 million, implying 60 bps of margin contraction to 37.1%.

The company maintained its initial guidance for the Industrial Solutions segment, which calls for sales of $230-$240 million, implying growth of ~11%-16%, with adj. segment EBITDA of $80-$85 million, suggesting growth of 7.5%-14%. Total Industrial Solutions segment capital expenditures are expected to be $30-$35 million in 2024E of which ~75% is anecdotally expected to be deployed towards growth in the rental fleet.

Management indicated that while taking longer than expected, it is optimistic the on-going strategic review of its Fluid Systems business (managed by Lazard) will be completed by the end of 3Q 2024 (versus previous commentary targeting mid-year 2024). Net working capital at Fluid Systems was ~$160 million at the end of 3Q 2024.  We estimate a deal would precipitate a significant re-rating of NR shares toward a valuation more in-line with specialty rental & services peers as opposed to a legacy oilfield services provider (i.e., high single-digit to low double-digit multiples versus low- to mid-single digit-type valuations).

Our base case fair value for NR remains ~$10 per share based on an 8.5x blended multiple on 2025E adjusted EBITDA of $99.2 million (previously $98.1 million), reflecting a 5.0x multiple at Fluid Systems (previously 5.5x) and 9.5x (unchanged) at Industrial Solutions, while accounting for corporate costs and projected net debt/cash (see Exhibit #1 on page 2).

PCS Research Group welcomes and encourages your feedback. Please feel free to call us if we can be of service.

Radar Screen – August 2024

Monthly publication providing ongoing analysis on companies where we see potential for a value-unlocking event

Companies discussed this month:  Albany International (AIN), Alphabet Inc. (GOOG), APi Group Corp. (APG), Bloomin’ Brands (BLMN), California Resources Corp. (CRC), Carrier Global Corp. (CARR), Crown Castle Inc. (CCI), FedEx Corporation (FDX), Luxfer Holdings (LXFR)*, Goodyear Tire & Rubber, Inc. (GT), Masimo Corp. (MASI), Matthews International Corp. (MATW), Natura & Co. (NTCO), Netgear Inc. (NTGR), Newpark Resources (NR), RCI Hospitality Inc. (RICK), Stanley Black & Decker (SWK), TFI International Inc. (TFII), TriMas Corporation (TRS)

*New Entry This Month

Product Specialist

Rich Albanese
ralbanese@pcsresearchgroup.com
+1 646-839-5566

The Weekly Wrap-Up provides summaries of recent publications from the Spin-Off Report including links to the full-length research reports.  If you haven’t engaged with the research over the past seven days, the Weekly Wrap-Up will quickly update you on our newest and highest conviction ideas.

UPCOMING SPIN-OFFS AND EXPECTED COMPLETION DATES:

• Jacobs Solutions Inc. (J) / Critical Mission Solutions – 3Q 2024
• Spectrum Brands (SPB) / Home & Personal Care Business – 3Q 2024
• Western Digital (WDC) / HDD Business – 2H 2024
• MDU Resources Group (MDU) / Construction Services – 2H 2024
• Berry Global Group Inc. (BERY) / HH&S And Films Businesses (to merge w/ Glatfelter) – 2H 2024
• Holcim Ltd. (HOLN SW) / North American Business – 1H 2025
• DuPont Inc. (DD) / Electronics and Water Business – 2H 2025

RECENT PUBLICATIONS:

Update:  Howard Hughes Holdings Inc. (NYSE: HHH)

August 1, 2024

HHH completes the spin-off of Seaport Entertainment (SEG)

On July 31, 2024, at 11:59 pm (ET), Howard Hughes (NYSE: HHH) completed the separation of Seaport Entertainment (NYSE American: SEG), which primarily owns real estate assets centered in and around New York City’s South Street Seaport (along with a 25% stake in Jean-Georges Restaurants, air rights above the Las Vegas Fashion Mall as well as ownership of The Las Vegas Aviators, a Triple-A minor league baseball team) into a separate, publicly traded company via a tax-free spin-off.

Shareholders received one share of SEG for every nine shares of HHH owned. (Cash will be paid in lieu of fractional shares, which, while the overall transaction was tax free could trigger a taxable gain/loss for some shareholders.)

Pre-spin HHH appreciated roughly 15% from our pre-spin BUY recommendation on July 8th (with a $78 pre-spin FVE).

While noting that we think a fair degree of value has seemingly been pulled forward ahead of the separation, we do think the transaction better positions post-spin HHH (i.e., the parent) both from a simplification and cash flow perspective, which should make it more attractive to investors and benefit its valuation over time. To those ends, the separation of SEG positions post-spin HHH as a pure-play real estate company (i.e., MPCs, landbank and development) and removes the “cash drag” of the money losing Seaport business (i.e., it generated an ~$18 million NOI loss in 1H 2024 and ~$32.5 million when including the losses from unconsolidated joint ventures, such as The Tin Building by Jean-Georges), which should facilitate incremental capital allocation options (e.g., buybacks and/or investments in its MPCs).

As for the Seaport, low occupancy, negative cash flow, and the need to fund the 250 Water Street project will likely remain a concern for those outside of deep value real estate-focused investors.
Overall, in approaching valuation, we acknowledge the majority of value in both the parent and post spin entities is largely derived from the future value of land along with the earnings potential of its operating assets (versus HHH’s current earnings profile). As highlighted in management’s estimated NAV, the largest ascribed value is placed on future MPC land sales, some of which are forecasted to persist into 2086, which obviously requires myriad assumptions to be made (all are subject to challenge but ultimately it seems the assets clearly have some value).

For additional information please see our initiation reported dated July 8, 2024

Radar Screen – August 2024

Monthly publication providing ongoing analysis on companies where we see potential for a value-unlocking event

Companies discussed this month:  Albany International (AIN), Alphabet Inc. (GOOG), APi Group Corp. (APG), Bloomin’ Brands (BLMN), California Resources Corp. (CRC), Carrier Global Corp. (CARR), Crown Castle Inc. (CCI),  FedEx Corporation (FDX),  Luxfer Holdings (LXFR)*, Goodyear Tire & Rubber, Inc. (FLT), Masimo Corp. (MASI), Matthews International Corp. (MATW), Natura & Co. (NTCO), Netgear Inc. (NTGR), Newpark Resources (NR), PAR Technology Corp. (PAR), RCI Hospitality Inc. (RICK), Stanley Black & Decker (SWK), TFI International (TFII), TriMas Corporation (TRS)

*New Entry this Month

Spin-Off Report Calendar – August 2024

Published monthly, The Spin-Off Calendar provides one-page summaries of every spin-off under coverage from the announcement date, followed by the filing of the Form 10 and continuing 60 days post completion.

Spin-Off Report Compendium – June 2024

Murray Stahl’s commentary on various investing themes and single stock recommendations.

European Spin-Off Compendium – July 2024

Murray Stahl’s commentary on various investing themes and single stock recommendations in Europe. 

Bits & Pieces – July 2024

Covers mispriced stub securities, tracking stocks and other arbitrage opportunities.

Product Specialist

Rich Albanese
ralbanese@pcsresearchgroup.com
+1 646-839-5566

The Weekly Wrap-Up provides summaries of recent publications from Hidden Opportunities including links to the full-length research reports.  If you haven’t engaged with the research over the past seven days, the Weekly Wrap-Up will quickly update you on our newest and highest conviction ideas. 

HIGH-CONVICTION RECOMMENDATIONS (LONG):

• Garrett Motion Inc. (GTX)
• Luxfer Holdings PLC (LXFR)
• Newpark Resources, Inc. (NR)
• TFI International Inc. (TFII)

RECENT INITIATIONS:

• Luxfer Holdings PLC (LXFR)

LATEST PUBLICATIONS & UPDATES:

UPDATE:  LUXFER (NYSE: LXFR)

July 31, 2024

LXFR increases full year 2024E adj. EBITDA, EPS and FCF guidance, driven wholly by the recovery of some prior period legal expenses; suggests timing for Graphics Arts sale has been pulled forward into 3Q 2024; fair value remains $16.50 per share

LXFR reported 2Q 2024 consolidated sales down 9.7% year-over-year (albeit up 11.5% sequentially) to $99.7 million with adj. EBITDA and EPS of $17.3 million and $0.39, respectively (or $13.4 million and $0.24, excluding legal/insurance recoveries of litigation costs related to the so-called U.S. Ecology case).

Sales at the Gas Cylinders segment improved 2.7% to $49.8 million while adj. segment EBITDA was flat at $4.9 million. Elektron segment sales were down ~21% to $42 million with adjusted segment EBITDA $12.4 million (or $8.5 million, ex-legal recoveries).

Free cash flow was $6.2 million in 2Q 2024, and the company ended the June quarter with net debt of $69.9 million, including $4.3 million of cash and debt of $74.2 million. LXFR’s net leverage ratio at quarter-end was 1.8x (or 1.6x, excluding the Graphic Arts segment), which was consistent versus the end of 2023 but improved compared with the 2.0x and 1.7x metrics posted in 1Q 2024.

In terms of guidance, solely driven by the aforementioned recovery of prior period legal costs as management remains “cautious on short-term revenue trends”, LXFR increased adj. EBITDA, EPS and FCF guidance to $47-$50 million, $0.90-$1.00 and $24-$27 million (compared with previous guidance of $44-$48 million, $0.75-$0.90 and $21-$25 million and initial guidance of $42-$46 million, $0.70-$0.85, and $20-24 million).

In terms of the Graphic Arts sale process, management indicated that it is in the last stages of a competitive bid process (that included ~100 prospective buyers) and has entered exclusive discussions with a single (but unnamed) counterparty. To that end, LXFR now expects to announce a transaction in 3Q 2024 (versus its previous commentary targeting completion by year-end.

Our base case fair value estimate for LXFR remains $16.50 per share, reflecting values of ~$8 per share, ~$10 per share, and ~$0.50 per share for the Gas Cylinders, Elektron and Graphic Arts businesses, respectively. Accounting for projected net debt of ~$2 per share yields a base case sum-of-the-parts fair value of ~$16.50 per share, 42% above the current share price.

UPDATE:  TRIMAS CORP. (TRS)

July 30, 2024

TRS lowers full-year 2024E guidance as pronounced weakness at Specialty Products offsets growth/improvement at Packaging & Aerospace; Activist-investor, Barington Capital, renews its public push for strategic alternatives; fair value revised to $32 per share (from $34 per share)

TRS reported 2Q 2024 consolidated sales up ~3% to $240.5 million (compared with consensus of $236.7 million), as organic growth of 13% and ~28% at the Packaging & Aerospace segments more than offset a 45% decline at Specialty Products. Adj. EBITDA was $36.6 million (versus $45.5 million in 2Q 2023 and consensus of ~$45 million) while adj. EPS was $0.43 (compared with $0.56 in the prior year period and consensus of $0.52). 

The company has repurchased nearly 672,000 shares, or ~1.3% of the outstanding total, in the first-six months of 2024 (at an implied purchase price of ~$25.15 per share) and remains authorized to repurchase an additional ~$70 million of shares.

Considering the pronounced weakness at the Specialty Products segment, which was only modestly profitable in 2Q 2024 (on ~$30 million of sales), TRS lowered its full year 2024E adj. EPS outlook to $1.70-$1.90 (from $1.95-$2.15) on a consolidated sales growth outlook of 4%-6% (previously 5%-8%).

By segment, management forecasts top-line growth of 9%-10% and 18%-22% at Packaging & Aerospace, respectively (versus prior commentary of 5%-9% and 14%-18%) with adj. EBITDA margins of 21%-23% and 18%-19% (compared with prior commentary calling for margins of 21.5%-23.5% and 16%-18%). Specialty Product segment sales are now expected to be down 25%-30% (compared with prior guidance of down 4% to up 1%) with a segment adj. EBITDA margin profile of 10%-14% (versus prior outlook of 17%-19%).

Barington Capital, currently a ~1.5% holder, renewed its public calls for TriMas to either sell its Aerospace division and/or the entire company in an effort to remedy what the investor contends is TRS’s “long-term share price underperformance”. (Recall, TRS has previously disclosed its efforts to sell its relatively small Arrow Engine business, which, if successful, will mark the company’s exit from the oil & gas sector.)

Our base case fair value estimate for TRS is revised to $32 per share (from $34 per share),  35% above the current share price.  Our fair value reflects a blended multiple of ~9.0x (unchanged) on 2025E adj. EBITDA of ~$173 million (previously ~$178 million), projected net debt of ~$319 million (previously $272.5 million) and a fully diluted share count of ~40.1 million (previously ~40.7 million).

Radar Screen – August 2024

Monthly publication providing ongoing analysis on companies where we see potential for a value-unlocking event

Companies discussed this month:  Albany International (AIN), Alphabet Inc. (GOOG), APi Group Corp. (APG), Bloomin’ Brands (BLMN), California Resources Corp. (CRC), Carrier Global Corp. (CARR), Crown Castle Inc. (CCI), FedEx Corporation (FDX), Luxfer Holdings (LXFR)*, Goodyear Tire & Rubber, Inc. (GT), Masimo Corp. (MASI), Matthews International Corp. (MATW), Natura & Co. (NTCO), Netgear Inc. (NTGR), Newpark Resources (NR), RCI Hospitality Inc. (RICK), Stanley Black & Decker (SWK), TFI International Inc. (TFII), TriMas Corporation (TRS)

*New Entry This Month

Product Specialist

Rich Albanese
ralbanese@pcsresearchgroup.com
+1 646-839-5566