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

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; Considering the price appreciation following our pre-spin BUY recommendation and pre-market indications that the stocks will trade roughly in-line with our FVEs we initially rate both post-spin HHH & SEG at NEUTRAL

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 (of which, all are subject to challenge but ultimately it seems objectively true, in our view, that 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)
• Newpark Resources, Inc. (NR)
• Atlanta Braves Holdings (BATRK)
• TriMas Corporation (TRS)
• TFI International Inc. (TFII)

RECENT INITIATIONS:

• Luxfer Holdings PLC (LXFR)

LATEST PUBLICATIONS & UPDATES:

NEW INITIATION:  LUXFER HOLDINGS PLC (LXFR)

July 23, 2024

Luxfer Holdings (NYSE: LXFR) reports three business segments: (1) Gas Cylinders (~46% of consolidated sales & ~38.5% of adj. EBITDA in 2023), which is a leading provider of specialized carbon composite (as well as aluminum) cylinders for gas storage & transportation; (2) Elektron (46% of sales & ~61.5% of adj. EBITDA), which primarily focuses on magnesium & zirconium-based advanced materials for, among others, the aerospace, healthcare & defense sectors; and (3) Graphics Arts (8% of 2023 consolidated sales), which offers magnesium, copper, zinc & brass photoengraving plates for the graphic arts and luxury packaging arenas.

In October 2023, LXFR announced a wide-ranging strategic review, which precipitated the decision, in February 2024, to pursue a sale of its non-core (and poorly performing) Graphic Arts business, which is expected to be completed by year-end, as well as the acknowledgement that the remaining Gas Cylinders & Elektron businesses had no “material strategic synergies” and could ultimately be separated in management’s pursuit of unlocking value for shareholders.

In that context, we think LXFR shares are undervalued relative to the sum value of its parts; to that end, in our estimation, based on management guidance and commentary as well as peer and M&A valuations, LXFR’s Gas Cylinders, Elektron, and Graphic Arts businesses could be valued at ~$8 per share, ~$10 per share, and ~$0.50 per share, 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, 25% above the current share price.

Potential catalysts include the separation/monetization of LXFR’s various businesses, accretive M&A, share repurchases, leverage reductions and/or better than expected growth and margins, particularly at the Gas Cylinders and Electron segments.

UPDATE:  GARRETT MOTION (GTX) GUIDES EBITDA & FCF MODESTLY LOWER WHILE RAISING NET INCOME GUIDANCE

July 25, 2024

GTX reported 2Q 2024 sales down 12% (or 10% on a constant currency basis) to $890 million as softness in gasoline, diesel & commercial vehicle sales (primarily in China & Europe) as well as commodity deflation was partially offset by strength in the aftermarket. Adj. EBITDA fell ~11.7% to $150 million while adj. net income and adj. free cash flow (FCF) were $64 million and $62 million, respectively (vs. $71 million and $140 million in the prior year period).

GTX repurchased an additional $65 million worth of shares in 2Q 2024, which along with the buybacks in 1Q 2024 brings its year-to-date repurchase activity to $174 million.  We think GTX is on-track to exhaust its $350 million repurchase authorization in 2024 (if completed, implies a year-end diluted share count of ~210 million or below, which is a contention with which management does not quibble).

Additionally, GTX ended 2Q 2024 with net debt of $1.399 billion (versus $1.487 billion in 1Q 2024), yielding a sequential improvement in its leverage ratio to 2.26x (from 2.32x in 1Q 2024 and ~2.3x at the end of 2023)

On the guidance front, reflecting management’s assumption that global light & commercial vehicle production trends will remain volatile, GTX adjusted its sales guidance to $3.5-$3.65 billion  (from the previous range of $3.80-$3.95 billion) with adj. EBITDA of $583-$633 million (from the previous range of $590-$580 million although we would point out that management indicates that excluding currency and the divestment of an equity investment in 1Q 2024 its guidance would actually have been flat) and FCF $300-$400 million (versus the previous range of $325-$425 million). Nevertheless, GAAP net income guidance was increased to $245-$285 million, in part due to lower interest costs (from the previous range of $230-$275 million).

On the electric vehicle (EV) or zero-emission vehicle (ZEV) front, GTX continues to garner pre-development projects for its E-Powertrain, E-Cooling Compressor and H2 Fuel Cell solutions/systems and it indicates it is “on target to achieve” ~$1 billion of EV/ZEV sales (at or above the company’s existing margin profile) by 2030. As well, the company is optimistic about the prospects for its new power generation vertical following the securement of two awards for its large industrial turbo product set, where demand is largely being driven by the global expansion of data center infrastructure.

In terms of the longer-term outlook, on which we note that management has solid visibility considering ~80% of sales over the next 5-years have already been award by its OEM customers, we broadly concur with management’s contention that the core turbocharger business is likely to be bigger in 2030 than it is today and that GTX will generate free cash that equals or exceeds the company’s current market capitalization over the next five years. (As well, in terms of allocating that capital, management will continue to repurchase shares, reduce leverage and may ultimately instate a dividend.)

Our base case fair value estimate for GTX is lowered to ~$12 per share (from $12.50 per share), 39% upside from the current share price.

UPDATE:  TFI INTERNATIONAL INC. (TFII) TOPS EBITDA AND EPS CONSENSUS BY 11% AND 5.5%

July 26, 2024

Last night, after the market close, TFII reported 2Q 2024 sales up ~26.5% to $2.26 billion (vs. consensus of $2.29 billion), largely driven by acquisitions (primarily Daseke). Adjusted EBITDA rose ~26.5% to ~$380 million (vs. consensus of ~$342.7 million). Adj. EPS increased 7.5% to $1.71 (vs. consensus of $1.62) and adj. FCF rose ~9.5% to ~$151 million (compared with $138 million in the prior year period).

On this morning’s conference call, management backed its prior commentary calling for full-year 2024 adj. EPS of $6.75-$7.00 with free cash flow (FCF) of $825-$900 million (or ~$9.65-$10.55 per share, by our calculation) based on a net capital spending budget of $275-$300 million. In terms of the balance sheet, TFII still plans to pay down $500-$600 million of debt in 2024 and targets a funded debt-to-EBITDA ratio of less than 1.7x by year-end.

This outlook assumes that the persistently “sluggish” freight environment endures through the year, which we think is a prudent assumption, particularly as it relates to the Truckload (TL) environment, but on the Less-than-Truckload (LTL) front we would note that recent competitor commentary suggests a “turn” could be emerging off a “bottom” in the LTL market (which is a business where TFII is anecdotally targeting a “sub-90%” segment operating ratio in 2H 2024 and sees a full-year result below that 90% threshold in 2025).

Our base case fair value estimate for TFII remains $167.50 per share, 8% above the current share price (share have appreciated 18% since our initial recommendation on May 31, 2024). 

Radar Screen – July 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)

*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:

• Howard Hughes Holdings Inc. (HHH) / Seaport Entertainment Group – July 31, 2024
• Jacobs Solutions Inc. (J) / Critical Mission Solutions – 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
• Spectrum Brands (SPB) / Home & Personal Care Business

RECENT PUBLICATIONS:

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

July 19, 2024

Howard Hughes Holdings (NYSE: HHH) formally approved the previously announced separation of Seaport Entertainment (NYSE: SEG) via the pro rata distribution of all shares to holders of record as of the close on July 29, 2024. Concurrent with the distribution, shareholders will receive one share of SEG for every nine shares of HHH owned.

Fractional shares will be aggregated and sold in the open market, with net proceeds being distributed pro rata in cash (which, while the overall transaction is expected to be tax-free, will trigger a gain/loss for some shareholders). Management expects “when-issued” trading of Seaport Entertainment to begin July 29^th under the NYSE ticker of SEG WI with “regular-way” trading expected to commence August 1, 2024.

We continue to assign a pre-spin, sum-of-the-parts valuation of $78 per share, consisting of $70 in value from the parent company and $8 per share in value from Seaport Entertainment.

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.

In deriving our fair value estimate, we attempted a conservative approach, leaving the potential for incremental upside, considering that the ultimate value realization for shareholders may not be attained for several years, if not decades. Moreover, given the volatility surrounding asset valuations due to economic and social forces as well as the asset-heavy approach to valuation, it is not clear if the separation of the spin-off of the Seaport assets, in of itself, will prove to be a value-creating transaction. Rather, we suggest that the parent company, ex-Seaport Entertainment, appears better positioned to capitalize on its value creation cycle and should at least appear more attractive to investors. 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.

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

Radar Screen – July 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. (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 – July 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)
• Newpark Resources, Inc. (NR)
• Atlanta Braves Holdings (BATRK)
• TriMas Corporation (TRS)
• TFI International Inc. (TFII)

RECENT INITIATIONS:

• TFI International Inc. (TFII)

LATEST PUBLICATIONS & UPDATES:

API GROUP (APG): CLOSING COVERAGE AFTER 85% INCREASE IN SHARE PRICE

June 28, 2024

Since our initial recommendation in March 2023 APG shares have appreciated ~84.9% (versus a ~38.8% increase in the S&P 500 Index and a ~16.8% rise in the Russell 2000).

That said, with shares trading roughly in-line with our $40 fair value estimate, which reflected a blended multiple of ~12.5x on F2025E adjusted EBITDA of ~$1.01 billion along with projected net debt of ~$1.4 billion and a diluted share count of ~281.5 million (see Exhibit 2 on page 2), we prefer to maintain a disciplined approach and focus our resources on more currently compelling situations; as such, we will close coverage of APG, as of today’s close.

As always, we will continue to monitor the shares for an opportunity to re-recommend if valuation shifts or more tangible steps toward potential strategic alternatives materialize.

Radar Screen – July 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)

*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:

• Baxter International Inc. (BAX) / Vantive – 2H 2024
• Howard Hughes Holdings Inc. (HHH) / Seaport Entertainment Group – July 31, 2024
• Jacobs Solutions Inc. (J) / Critical Mission Solutions – 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
• Spectrum Brands (SPB) / Home & Personal Care Business

RECENT PUBLICATIONS:

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

July 19, 2024

HHH approves the previously announced Spin-Off of Seaport Entertainment; Distribution set for July 31st, after the market close, to shareholders of record on July 29th; Maintain BUY on pre-spin HHH

Today, Howard Hughes Holdings (NYSE: HHH) formally approved the previously announced separation of Seaport Entertainment via the pro rata distribution of all shares to holders of record as of the close on July 29, 2024. Concurrent with the distribution, shareholders will receive one share of Seaport Entertainment (NYSE: SEG) for every nine shares of HHH owned.

Notably, fractional shares will be aggregated and sold in the open market, with the net proceeds being distributed pro rata in cash (which, while the overall transaction is expected to be tax-free, will trigger a gain/loss for some shareholders). Management expects “when-issued” trading of Seaport Entertainment to begin July 29^th under the NYSE ticker of SEG WI with “regular-way” trading of the security (NYSE: SEG) expected to commence August 1, 2024. Shares of HHH will continue to trade “regular way” through the July 29^th distribution date (with “ex-distribution” shares trading under the NYSE ticker HHH WI). We continue to assign a pre-spin, sum-of-the-parts valuation of $78 per share, consisting of $70 in value from the parent company and $8 per share in value from Seaport Entertainment (see initial report dated 7/8/2024 for additional info).

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 (of which, all are subject to challenge but ultimately it seems objectively true, in our view, that the assets clearly have some value).

In deriving our fair value estimate, we attempted a conservative approach, leaving the potential for incremental upside, considering that the ultimate value realization for shareholders may not be attained for several years, if not decades. Moreover, given the volatility surrounding asset valuations due to economic and social forces as well as the asset-heavy approach to valuation, it is not clear if the separation of the spin-off of the Seaport assets, in of itself, will prove to be a value-creating transaction. Rather, we suggest that the parent company, ex-Seaport Entertainment, appears better positioned to capitalize on its value creation cycle and should at least appear more attractive to investors. 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.

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

Radar Screen – July 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. (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 – July 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 – April 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)
• Newpark Resources, Inc. (NR)
• Atlanta Braves Holdings (BATRK)
• TriMas Corporation (TRS)
• TFI International Inc. (TFII)

RECENT INITIATIONS:

• TFI International Inc. (TFII)

LATEST PUBLICATIONS & UPDATES:

API GROUP (APG): CLOSING COVERAGE AFTER 85% INCREASE IN SHARE PRICE

June 28, 2024

Since our initial recommendation in March 2023 APG shares have appreciated ~84.9% (versus a ~38.8% increase in the S&P 500 Index and a ~16.8% rise in the Russell 2000).

That said, with shares trading roughly in-line with our $40 fair value estimate, which reflected a blended multiple of ~12.5x on F2025E adjusted EBITDA of ~$1.01 billion along with projected net debt of ~$1.4 billion and a diluted share count of ~281.5 million (see Exhibit 2 on page 2), we prefer to maintain a disciplined approach and focus our resources on more currently compelling situations; as such, we will close coverage of APG, as of today’s close.

As always, we will continue to monitor the shares for an opportunity to re-recommend if valuation shifts or more tangible steps toward potential strategic alternatives materialize.

Radar Screen – July 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)

*New Entry This Month

Product Specialist

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