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

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 – 2H 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:

Comprehensive Report:  Howard Hughes Holdings Inc. (NYSE: HHH)

July 8, 2024

On October 5, 2023, Howard Hughes Holdings Inc. (NYSE: HHH) issued a press release detailing the creation of a newly formed division, Seaport Entertainment, which now controls the company’s entertainment-related assets in New York and Las Vegas. Assets in the new division include the Seaport in Lower Manhattan and the Las Vegas Aviators Triple-A Minor League Baseball team (as well as the team’s stadium). Additionally, the 25% ownership stake in Jean-Georges Restaurants and the 80% air rights ownership above the Las Vegas Fashion Show Mall, which are contemplated to be used to create a new Las Vegas Strip casino, are included in Seaport Entertainment. HHH intends to complete the spin-off of Seaport Entertainment into a publicly traded company by year-end 2024. Following the planned separation, HHH will transform into “a pure-play real estate company focused solely on its portfolio of acclaimed master planned communities.”

On a pre-spin, sum-of-the-parts basis we assign an $80 fair value estimate to shares of HHH, consisting of $70 in value from the parent company and $8 per share in value from Seaport Entertainment. With over 20% upside to our base case fair value estimate we recommend shares of Howard Hughes prior to the separation. Upside to our fair value estimate exists from improvements in the general economy, which would result in increasing leased percentages and occupancy, increased land values at the MPCs (Master Planned Communities), and progress made on profitability at Seaport. It is not our belief that in and of itself, the spin transaction will unlock value. However, the parent company is better positioned to capitalize on its value creation cycle, and shareholder returns may take several years.

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 – June 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 CORP. (APG): CLOSING COVERAGE AFTER 85% INCREASE IN SHARE PRICE

June 28, 2024

For context, 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 – 2H 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:

ALERT:  Spectrum Brands Confidentially Files Form 10 to Spin Off Home & Personal Care Business

On July 2, 2024, after the market close, Spectrum Brands Holdings Inc. (NYSE: SPB) announced they had confidentially filed a Form 10 registration statement with the SEC in connection with its previously discussed plans to separate its home & personal care (“HPC”) business through a sale, merger, spin-off, or other strategic transaction. Management had recently indicated that the company was accelerating its efforts to complete the separation of HPC.

SPB describes itself as a “diversified global branded consumer products and home essentials company.” In F2023 (September FYE), the company generated $2.9 billion in consolidated revenue, representing an 8.1% organic year-over-year decline, and adjusted EBITDA of $303 million, as a $20 million increase in pricing and cost reductions offset volume declines. Through 1H F2024, company revenue declined by 2.2%, largely as a result of a 5% decline at HPC. The company reports results under three segments: Global Pet Care (“GPC”), Home and Garden (“H&G”), and HPC.

HPC’s (43% of revenue and 14% of adjusted EBITDA) products include small kitchen appliances (toasters, slow cookers, air fryers, etc.), and personal care products (hair dryers, straighteners, electric shavers, and nose and ear trimmers, amongst others).

In terms of rationale, the separation of the HPC business has been telegraphed since the company acquired Tristar in February of 2022. The incorporation of Tristar Products, which was a manufacturer of home appliances and cookware products, was meant to provide scale and financial synergies to the HPC business and ready it to eventually be a standalone. Since the acquisition, HPC has been plagued by issues including integration issues, distribution challenges, increased levels of retail inventory resulting in reduced product demand, and product recalls, amongst others.

It appears reasonable to forecast that HPC sales continue to experience modest declines of 5% in F2024 (inline with 1H F2024) and 3% in F2025, resulting in F2025 revenue of ~$1.2 billion. We model a 6% EBITDA margin for the standalone company, resulting in $68.7 million in EBITDA, and value the segment at 8.5x implying a $584 million enterprise value. For the parent company, we forecast revenue to decline by 0.4% in F2024 and increase by 1.0% in F2025.

Based on EBITDA margin of 16% and valuing the segments at 10x, we estimate the parent company to be valued at $2.7 billion on an enterprise basis. Accounting for $40 million in corporate costs, capitalized at the weighted average multiple, current net debt of $138 million, and 29.2 million shares outstanding, on a preliminary sum-of-the-parts basis we fairly value shares of Spectrum Brands at $94 per share, 11% above today’s closing price.

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 – June 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 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 – 2H 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

RECENT PUBLICATIONS:

MDU Resources Group Inc. (MDU)

June 10, 2024

On November 23, 2023, MDU Resources Group Inc. (NYSE: MDU) announced that its Board of Directors approved a plan to separate the construction services business into a standalone, publicly traded company, via a spin-off. Following the separation, MDU Resources will become a pure-play regulated energy delivery company. The transaction is targeted to be completed in late-2024. The standalone Construction services company will adopt the corporate moniker Everus Construction Group. MDU management has not ruled out retaining an ownership stake in Everus similar to what was done with the Knife River transaction.

The final deconstruction of MDU returns the company to its roots as a pure play energy delivery and distribution company with significant scale. It plans to invest $2.7 billion into regulated infrastructure over the next five years that will deliver earnings growth. As a utility, the company should be able to generate stable cash flow, and earnings growth from system replacement and expansion, particularly in relation to the electric transmission system. Tailwinds from government infrastructure spending and new high-volume electric customers, such as data centers, combined with approximately 80% of utility revenue being fixed augers well for stable earnings and cash flow growth at the post-spin MDU. Management has stated that MDU will maintain its long-term dividend payout policy of 60% to 70% of regulated earnings, and has indicated that there are no foreseeable equity issuance needs prior to 2027.

For its part, the Construction Services business is positioned to capitalize on government infrastructure spending and deliver earnings growth at or above that of the utility business. For reference, the current segment has grown EBITDA at a 17% CAGR since 2018, while requiring minimal capital expenses (<2% of revenue) allowing for business reinvestment and potential acquisitions. Notably, the segment has a current backlog (as of the March 2024) of $2.2 billion, of which $1.85 billion is related to electrical and mechanical work.

Given the current trading multiple of MDU, it implies that following the spin-off, shares of Everus should be re-rated higher to approximate that of E&C peers, while a corresponding reduction in trading multiples at the utility company does not seem likely. Under this scenario, the transaction appears to be poised to unlock value when considering the growth prospects for both post-spin companies.

We fairly value MDU at $31 per share, 28% above the current share price. This consists of approximately $16 per share in value from Everus and $15 per share from the remaining regulated businesses. Given the implied upside to our fair value from the current share price, we rate pre-spin shares of MDU at BUY. We note that both post-spin companies’ ability to grow earnings are supported by macro trends, including large government spending from the Infrastructure Investment and Jobs Act, and the Inflation Reduction Act, customer and rate base growth from regulatory friendly jurisdictions, which provide an attractive investment opportunity at the current pre-spin share price.

Radar Screen – June 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),  Goodyear Tire & Rubber, Inc. (FLT), IAC Inc. (IAC), Liberty Broadband Corp. (LBRDK), 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 – June 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 – March 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 – June 2024

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

Product Specialist

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