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 – 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 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
• 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

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:

PAR Technology (PAR): UPDATE

June 10, 2024

PAR announces agreements to sell its Government operating segment, in two separate transactions, for a combined total of $102 million 

PAR announced that it had agreed to sell its Government operating segment, in two separate transactions, for a combined total of $102 million.

Booz Allen Hamilton (NYSE: BAH) will acquire PAR Government Systems Corp. (PGSC) for ~$95 million, in a transaction that closed on June 7^th, while NexTech Solutions (private) will purchase Rome Research Corp. (RRC) for ~$7 million, in a transaction that is expected to close by the end of 2Q 2024.

Recall, PAR had previously disclosed it was seeking strategic alternatives for its Government business in its 2Q 2023 10-Q.

By our calculation, the combined purchase price represents an ~8.0x multiple on 2025E segment adj. EBITDA.

While the ultimate deal value modestly lagged our most recent $121 million fair value estimate (but exceeded our initial ~$91 million forecast) we think this announcement is a clear positive catalyst for the company; to that end, the transactions will reduce overall complexity (i.e., create a pure-play) while also providing significant capital for it to invest in its faster-growth/higher-margin (and increasingly recurring) SaaS business, which is focused on serving restaurant enterprises.  (As well, the deal will limit the perceived risk of future equity dilution as well as potentially make the remaining business a more attractive target to itself be acquired at some point).

Our fair value estimate for PAR is $48 per share, reflecting value of ~$55 per share for the Restaurants/Retail segment, based on a blended 2025E sales multiple of 5x, and accounting for projected net debt (see Exhibit #1 on page 2).

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), 23% above the current 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. (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 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
• 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.

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

May 23, 2024

On May 22, 2024, 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 in 18 to 24 months.

The company generated $12.1 billion in revenue and $2.9 billion in operating EBITDA in 2023. 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 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 2023 revenue and EBITDA margins, and assuming a modest recovery starting in 2H 2024 and continuing through 2025, its reasonable the post spin companies will 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 to 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 (12% upside from the current DD 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. (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

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:

PAR Technology (PAR): UPDATE

June 10, 2024

PAR announces agreements to sell its Government operating segment, in two separate transactions, for a combined total of $102 million 

PAR announced that it had agreed to sell its Government operating segment, in two separate transactions, for a combined total of $102 million.

Booz Allen Hamilton (NYSE: BAH) will acquire PAR Government Systems Corp. (PGSC) for ~$95 million, in a transaction that closed on June 7^th, while NexTech Solutions (private) will purchase Rome Research Corp. (RRC) for ~$7 million, in a transaction that is expected to close by the end of 2Q 2024.

Recall, PAR had previously disclosed it was seeking strategic alternatives for its Government business in its 2Q 2023 10-Q.

By our calculation, the combined purchase price represents an ~8.0x multiple on 2025E segment adj. EBITDA.

While the ultimate deal value modestly lagged our most recent $121 million fair value estimate (but exceeded our initial ~$91 million forecast) we think this announcement is a clear positive catalyst for the company; to that end, the transactions will reduce overall complexity (i.e., create a pure-play) while also providing significant capital for it to invest in its faster-growth/higher-margin (and increasingly recurring) SaaS business, which is focused on serving restaurant enterprises.  (As well, the deal will limit the perceived risk of future equity dilution as well as potentially make the remaining business a more attractive target to itself be acquired at some point).

Our fair value estimate for PAR is $48 per share, reflecting value of ~$55 per share for the Restaurants/Retail segment, based on a blended 2025E sales multiple of 5x, and accounting for projected net debt (see Exhibit #1 on page 2).

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), 23% 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 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
• 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, 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 in 18 to 24 months.

The company generated $12.1 billion in revenue and $2.9 billion in operating EBITDA in 2023. 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 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 2023 revenue and EBITDA margins, and assuming a modest recovery starting in 2H 2024 and continuing through 2025, its reasonable the post spin companies will 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 to 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 (12% upside from the current DD 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. (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 – 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)
• 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