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:

TFI International Inc. (TFII):  Comprehensive Report

May 31, 2024

TFI International Inc. (NYSE: TFII) reports four business segments: (1) Package & Courier (~7.5% of consolidated sales and ~11% of adjusted EBITDA in 2023); (2) Less-than-Truckload (44.5% of sales and ~38% of adj. EBITDA); (3) Truckload (25.5% of 2023 sales and 34.5% of adj. EBITDA); and (4) Logistics (22.5% of sales and 16.5% of adj. EBITDA in 2023). In our view, following the April 2024 acquisition of specialized/flat-bed carrier Daseke, Inc., TFI International, which has an active history of both acquisitions & divestitures is likely, based on recent management commentary, to consider value-unlocking options for its Truckload division, including a spin-off as a standalone or a strategic merger.

The company’s asset-light Package & Courier (P&C) business (and the non-asset-based Logistics division) are seemingly undervalued in the current corporate structure and could be ancillary sources of longer-term optionality. On the valuation front, TFII trades at less than 8.0x 2025E EV/EBITDA, ~14.5x 2025E EPS, and, at the mid-point of management’s recently articulated guidance, with a free cash flow yield of ~8%.

Based on management guidance and commentary as well as peer and M&A valuations, TFII’s Package & Courier (P&C), Less-than-Truckload (LTL), Truckload (TL) and Logistics businesses could be valued at $10 per share, ~$83 per share, $53 per share, and ~$49 per share, respectively. Accounting for corporate costs and projected net debt of ~$27.50 per share yields a base case sum-of-the-parts fair value of $167.50 per share (with bull and bear cases of ~$186.50 per share and ~$148.50 per share, respectively), 20% above the current share price.

Radar Screen – New Addition:  NETGEAR (NTGR)

June 3, 2024

NETGEAR, Inc. (NASDAQ: NTGR), a global networking company, could, under recent pressure from activist-investor Windward Management (currently a ~4.2% holder) as well as the leadership of a new chief executive, evaluate a range of strategic options, including a material repurchase of company shares as well as the separation of its NETGEAR for Business (NFB) segment (from the core-Connected Home business).

The investor reportedly contends that with ~80% of the company’s market capitalization in net cash the company’s most recent free cash flow guidance implies a “de minimis, to potentially negative enterprise value by year end”. Specifically, Windward recommends the company increases its share repurchase authorization to “at least $100 million” as well as to create a strategic review committee to explore the separation of its Connected Home and NETGEAR for Business (NFB) segments.

Currently, NTGR reports two segments: (1) Connected Homes (60% of consolidated sales and ~25% in total contribution margin); and (2) NETGEAR for Business or NFB (40% of sales and ~75% in contribution margin). The company recently withdrew the full-year 2024 financial guidance it articulated at its Investor Day in December 2023, which we note was issued under the previous leadership of co-founder Patrick Lo and called for full-year operating margin of 1%-4% with year-over year free cash (FCF) growth of 200%-400% and a tax rate of ~24%. The long-term target model projected mid-single digit annual revenue growth, a gross margin of 40%-plus, double-digit non-GAAP operating margins and low double-digit non-GAAP EPS growth. That said, on the most recent 1Q 2024 earnings conference call the new management team, led by Charles Prober, the company issued narrower quarterly guidance calling for 2Q 2024 sales of $125-$140 million.

It could be projected that the CH and NFB segments generate adj. EBITDA of ~$21 million and ~$56 million, respectively. Publicly traded peers to the Connected Homes segment could include, D-Link Corp (2232 TT), Eero (NASDAQ: AMZN), Linksys (601138 CH), Minim (NYSE: MSI), Google WiFi (NASDAQ: GOOG), and Samsung (005930 KS), which trade at ~11x 2025E EV/EBITDA. Applying a 7.5x multiple to 2025E EBITDA implies a segment value of $155.1 million. Publicly traded peers to the NETGEAR for Business (NFB) include Cisco Systems (NASDAQW: CSCO), Dell Technologies (NASDAQ: DELL), Extreme Networks (NASDAQ: EXTR), Fortinet Inc. (NASDAQ: FTNT), Hewlett Packard Enterprises (NYSE: HPE), and Palo Alto Networks (NASDAQ: PANW), which trade at ~15x 2025E EV/EBITDA.

Applying a 10x multiple to 2025E EBITDA implies a segment value of $557.8 million. Accounting for corporate costs, capitalized at ~7.5x, as well as projected net cash yields a sum of the parts value of $435.2 million or $15 per share (based on a diluted share count of $29.4 million).

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. (GT), 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 Inc. (TFII), TriMas Corporation (TRS)

*New Entry This Month

Product Specialist

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

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

HIGH-CONVICTION RECOMMENDATIONS (LONG):

• Garrett Motion Inc. (GTX)
• Newpark Resources, Inc. (NR)
• Atlanta Braves Holdings (BATRK)
• TriMas Corporation (TRS)
• TFI International Inc. (TFII)

RECENT INITIATIONS:

• TFI International Inc. (TFII)

LATEST PUBLICATIONS & UPDATES:

TFI International Inc. (TFII):  Comprehensive Report

May 31, 2024

TFI International Inc. (NYSE: TFII) reports four business segments: (1) Package & Courier (~7.5% of consolidated sales and ~11% of adjusted EBITDA in 2023); (2) Less-than-Truckload (44.5% of sales and ~38% of adj. EBITDA); (3) Truckload (25.5% of 2023 sales and 34.5% of adj. EBITDA); and (4) Logistics (22.5% of sales and 16.5% of adj. EBITDA in 2023). In our view, following the April 2024 acquisition of specialized/flat-bed carrier Daseke, Inc., TFI International, which has an active history of both acquisitions & divestitures (and was previously covered by The Hidden Opportunities Report in 2017-2021), is incrementally likely, based on recent management commentary, to consider potential value-unlocking options for its Truckload division, including a spin-off as a standalone or a strategic merger (looking into 2025-2026).

Additionally, the company’s asset-light Package & Courier (P&C) business (as well as the non-asset-based Logistics division) are seemingly undervalued in the current corporate structure and could be ancillary sources of longer-term optionality. On the valuation front, TFII trades at less than 8.0x 2025E EV/EBITDA, ~14.5x 2025E EPS, and, at the mid-point of management’s recently articulated guidance, with a free cash flow yield of ~8%. (Additionally, we would highlight that at the current quote TFII is within the $125-$135 per share range that management has recently indicated it was willing to accelerate its stock repurchase activity.)

Based on management guidance and commentary as well as peer and M&A valuations, TFII’s Package & Courier (P&C), Less-than-Truckload (LTL), Truckload (TL) and Logistics businesses could be valued at $10 per share, ~$83 per share, $53 per share, and ~$49 per share, respectively. Accounting for corporate costs and projected net debt of ~$27.50 per share yields a base case sum-of-the-parts fair value of $167.50 per share (with bull and bear cases of ~$186.50 per share and ~$148.50 per share, respectively), 27% above the current share price.

Potential catalysts include the separation/monetization of TFII’s businesses, accretive M&A, share repurchases, leverage reductions and/or better than expected growth and margins, particularly at the LTL & TL segments. Risks include management execution, particularly on acquisition integration, accident liability, currency fluctuations, competition/pricing pressure, regulation, labor issues, geopolitical disruptions, including pandemics, and/or a deterioration in industry fundamentals due to a recession.

Radar Screen – May  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. (GT), IAC Inc. (IAC), Liberty Broadband Corp. (LBRDK), Masimo Corp. (MASI), Matthews International Corp. (MATW), Natura & Co. (NTCO), Newpark Resources (NR), PAR Technology Corp. (PAR), 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 – 2Q 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
• Select Medical Holdings Corp. (SEM) / Concentra Business – 2H 2024
• Edwards Lifesciences Corp.(EW) / Critical Care Business – 2H 2024
• Holcim Ltd. (HOLN SW) / North American Business – 1H 2025
• DuPont Inc. (DD) / Electronics and Water Business – 2H 2025

RECENT PUBLICATIONS:

ALERT:  DUPONT TO SEPARATE INTO THREE INDEPENDENT COMPANIES VIA SPIN-OFFS

May 23, 2024

On May 22, 2024, after the market close, DuPont Inc. (NYSE: DD) announced its intention to separate into three independent publicly traded companies via tax free spin-offs of its Electronics and Water businesses. The separations are expected to be completed within 18 to 24 months.

DD describes itself as “a global innovation leader with technology-based materials and solutions … in key markets including electronics, transportation, construction, water, healthcare and worker safety.” The company generated $12.1 billion in revenue and $2.9 billion in operating EBITDA in 2023. As the company stands today it reports under two segments: Electronics & Industrial (44% of 2023 sales), and Water & Protection (47% of 2023 sales). (Corporate and other account for the remaining ~9% of sales.)

Electronics & Industrial (E&I) provides a broad portfolio of materials and components used in high performance computing, electric vehicles, and mobile devices, amongst others, to the aerospace, defense, transportation, healthcare and medical device industries.

Water & Protection (W&P) provides engineered products and integrated systems across multiple industries including worker safety, water purification, transportation, energy, and medical packaging, amongst others. W&P business lines include Safety Solutions, Shelter Solutions, and Water Solutions.

The New Electronics company will be comprised of the current Semiconductor Technologies and Interconnect Solutions businesses (currently in E&I), as well as certain electronics related businesses from the current Industrial Solution business. Applications to be controlled by the New Electronics company include integrated circuit fabrication for memory and logic semiconductors, as well as printed circuit board, electronic and industrial finishing.

The New Water company will control the current Water Solutions business line (currently in W&S) and offers products and solutions for water filtration, purification, reverse osmosis, ion exchange, and ultrafiltration.

Following the separation, the parent DuPont company, New DuPont, will remain a diversified industrial company controlling a range of material science and application expertise with well-known brand names such as Tyvek, Kevlar, and Nomex. End market exposure is expected to focus on healthcare, and electric vehicles, while remaining an active participant in the safety, construction, and aerospace end markets, amongst others. Absent New Electronics, and New Water’s contribution, New DuPont would have generated $6.6 billion in revenue and operated with an approximate EBITDA margin of 24% in 2023.

In terms of rationale, investor appetite for more specialized companies, particularly in the water and electronics businesses, may result in an unlocking of value. New Water and New Electronics should exhibit faster growth rates than the current conglomerate and a set of focused peer comps currently trade at higher forward multiples than the current DD. Water peers trade at approximately 19.5x forward EBITDA estimates, and Electronic peers trade at 22.5x forward EBITDA. DD currently trades at 13.0x forward EBITDA, which is roughly in line with other diversified industrial companies. 

Management issued 2024 guidance that includes revenue between $12.1 and $12.4 billion, and EBITDA between $2.9 and $3.05 billion. At the midpoint, this implies a 2.5% decline in revenue and a 1.1% increase in EBITDA. Management cites improving trends in electronics, and reduced channel destocking in their guidance. Based on the post-spin companies 2023 revenue and EBITDA margins, and assuming a modest recovery starting in 2H 2024 and continuing through 2025, its reasonable the post spin companies would be able to earn $1.5 billion, $1.1 billion, and $355 million in respective 2025 EBITDA for New DuPont, New Electronics, and New Water. Valuing each piece at a slight discount their respective peer set, and incorporating current net debt and shares outstanding, on a preliminary sum-of-the-parts basis, shares of pre-spin DuPont could be assigned a fair value estimate of $90 per share (14% upside from the current DD share price).

Radar Screen – May 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), 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 – May 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 – May 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)

RECENT INITIATIONS:  TriMas Corporation (TRS)

LATEST PUBLICATIONS & UPDATES:

RADAR SCREEN:  Stanley Black & Decker (SWK)

Stanley Black & Decker has been active on the acquisition and divestiture fronts in recent years, and could consider divestment, via spin-off or sale, of its remaining Industrial segment assets, largely comprised of its Engineered Fasteners business, to complete its broader objective of becoming a pure-play Tools business. SWK currently reports two operating segments: (1) Tools & Outdoor (84.5% of 2023 sales and ~76% of adj. segment profit), which is comprised of the Power Tools Group (PTG) and Hand Tools, Accessories & Storage (HTAS) and Outdoor Power Equipment (Outdoor) businesses; and (2) Industrial (15.5% of 2023 sales and ~24% of adj. segment profit), comprised of the Engineered Fastening and Infrastructure businesses.

Based on current trends, management commentary, and current consensus forecasts, SWK can be projected to post, on a consolidated basis, sales of ~$16.0 billion and adjusted EBITDA of ~$1.965 billion in 2025E. By segment, Tools & Storage and Industrial segments could post revenue of ~$13.5 billion and ~$2.5 billion, respectively, with adjusted EBITDA of $1.715 billion and ~$505 million.

Peers for Tools & Storage, which could include Makita Corp. (6586 JP), Husqvarna AB (HUSQA SS, HUSQB SS), and Snap-on Inc. (NYSE: SNA), trade at 10x 2025EEV/EBITDA (in a range of ~7.5x-12.0x), while Industrial peers, such as Ingersoll Rand (NYSE: IR), Illinois Tool Works (NYSE:ITW) and Atals Copco (ATCOA SS), trade at about 17.5x 2025E EV/EBITDA (in a range of ~17.0-18.5x). Applying discounted multiples of 9.5x and 15.5x to 2025E EBITDA projections yields segment enterprise values of ~$18.25 billion and $6.65 billion for Tools & Storage and Industrial, respectively.

Accounting for corporate costs capitalized at ~11.0x (or the weighted average of applied segment multiples) and projected net debt of roughly $6.225 billion, implies a sum-of-the-parts fair value of $15.4 billion, or $102 per share (19% upside from the current share price).

UPDATE:  Newpark Resources, Inc. (NR)

May 3, 2024

Newpark posted 1Q 2024 consolidated sales of $169 million (compared with consensus of $171 million and $200 million in the year ago period) with adj. EBITDA of $21.8 million (compared with consensus of $16.35 million and $20.96 million in the year ago quarter). Adjusted net income was $0.10 per share (versus $0.09 in the prior year period) while free cash flow (FCF) was ($0.8) million (versus $23.2 million in 1Q 2023 although we would note that management anecdotally expects to be FCF positive in the remaining quarters of 2024 and for the full year).

By segment, Fluid Systems posted 1Q 2024 sales of $120.1 million (compared with $144.2 million in 1Q 2023) with adj. segment EBITDA of $8.6 million (compared with $8.7 million in the year ago period), implying ~120 bps of margin improvement to 7.2%, while Industrial Solutions generated March-quarter sales of $49 million (versus $55.9 million in the year ago quarter) with adj. segment EBITDA of $18 million (compared with $19.7 million in the year ago period), implying ~150 bps of margin expansion to 36.8%.

Management indicated the on-going strategic review at Fluid Systems continues to “move forward” and that management remained “optimistic” the process will be completed in “the first half” of 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 (31% upside from the current share price) based on an 8.5x blended multiple on 2025E adjusted EBITDA of $98.1 million, reflecting a 5.5x multiple at Fluid Systems and 9.5x at Industrial Solutions, while accounting for corporate costs and projected net debt.

Radar Screen – May  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. (GT), IAC Inc. (IAC), Liberty Broadband Corp. (LBRDK), Masimo Corp. (MASI), Matthews International Corp. (MATW), Natura & Co. (NTCO), Newpark Resources (NR), PAR Technology Corp. (PAR), 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 – 2Q 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
• Select Medical Holdings Corp. (SEM) / Concentra Business – 2H 2024
• Edwards Lifesciences Corp.(EW) / Critical Care Business – 2H 2024
• Holcim Ltd. (HOLN SW) / North American Business – 1H 2025

RECENT PUBLICATIONS:

ALERT:  DUPONT TO SEPARATE INTO THREE INDEPENDENT COMPANIES VIA SPIN-OFFS

May 23, 2024

On May 22, 2024, after the market close, DuPont Inc. (NYSE: DD) announced its intention to separate into three independent publicly traded companies via tax free spin-offs of its Electronics and Water businesses. The separations are expected to be completed within 18 to 24 months.

DD describes itself as “a global innovation leader with technology-based materials and solutions … in key markets including electronics, transportation, construction, water, healthcare and worker safety.” The company generated $12.1 billion in revenue and $2.9 billion in operating EBITDA in 2023. As the company stands today it reports under two segments: Electronics & Industrial (44% of 2023 sales), and Water & Protection (47% of 2023 sales). (Corporate and other account for the remaining ~9% of sales.)

Electronics & Industrial (E&I) provides a broad portfolio of materials and components used in high performance computing, electric vehicles, and mobile devices, amongst others, to the aerospace, defense, transportation, healthcare and medical device industries.

Water & Protection (W&P) provides engineered products and integrated systems across multiple industries including worker safety, water purification, transportation, energy, and medical packaging, amongst others. W&P business lines include Safety Solutions, Shelter Solutions, and Water Solutions.

The New Electronics company will be comprised of the current Semiconductor Technologies and Interconnect Solutions businesses (currently in E&I), as well as certain electronics related businesses from the current Industrial Solution business. Applications to be controlled by the New Electronics company include integrated circuit fabrication for memory and logic semiconductors, as well as printed circuit board, electronic and industrial finishing.

The New Water company will control the current Water Solutions business line (currently in W&S) and offers products and solutions for water filtration, purification, reverse osmosis, ion exchange, and ultrafiltration.

Following the separation, the parent DuPont company, New DuPont, will remain a diversified industrial company controlling a range of material science and application expertise with well-known brand names such as Tyvek, Kevlar, and Nomex. End market exposure is expected to focus on healthcare, and electric vehicles, while remaining an active participant in the safety, construction, and aerospace end markets, amongst others. Absent New Electronics, and New Water’s contribution, New DuPont would have generated $6.6 billion in revenue and operated with an approximate EBITDA margin of 24% in 2023.

In terms of rationale, investor appetite for more specialized companies, particularly in the water and electronics businesses, may result in an unlocking of value. New Water and New Electronics should exhibit faster growth rates than the current conglomerate and a set of focused peer comps currently trade at higher forward multiples than the current DD. Water peers trade at approximately 19.5x forward EBITDA estimates, and Electronic peers trade at 22.5x forward EBITDA. DD currently trades at 13.0x forward EBITDA, which is roughly in line with other diversified industrial companies. 

Management issued 2024 guidance that includes revenue between $12.1 and $12.4 billion, and EBITDA between $2.9 and $3.05 billion. At the midpoint, this implies a 2.5% decline in revenue and a 1.1% increase in EBITDA. Management cites improving trends in electronics, and reduced channel destocking in their guidance. Based on the post-spin companies 2023 revenue and EBITDA margins, and assuming a modest recovery starting in 2H 2024 and continuing through 2025, its reasonable the post spin companies would be able to earn $1.5 billion, $1.1 billion, and $355 million in respective 2025 EBITDA for New DuPont, New Electronics, and New Water. Valuing each piece at a slight discount their respective peer set, and incorporating current net debt and shares outstanding, on a preliminary sum-of-the-parts basis, shares of pre-spin DuPont could be assigned a fair value estimate of $90 per share (14% upside from the current DD share price).

BAXTER INTERNATIONAL INC. (BAX) / VANTIVE – COMPREHENSIVE REPORT

May 13, 2024

In March 2024, BAX disclosed 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.” While no final decision has been made on the ultimate form of the Kidney Care separation, management stated it is committed to “separating“ the business in 2H 2024. The standalone business, if spun off, is expected to adopt the corporate moniker Vantive.

The removal of the lower-margin Kidney Care business will significantly improve overall profitability measures for the parent company, Baxter. While management is targeting 4% – 5% topline growth, it has emphasized a focus on improving overall profitability and is willing to see slower growth in the near term. Absent Kidney Care segment contributions, consolidated margins would have widened by 310 basis points each year, on average.

BAX currently trades at 8.7x and 11.3x its consensus 2024 EBITDA and EPS estimates, respectively. In relation to its discounted multiple to the medical device and supplies peer set, it should be noted that BAX as a whole operates with an EBITDA margin that is roughly 800 basis points below that of the low-end performing peers and roughly in line with that of the Kidney Co. peers. Absent Kidney Co., BAX’s margins should expand, so as to narrow the margin discrepancy, although still remaining below its peers.

Valuing the post-spin companies at 9.0x for Vantive, roughly in line with the current BAX multiple, and 12.0x for post-spin Baxter equates to respective fair enterprise values of $5.2 billion and $28.0 billion. Based on current net debt and shares outstanding, we assign a pre-spin sum-of-the-parts fair value estimate of $43 per share (26% upside from the current share price) and we rate pre-spin shares of Baxter International at BUY.

If the company is able to attract a private equity buyer for the Kidney Care business, it may provide further upside to our valuation.  The low end of recent M&A valuations for medical device and  supply companies is near 12x forward EBITDA estimates. If Vantive were to be valued at 12x our 2025 EBITDA figure, our fair value estimate would increase by $4 per share.

Radar Screen – May 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), 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 – May 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 – May 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)

RECENT INITIATIONS:  TriMas Corporation (TRS)

LATEST PUBLICATIONS & UPDATES:

UPDATE:  Matthews International Corp. (MATW)

May 3, 2024

MATW reported 2Q F2024 consolidated sales down 1.7% to $471.2 million (versus consensus of $474.5 million) with a ~2.8% decline in adjusted EBITDA to $56.8 million (compared with consensus of $52 million). Adj. EPS were up 6.2% to $0.69 (versus $0.65 in the prior year period and consensus of $0.46).

By segment, Memorialization sales and adj. EBITDA were essentially flat at ~$222 million and $46.6 million, respectively, while sales at Industrial Technologies declined ~7.5%, as growth in energy storage was offset by declines in warehouse automation, to $116.1 million with adj. EBITDA of $10 million (compared with $15.6 million in the year ago period). At SGK, sales
rose ~1.5% to ~$133 million while adj. EBITDA jumped ~39.5% to ~$15.4 million (as previous pricing and cost reductions are seemingly bearing fruit).

The company expects full year adjusted EBITDA of approximately $220 million, modestly below prior consensus of $230 million. The change primarily reflects customer delays within the energy storage solutions business as well as transitory weakness in the warehouse automation business.

We adjust our base case fair value estimate for MATW to $46 per share (56% upside from the current share price), reflecting a blended multiple of ~9.5x multiple on our F2025E adjusted EBITDA of $~$236 million and net debt of ~$697 million.

UPDATE:  Newpark Resources, Inc. (NR)

May 3, 2024

Newpark posted 1Q 2024 consolidated sales of $169 million (compared with consensus of $171 million and $200 million in the year ago period) with adj. EBITDA of $21.8 million (compared with consensus of $16.35 million and $20.96 million in the year ago quarter). Adjusted net income was $0.10 per share (versus $0.09 in the prior year period) while free cash flow (FCF) was ($0.8) million (versus $23.2 million in 1Q 2023 although we would note that management anecdotally expects to be FCF positive in the remaining quarters of 2024 and for the full year).

By segment, Fluid Systems posted 1Q 2024 sales of $120.1 million (compared with $144.2 million in 1Q 2023) with adj. segment EBITDA of $8.6 million (compared with $8.7 million in the year ago period), implying ~120 bps of margin improvement to 7.2%, while Industrial Solutions generated March-quarter sales of $49 million (versus $55.9 million in the year ago quarter) with adj. segment EBITDA of $18 million (compared with $19.7 million in the year ago period), implying ~150 bps of margin expansion to 36.8%.

Management indicated the on-going strategic review at Fluid Systems continues to “move forward” and that management remained “optimistic” the process will be completed in “the first half” of 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 (31% upside from the current share price) based on an 8.5x blended multiple on 2025E adjusted EBITDA of $98.1 million, reflecting a 5.5x multiple at Fluid Systems and 9.5x at Industrial Solutions, while accounting for corporate costs and projected net debt.

Radar Screen – May  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. (GT), IAC Inc. (IAC), Liberty Broadband Corp. (LBRDK), Masimo Corp. (MASI), Matthews International Corp. (MATW), Natura & Co. (NTCO), Newpark Resources (NR), PAR Technology Corp. (PAR), 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 – 2Q 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
• Select Medical Holdings Corp. (SEM) / Concentra Business – 2H 2024
• Edwards Lifesciences Corp.(EW) / Critical Care Business – 2H 2024
• Holcim Ltd. (HOLN SW) / North American Business – 1H 2025

RECENT PUBLICATIONS:

BAXTER INTERNATIONAL INC. (BAX) / VANTIVE – COMPREHENSIVE REPORT

May 13, 2024

In January 2023, Baxter International Inc. (NYSE: BAX) announced that it would spin-off its Kidney Care business into a standalone publicly traded company, implement a new operational model to improve manufacturing and supply chain integration and better represent business activities, and would pursue strategic alternatives for the BioPharma Solutions (BPS) business. The BPS business was sold in September 2023, for which the company received cash proceeds of $3.96 billion. 

In March 2024, BAX disclosed 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.” While no final decision has been made on the ultimate form of the Kidney Care separation, management stated it is committed to “separating“ the business in 2H 2024. The standalone business, if spun off, is expected to adopt the corporate moniker Vantive.

BAX describes itself as providing “a broad portfolio of essential healthcare products, including: acute and chronic dialysis therapies; sterile intravenous (IV) solutions; infusion systems and devices; parenteral nutrition therapies; inhaled anesthetics; generic injectable pharmaceuticals; surgical hemostat and sealant products, advanced surgical equipment; smart bed systems; patient monitoring and diagnostic technologies; and respiratory health devices.” In 2023, the company generated $14.8 billion in revenue and operated with a 14.7% operating margin.

The removal of the lower-margin Kidney Care business will significantly improve overall profitability measures for the parent company, Baxter. While management is targeting 4% – 5% topline growth, it has emphasized a focus on improving overall profitability and is willing to see slower growth in the near term. Absent Kidney Care segment contributions, consolidated margins would have widened by 310 basis points each year, on average.

BAX currently trades at 8.7x and 11.3x its consensus 2024 EBITDA and EPS estimates, respectively. In relation to its discounted multiple to the medical device and supplies peer set, it should be noted that BAX as a whole operates with an EBITDA margin that is roughly 800 basis points below that of the low-end performing peers and roughly in line with that of the Kidney Co. peers. Absent Kidney Co., BAX’s margins should expand, so as to narrow the margin discrepancy, although still remaining below its peers.

Valuing the post-spin companies at 9.0x for Vantive, roughly in line with the current BAX multiple, and 12.0x for post-spin Baxter equates to respective fair enterprise values of $5.2 billion and $28.0 billion. Based on current net debt and shares outstanding, we assign a pre-spin sum-of-the-parts fair value estimate of $43 per share (20% upside from the current share price) and we rate pre-spin shares of Baxter International at BUY.

If the company is able to attract a private equity buyer for the Kidney Care business, it may provide further upside to our valuation.  The low end of recent M&A valuations for medical device and  supply companies is near 12x forward EBITDA estimates. If Vantive were to be valued at 12x our 2025 EBITDA figure, our fair value estimate would increase by $4 per share.

Radar Screen – May 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), 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 – May 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 – May 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)

RECENT INITIATIONS:  TriMas Corporation (TRS)

LATEST PUBLICATIONS & UPDATES:

UPDATE:  Matthews International Corp. (MATW)

May 3, 2024

Last night, after the market close, MATW reported 2Q F2024 consolidated sales down 1.7% to $471.2 million (versus consensus of $474.5 million) with a ~2.8% decline in adjusted EBITDA to $56.8 million (compared with consensus of $52 million). Adj. EPS were up 6.2% to $0.69 (versus $0.65 in the prior year period and consensus of $0.46).

By segment, Memorialization sales and adj. EBITDA were essentially flat at ~$222 million and $46.6 million, respectively, while sales at Industrial Technologies declined ~7.5%, as growth in energy storage was offset by declines in warehouse automation, to $116.1 million with adj. EBITDA of $10 million (compared with $15.6 million in the year ago period). At SGK, sales
rose ~1.5% to ~$133 million while adj. EBITDA jumped ~39.5% to ~$15.4 million (as previous pricing and cost reductions are seemingly bearing fruit).

The company expects full year adjusted EBITDA of approximately $220 million, modestly below prior consensus of $230 million. The change primarily reflects customer delays within the energy storage solutions business as well as transitory weakness in the warehouse automation business.

We adjust our base case fair value estimate for MATW to $46 per share (58% upside from the current share price), reflecting a blended multiple of ~9.5x multiple on our F2025E adjusted EBITDA of $~$236 million and net debt of ~$697 million.

UPDATE:  Newpark Resources, Inc. (NR)

May 3, 2024

Last night, after the market close, Newpark posted 1Q 2024 consolidated sales of $169 million (compared with consensus of $171 million and $200 million in the year ago period) with adj. EBITDA of $21.8 million (compared with consensus of $16.35 million and $20.96 million in the year ago quarter). Adjusted net income was $0.10 per share (versus $0.09 in the prior year period) while free cash flow (FCF) was ($0.8) million (versus $23.2 million in 1Q 2023 although we would note that management anecdotally expects to be FCF positive in the remaining quarters of 2024 and for the full year).

By segment, Fluid Systems posted 1Q 2024 sales of $120.1 million (compared with $144.2 million in 1Q 2023) with adj. segment EBITDA of $8.6 million (compared with $8.7 million in the year ago period), implying ~120 bps of margin improvement to 7.2%, while Industrial Solutions generated March-quarter sales of $49 million (versus $55.9 million in the year ago quarter) with adj. segment EBITDA of $18 million (compared with $19.7 million in the year ago period), implying ~150 bps of margin expansion to 36.8%.

The company maintained its initial guidance for the Industrial Solutions segment but did not provide full-year guidance for the Fluid Systems business.

On the transactional front, management indicated that the on-going strategic review at Fluid Systems continues to “move forward” and that management remained “optimistic” the process will be completed in “the first half” of 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 (33% upside from the current share price) based on an 8.5x blended multiple on 2025E adjusted EBITDA of $98.1 million, reflecting a 5.5x multiple at Fluid Systems and 9.5x at Industrial Solutions, while accounting for corporate costs and projected net debt.

Radar Screen – May  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. (GT), IAC Inc. (IAC), Liberty Broadband Corp. (LBRDK), Masimo Corp. (MASI), Matthews International Corp. (MATW), Natura & Co. (NTCO), Newpark Resources (NR), PAR Technology Corp. (PAR), 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 – 2Q 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
• Select Medical Holdings Corp. (SEM) / Concentra Business – 2H 2024
• Edwards Lifesciences Corp.(EW) / Critical Care Business – 2H 2024
• Holcim Ltd. (HOLN SW) / North American Business – 1H 2025

RECENT PUBLICATIONS:

UPDATE:  Solventum Corp. (SOLV)

SOLV Reports 1Q 2024 Results Including Positive Revenue Growth; Adjust FVE to $86 per share, Maintain BUY Rating

On May 9, 2024, before the market open, Solventum Corp. (NYSE: SOLV) reported 1Q 2024 standalone results after being spun-off from 3M Corp. (NYSE: MMM) on April 1, 2024.

Solventum reported revenue growth of 0.2%, or 0.9% on an adjusted organic basis accounting for FX headwind of 0.4% and 0.3% decline from divestitures.  SOLV maintained their 2024 guidance including an expected revenue decline of 2% to flat, adjusted EPS of $6.10 – $6.40, and free cash flow of $700 to $800 million.  Management reiterated its priority for debt paydown over the next 24 months and announced it will not institute a cash dividend or share repurchases at this time. SOLV is currently levered at 3.3x net debt to our 2025 EBITDA estimate.

We view shares as attractively priced versus a basket medical device/supply companies and suggest that management’s articulation of near-term challenges has appropriately set expectations. Management has stated that results for the remainder of 2024 will include a normalized pricing environment, SKU rationalization, FX headwinds, and stand-alone costs that include supply agreements with MMM.

Given the low expectations for near-term growth, we suggest that any topline growth or management commentary implying a return to growth following the 2024 “reset year” (due to the above noted 2024 company specific issues) to more closely approximate that of the company’s end market growth rate (4% – 6%) would be viewed as a positive for shares.

While we remain positive on shares of SOLV, we adjust our fair value estimate to better reflect the current peer trading environment and lower our fair value estimate to $86 per share, 34% upside from the current share price. Our revised fair value estimate is based on a 10.0x multiple of our unchanged 2025 EBITDA estimate of $2.2 billion.

For reference a peer set across SOLV’s operating segments trades at approximately 12.5x the consensus 2025 EBITDA estimate, while peers to the MedSurg segment (Solventum’s largest revenue and profit contributor) trade at 11.5x consensus 2025 EBITDA estimate. (In general, we use JNJ as a proxy for the comparable set, which trades at 11.0x its 2025 consensus EBITDA estimate.)

Radar Screen – May 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), 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 – May 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 – April 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 – 2Q 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
• Select Medical Holdings Corp. (SEM) / Concentra Business – 2H 2024
• Edwards Lifesciences Corp.(EW) / Critical Care Business – 2H 2024
• Holcim Ltd. (HOLN SW) / North American Business – 1H 2025

RECENT PUBLICATIONS:

A.P. Moller-Maersk / Svitzer – Comprehensive Note

April 29, 2024

On April 30, 2024, A.P. Moller-Maersk (MAERSKA DC, MAERSKB DC) completed the spin-off its Towage business, Svitzer, into a standalone, publicly traded company.

While Svitzer is a compelling business, its contribution to Maersk is minimal; so much so, that management indicated during a recent earnings call that it never considered the segment when determining the outlook for the consolidated company. Whereas Maersk’s 2023 revenues totaled $51 billion, Svitzer contributed less than $1 billion, and its fair value estimate amounts to less than 5% of the parent company’s market capitalization. This could create significant selling pressure on Svitzer shares upon distribution should Maersk’s shareholders, many of which are likely required to hold only large capitalization equities, not be allowed to own the much smaller Svitzer.

The container shipping industry is currently experiencing some upheaval, as freight rates decline from Covid-era highs. Additionally, a robust order book for new vessels has created a capacity glut that is expected to persist for the foreseeable future. Finally, attacks on vessels have disrupted shipping routes in the Red Sea – a situation expected to impact approximately one-third of Maersk’s fleet. 

Svitzer’s business is significantly more stable and predictable, as its operations are largely governed by long-term contracts. Revenues, EBITDA and earnings have grown steadily in recent years, and free cash flow is expected to increase meaningfully as the company forecasted lower capital expenditures in 2024. A fair value estimate of DKK7 billion ($1 billion) for Svitzer represents a multiple of 10x forecast free cash flow for 2024, a modest multiple of 7.5x EV/EBITDA based on company guidance, and a price-to-book value multiple of approximately 1.1x.

If one believes the predictability of Svitzer’s business warrants a slight premium to book value, a valuation of DKK7 billion ($1 billion) can be justified. This is inline with the low end of fair values based on the free cash flow analysis and implies a fair value estimate of just over DKK220 per share.

Radar Screen – May 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), 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 – May 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 – April 2024

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

Product Specialist

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