Drop Coverage of Kellanova and WK Kellogg Co. Effective Immediately

• On October 2, 2023, before the market open, Kellanova (NYSE: K) (formerly Kellogg Co.) completed the spin-off of its North American Cereal business into a stand-alone publicly traded company named WK Kellogg Co. (NYSE: KLG).
• Given the transaction has now passed our coverage mandate of 90 days post-spin, we DROP coverage of Kellanova and WK Kellogg effective immediately.
• Our prior estimates and fair values for K and KLG should no longer be relied on.

APi Group (APG) acquires Elevated Facility Services for ~$570 million; modestly adjusts initial 1Q 2024 guidance; fair value increased to $40 per share (from $35 per share)

• This morning, before the market open, APi Group (APG) announced that it had agreed to acquire Elevated Facility Services from funds managed by L Squared Capital Partners for ~$570 million in cash.  The transaction is expected to close in 2Q 2024.
• Elevated, which provides APG entry into the ~$10 billion elevator & escalator services market, generates ~$220 million of annual sales, of which ~70% comes from inspections, services & repairs (compared with APG’s consolidated mix of ~52% in 2023) with a ~20% adj. EBITDA margin profile (versus APG’s consolidated margin profile of 11.3% in 2023), which implies ~$44 million of incremental annual EBITDA (and a ~12.95x purchase multiple).
• To that end, the pending transaction looks accretive toward APG’s previously articulated 2025E goals of generating ~60% of consolidated sales from inspections, services & repairs as well as its 13%-plus adj. EBITDA margin and ~80% free cash flow conversion targets.
• Additionally, the company adjusted its previous/initial 1Q 2024 guidance, which now calls for March-quarter sales of $1.59-$1.61 billion (compared with its previous range of $1.56-$1.61 billion and consensus of $1.593 billion) with adjusted EBITDA of $172-$177 million (versus initial guidance of $165-$180 million and consensus of $173 million; see Exhibit #1 on page 2).  Adjusted free cash flow is expected to be “ahead of last year”, in-line with seasonality.
• The company made no adjustment to its initial (i.e., pre-Elevated acquisition) full-year 2024E guidance, which called for consolidated sales $7.05-$7.250 billion (versus consensus of $7.2 billion), implying 2%-5% organic growth, with adj. EBITDA of $855-$905 million (compared with consensus of $878 million), implying year over year growth of 6%-16%.  Adj. FCF conversion is expected to be ~70% (see Exhibit #1 on page 2).
• Our base case fair value estimate for Api Group Corporation (APG) is revised to ~$40 per share (previously $35 per share), reflecting a blended multiple of ~12.5x on F2025E adjusted EBITDA of ~$1.01 billion along with projected net debt of ~$1.835 billion (see Exhibit #2 on page 2).

GE Completes Vernova Spin-Off; Update Post-Spin FVEs, Rate GE and GEV at NEUTRAL

• On April 2, 2024, before the market open, General Electric Co. (NYSE: GE) completed the separation of its renewable energy and power businesses into a standalone, publicly traded company via a tax-free spin-off.
• GE shareholders of record as of March 19, 2024, received one share of GE Vernova for every four shares of GE owned.
• GE Vernova now trades on the NYSE under the ticker “GEV”, while the parent company, which will change its name to GE Aerospace, will continue to trade on the NYSE under the ticker “GE”.
• As a standalone company, GEV will benefit from the current high margin profitability from its Power segment, secular demand for its Electrification products as major grid investments will be required to meet growing energy demand (resulting in margin expansion), and eventual profitability at Wind as the company works through unprofitable current projects and is more selective in future Wind endeavors.
• On an adjusted pro-forma basis, it was previously disclosed that GEV generated $33.2 billion in revenue and operated with a 2.4% adjusted EBITDA margin in 2023 (or 3.1% on an “organic” basis, which excludes FX, acquisitions, and dispositions).
• As for post-spin GE, the company operates as a leader in the aerospace industry and is poised to capitalize on the current cycle demand for new engines, including next generation LEAP, and a strong maintenance business given its large install base of existing engines.
• In “when-issued” trading, shares of GEV and GE closed at $142.02 per share and $140.00 per share, respectively.
• Based on the “when-issued” prices, shares of GE Aerospace are valued at approximately 19x our 2025 EBITDA estimate, which is a premium to its Aerospace peer group, which trades on average at ~14x the consensus 2025 EBITDA estimate (with the high end of peers trading at ~16.0x). Given GE Aerospace’s industry positioning and expected high single digit revenue and low double digit operating profit CAGRs through 2028, we view a premium to the group as likely appropriate.
• In relation to GEV, the current trading price implies a multiple of ~14.0x our projected 2025 EBITDA of $2.7 billion, or roughly 1.0x 2025E revenue. While GEV management has issued what could be considered bullish 2024-2025 guidance, which includes mid-single digit revenue growth, EBITDA margins approaching 10% in 2025, and 2025 free cash flow of $1.2 billion to $1.8 billion, we view cautiously on shares of GEV as a newly independent company that does not have a consistent track record of profitable operations, even within the larger GE conglomerate.
• Given the recent Aerospace and Vernova investor days, along with “when-issued” trading prices and current peer valuations, we update our post-spin fair value estimates based on revised 2025 EV/EBITDA multiple assumptions.
• We now value shares of GEV at $134 per share and GE at $139 per share. Given a material lack of upside from current prices to our revised fair value estimates, we rate both companies at NEUTRAL.

MMM Completes Solventum Spin-Off; Adjust Post-Spin FVE’s; Rate MMM at NEUTRAL with $78 FVE; Rate SOLV at BUY with $103 FVE

• On April 1, 2024, before the market open, 3M Co. (NYSE: MMM) completed the separation of its health care business into a standalone, publicly traded company via a tax-free spin-off.
• MMM shareholders of record received one share of Solventum for every four shares of 3M held. Solventum now trades on the NYSE under the symbol “SOLV”.
• MMM retained a 19.9% ownership stake in SOLV, which it expects to divest fully by the end of a five-year period.
• We adjust our post-spin earnings estimates for SOLV to incorporate management commentary on 2024 guidance issued at the company’s recent investor day. Additionally, we lower our SOLV valuation multiple by a half turn to reflect contraction in our peer groups trading.
• We now fairly value shares of SOLV at $103 per share based on an 11.5x multiple of our 2025E EBITDA of $2.2 billion. In “when-issued” trading, shares of Solventum closed at $69.55 on March 29, 2024, on volume of ~2.9 million shares for the day.
• At the current SOLV share price, shares trade at the low end of peer group valuations including 8.9x our 2025E EBITDA, 11.1x management’s 2024 EPS guidance mid-point, and yield 6.5% on the midpoint of management’s free cash flow guide.
• We expect that as a standalone entity, shares of Solventum should be re-rated higher to more closely approximate that of healthcare peers. As such we view the current SOLV share price as attractive and rate shares at BUY.
• With respect to SOLV and the when-issued trading period, nearly all of the three-day volume (~3.7 million shares) occurred on Friday, and there may be near term volatility in the Solventum share price as MMM holders that wish to exit the SOLV position sell shares. In general, we have typically seen spin company volumes normalize over a five- to seven-day trading period, at which point volatility typically subsides.
• In relation to post-spin 3M, the company will continue to address its legal overhangs. Given the current status of settlements, 3M’s spinning off Solventum and retaining a 19.9% ownership stake significantly improve the company’s ability to satisfy obligations related to PFAS (per- and polyfluoroalkyl substance) and CAE (Combat Arms Earplugs). An improved balance sheet for MMM may lessen concerns over the company’s ability to fund the legal liabilities, and at a minimum maintain a valuation multiple similar to its pre-spin depressed levels versus peers.
• Shares of MMM closed at $87.83 in the when-issued market on Friday, which implies a 9.9x EV/EBITDA multiple on our 2025E EBITDA of $6.7 billion (adjusting for the SOLV ownership at current prices).
• We adjust our post-spin MMM fair value estimate to $78 per share (reflecting our lower value attributed from the SOLV ownership), and rate shares of MMM at NEUTRAL. While the balance sheet improvements may somewhat lessen the overhang from liabilities, we think that shares will likely continue to trade at a discounted multiple until further resolution is disclosed, which would limit potential upside from the current share price in the near-term.
• For more details, please refer to The Spin-Off Report dated March 8, 2024.

Revisiting our GTX thesis: Risk/Reward seems increasingly attractive amid slowdowns in BEV production/demand and the stock still trading, by our calculation, at a 17%-plus FCF yield

• When we initiated coverage of Garrett Motion in mid-June 2021, roughly two months after they emerged from Chapter 11 bankruptcy protection, which was sought primarily due to legacy asbestos liabilities that were unrelated to GTX’s business but assigned during the spin-off from its former parent Honeywell (NYSE: HON) in October 2018, a part of our thesis was that as the “stink” of bankruptcy subsided and the company’s capital structure normalized investors would be able to more clearly evaluate what we viewed as a strong underlying business (with prodigious as well as durable cash flows).
• Since that time, the company has successfully collapsed its once complicated capital structure into just debt and equity by eliminating its Series B Preferred stock with cash in June 2022 and converting (as well as repurchasing ~$570 million of) its Series A Preferred stock, which had previously paid an 11% yield, into common stock in June 2023.
• Subsequently, in 2H 2023 alone, the company utilized its ongoing cash flows to pre-pay $200 million in debt and repurchase ~10% of its outstanding common stock (while maintaining a leverage ratio of less than 2.2x).
• To be fair, while the stock has not necessarily done poorly (up 29.5% in 2023 albeit it roughly flat so far in 2024) we would have envisioned the stock performing better as several key parts of our thesis began to play out (e.g., the capital structure simplifying along with solid underlying financial performance and strong free cash flow generation). In retrospect, it seems evident that the overwhelmingly positive (maybe even frenzied) sentiment among investors surrounding the accelerating (and imminent) dominance of battery electric vehicles (BEV) was a powerful overhang that led many investors to simply view GTX (who admittedly still garners the majority of its profits from ICE and Hybrid vehicles) as a so-called “shrinking ice cube”.
• In that context, while we think GTX’s financial outlook in and of itself continues to support our bullish stance, we think it important to highlight a clear shift in sentiment surrounding the broader pace of BEV adoption as well as management’s more aggressive public outreach to investors, which we think could both mark notable (and positive) inflection points for the company (and its stock). [Note: while GTX still has no formal sell-side coverage management is keen on (and seemingly making progress toward) securing some analyst coverage.  As well, we note that the company presented at the Bank of America Automotive Summit just yesterday, on March 26^th, and the Baird 2024 Vehicle, Technology & Mobility Conference in late-February.]
• In terms of the aforementioned sentiment shift, we would point investors to the litany of news articles and industry commentary in recent weeks noting pullbacks in EV production capacity at many automakers (along with demand issues at battery makers) as well as the easing of certain regulatory timelines.
• On the production front, we point to EV production cuts at automakers, including, among others, Tesla (NASDAQ: TSLA), GM (NYSE: GM), Ford (NYSE: F), Toyota (NYSE: TM) and Volkswagen (VOW GR) amid slowing consumer demand/adoption (given ongoing concerns around cost, both initial & maintenance, range, infrastructure and re-sale value, among others).  As described by GM’s CFO, Paul Jacobsen, “we know the EV market is not going to grow linearly, we are prepared to flex between ICE and EV” while its CEO, Mary Barra, commented “It’s true, the pace of EV growth has slowed, which has created some uncertainty.  We will build to demand”.
• On the regulatory front, just last week, in late-March 2024, the U.S. Environmental Protection Agency (EPA) lowered its target for BEVs (as a % of new vehicle sales) to 35% (from 67%) by 2032.  Per a spokesperson for the UAW, a labor union that supported the regulatory change, “by taking seriously the concerns of workers and communities, the EPA has created a more feasible emission rule that protects workers building [internal combustion engine] vehicles, while providing a path forward for automakers to implement the full range of automotive technologies to reduce emissions”.
• In our view, these concrete shifts in both consumer and regulatory behavior support our initial somewhat contrarian ‘’stronger for longer” view on ICE and Hybrid vehicles, which we admit was in some ways was implicitly taking “the under” on BEV adoption in the remainder of this decade, should further prompt investors to re-evaluate the perceived durability (or lack thereof) of GTX’s business (particularly as relates its free cash flow generation).
• To that end, we think it topical to re-visit/highlight comments from Garrett’s first investor day (in October 2023), which to our knowledge was the first time, at least publicly, management clearly articulated their contention that the revenue base of GTX’s core turbocharger business will be larger in 2030 that it was in 2022-2023 and be roughly flat with current levels in 2033, as on-going share gains (i.e., a new business win rate above 50% since 2018) will offset a potential peak in light vehicle turbos and a plateau in commercial vehicle & industrial vehicles late this decade (see Exhibit #1 on page 3).
• Moreover, management explicitly, again, for the first time we are aware of, at least publicly, indicated its expectation that the company would generate ~$1.7-$2.1 billion in adjusted free cash flow (or essentially the company’s current market capitalization) over the next 5-years (based on a relatively conservative financial framework assuming adj. EBITDA margins of > 16%, capital spending at < 3% of net sales and a free cash flow conversion rate of ~60%; see Exhibit #2 on page 3).
• In terms of allocating that capital over the next several years, which we think should be the most salient consideration for investors, we expect GTX will return ~50% (or more) of FCF toward share repurchases (suggesting the company could exhaust its current $350 million authorization over the next two years) while also reducing leverage below 2x.  (Longer-term, the company may ultimately also instate a dividend).
• Additionally, we stress that management has solid visibility into demand over the next several years with more than 80% of sales (i.e., >95% in 2024, >85% in 2025 and >75% in 2026) have already been awarded to GTX by its OEM customers.
• Within the longer-term framework that management has laid out, we note that the company provided specific guidance for full-year 2024 in mid-February, which assumes an overall operating environment that is “flat to down” compared to 2023, calling for sales of $3.8-$3.95 billion, adj. EBITDA of $590-$650 million, net income of $230-$275 million and adj. FCF of $325-$425 million (see Exhibit #3 and page 4).  Underlying ancillary assumptions include a Euro/Dollar exchange rate of 1.08 to 1, RD&E investments and capital expenditures at 4.5% and 2.2% of sales, respectively (of which ~60% and 30% will be focused on zero emission technology).
• Clearly, while we view the recent trends of slowing  in the EV space as a positive for GTX (given the implications of a “stronger for longer” tail for internal combustion and hybrid vehicles, particularly at the current valuation) we note that the company continues to target $1 billion of electric vehicle (EV) or zero-emission vehicle (ZEV) technologies (at or above the company’s existing margin profile) by 2030 and notes that it continues to garner pre-development projects for its E-Powertrain, E-Cooling Compressor and H2 Fuel Cell solutions/systems.
• On the valuation front, we note that GTX’s stock currently trades at less than 6x 2025E free cash flow per share, implying a yield of ~17%, which compares favorably with passenger (PV) and commercial (CV) vehicle focused peers trading at ~6.5% and 9.5%.  In that context, we would point out that if GTX’s valuation were to migrate to even the 10%-12.5% level it would imply a stock price of ~$12.50-$15.50 per share (see Exhibit #4 on page 4).
• Our base case fair value estimate for GTX is $12.50 per share, reflecting an 8.5x multiple on our 2025E adjusted net income forecast of ~$313 million and a fully diluted share count of ~216 million (see Exhibit #5 on page 4).  [Note: our valuation framework implies a multiple of less than 7.5x multiple (or a yield of ~13.5%) on projected 2025E free cash flow (FCF) of ~365 million (or ~$1.69 per share)].

MASI is evaluating the separation of its consumer business; reaffirms first-quarter and full-year 2024E guidance; activist-investor Politan to nominate two more independent member to the Board

• On Friday evening, after the market close, MASI disclosed that its Board had authorized management to evaluate the separation of its consumer business, which will include the consumer audio (i.e., Sound United), consumer health (e.g., the Stork baby monitor) as well as the smart watch (i.e., Freedom) businesses, while the parent would retain its core-Healthcare (and telehealth) business.
• As yet, the Board has neither finalized the final structure of the separation nor set a definitive timetable for a formal announcement other than the say it would pursue “the separation as soon as feasible”; that said, it is our view that a spin-off seems the most likely outcome considering that current Chairman & CEO, Joe Kiani, is expected to remain in his positions at RemainCo and is set to become the Chairman of the “newly created company” and that the transaction will be subject to “the clearance of filings with the Securities and Exchange Commission and the receipt of other applicable regulatory approvals”.
• Tangentially, the company also reaffirmed its recently articulated financial guidance for 1Q and full-year 2024E (see Exhibits 1 & 2); to that end, for 1Q 2024, management expects consolidated sales of $476-$501 million (down 11%-16%), reflecting Healthcare sales of $331-$341 million (down 2%-5%) and Non-Healthcare sales of $145-$160 million (down 27%-34%) with adj. operating income of $63-$69 million and adj. EPS of $0.67-$0.74 (see Exhibit #1 on page 2).
• For full-year 2024E, excluding all expenses related to its on-going litigation with Apple (NASDAQ: APPL) as opposed to just those related to the International Trade Commission (ITC) proceeding, the company forecasts consolidated GAAP and non-GAAP sales of $2.045-$2.165 billion, including Healthcare and Non-Healthcare revenue of $1.345-$1.385 billion and $700-$800 million, respectively.  Non-GAAP operating income and EPS are expected to be $307-$322 million and $3.44-$3.60 (versus $275-$290 and $3.00-$3.15 based on management’s prior calculation), respectively (see Exhibit #2 on page 2).
• For some broader context on the this development, we would note that when MASI announced the $1.0575 billion Sound United acquisition (the base on the Non-Healthcare segment) in April 2022 the stock plummeted nearly ~40% from ~$229 per share to $144 per share in a single day; subsequently, amid deteriorating fundamentals, on both the Healthcare and Non-Healthcare sides of the business, the stock further fell to ~$114 (at the time of our initiation) before finding a low around ~$80 per share.
• Subsequently, in acknowledgement of the market’s obvious distaste for the deal, MASI management committed to a 3-year timetable to prove out the underlying concept for the purchase (which, we note, was to ultimately create a hospital-quality, home-health ecosystem) before a divestiture would be considered.
• At the time of our initiation, it was our contention that the sheer magnitude of shareholder value destruction and loss of investor confidence, along with the involvement of activist-investor, Politan Capital (a~9% holder who secured 2 Board seats in June 2023 with ~70% of the non-insider vote in the transaction’s aftermath) would inevitably speed up that timetable (leading to an improved valuation).
• Separately, on the activist-front, we would note that over the weekend Politan, while signaling support for a separation transaction, announced its intention to nominate two additional members, Dr. Darlene Solomon and Bill Jellison, to MASI’s 7-member Board at the 2024 Annual Meeting citing, among other reasons, the crucial need for more independent oversight at the company.
• Our fair value estimate for MASI is revised is $145 per share (with bull and bear cases of $157 and $133 per share, respectively), reflecting multiples of 21.5x and 9.0x, respectively, to our 2025E forecasts for the core Healthcare and Non-Healthcare segments and incorporates projected net debt (see Exhibit #3 on page 3).

Drop Coverage of Aramark and Vestis Corp. Effective Immediately

• On September 30, 2023, Aramark (NYSE: ARMK) completed the spin-off of its Uniform Services business Vestis Corp (NYSE: VSTS).

• Given the transaction has now passed our coverage mandate of 90 days post-spin, we DROP coverage of Aramark and Vestis Corp. effective immediately.
• Our prior estimates and fair values for ARMK and VSTS should no longer be relied on.

Drop Coverage of NCR Voyix Corp. and NCR Atleos Corp. Effective Immediately

• On October 16, 2023, after the market close, NCR Corp. (formerly NYSE: NCR) completed the previously announced spin-off of its ATM-focused businesses.

• The spin company has adopted the corporate moniker NCR Atleos LLC and now trades on the NYSE under the ticker symbol “NATL”. The parent company has also changed its corporate name to NCR Voyix Corp. and now trades under the ticker “VYX”.
• Given the transaction has now passed our coverage mandate of 90 days post-spin, we DROP coverage of NCR Voyix Corp. and NCR Atleos Corp. effective immediately.
• Our prior estimates and fair values for VYX and NATL should no longer be relied on.

GE to Complete GE Vernova Spin-Off on April 2, 2024, Change Name to GE Aerospace; Maintain NEUTRAL Rating, Update FVE to $163

• On February 28, 2024, after the market close, General Electric Co. (NYSE: GE) announced that its Board of Directors had approved the previously disclosed spin-off of GE Vernova.
• The separation will be completed on April 2, 2024, with GE shareholders of record as of March 19, 2024, receiving one share of GE Vernova for every four shares of GE owned.
• It is expected that following the spin-off, GE Vernova will trade on the NYSE under the ticker “GEV”, while the parent company, which will change its name to GE Aerospace, will continue to trade on the NYSE under the ticker “GE”.
• Shares of GE Aerospace and GE Vernova are expected to begin trading “regular-way” on April 2, 2024. “When-issued” trading for GE and GEV will begin on or about March 27, 2024, under the respective tickers “GE WI” and “GEV WI”.
• GE Vernova will hold an investor day on March 6, 2024, and GE Aerospace will hold an investor day on March 7, 2024.
• Following the spin-off GE Vernova will carry a cash balance of $4.2 billion ($603 million of which will be classified in assets held for sale), and the company will assume pension liabilities with a net deficit of $1.6 billion.
• Management estimates that the company would have incurred $410 million of total expenses in 2023 ($200 million of which would be considered recurring) if the spin-off would have occurred on January 1, 2023.
• On an adjusted basis, it was disclosed that GEV, on a pro-forma basis, generated $33.2 billion in revenue and operated with a 2.4% adjusted EBITDA margin in 2023 (or 3.1% on an “organic” basis, which excludes FX, acquisitions, and dispositions).
• GEV will operate under three segments: Power (~52% of revenue), Wind (~29% of revenue), and Electrification (~19% of revenue). In terms of profitability, the Power segment, which designs, manufactures, and services gas, nuclear, hydro, and steam technologies, is the main driver of earnings operating with an EBITDA margin of 9.9%.
• The Wind segment, controlling the on- and off-shore wind operations, continues to operate at a loss, albeit those losses are narrowing. Wind generated a loss before interest, taxes, depreciation and amortization of $1 billion in 2023 versus a loss of $1.7 billion in 2022.
• Electrification, which includes grid solutions, power conversion, digital technologies, and electrification software, operated with a 1.9% EBITDA margin in 2023 as compared to historically operating at a loss.
• GEV will benefit from the current high margin profitability from its Power segment, secular demand for its Electrification products as major grid investments will be required to meet growing energy demand (resulting in margin expansion), and eventual profitability at Wind as the company works through unprofitable current projects and is more selective in future Wind endeavors.
• We update our pre-spin fair value estimate for General Electric to $163 per share reflecting the increase in GEHC share price, and an increase of our GE Aerospace valuation multiple to 18x from 16x. We now fairly value shares of GE Vernova at $105 per share (10.0x our 2025 EBITDA estimate of $2.7 billion and accounting for the one-for-four share distribution ratio) and shares of GE Aerospace at $136 per share (18.0x our 2025 EBITDA estimate of ~$9.0 billion plus GEHC ownership).
• We remain NEUTRAL on shares of GE given a lack of significant upside from the current valuation versus our fair value estimate. However, we continue to posit that the current valuation (at 12.2x the consensus 2025 EBITDA estimate) likely is valuing the Aerospace business at or above our valuation, which would imply that post-spin shares of GE Vernova may be mispriced as a standalone company.
• For more details, please refer to The Spin-Off Report dated January 30, 2024, and UPDATE dated February 16, 2024.

Tiptree posts solid 4Q 2023 (and full year) results, again driven by Fortegra; increases quarterly dividend by 20% to $0.06 per share; no incremental commentary on the IPO withdrawal or its private capital options was provided on this morning’s conference call; maintain fair value of $24.50 per share

• Last night, after the market close, Tiptree posted consolidated 4Q 2023 top-line growth of 20.8% to $446.4 million with 43.1% growth in adj. net income to $13.9 million.  Consolidated return on equity (ROE) rose 370 basis points to 13.6%.  For the full year 2023, consolidated sales rose 18% to ~$1.6 billion with adj. net income growth of 16.7% to $61.9 million and ROE up 160 bps to 15.2%
• At Fortegra, the company’s primary operating business, 4Q 2023 sales increased 25.4% to ~$433.2 million with a 37.5% rise in gross written premiums and equivalents (GWPE) while adj. net income advanced ~36.2% to $32.6 million. The combined ratio was flat at 89.8% and Fortegra’s return on equity improved 160 bps to 30.9%, largely driven by continued growth in the company’s capital-light warranty business.  For full year 2023, Fortegra’s sales rose ~27.5% to $1.59 billion with a 21.4% jump in GWPE while net income has increased 38.0% to $115.7 million.  The combined ratio improved 10 bps to 90.3% while ROE improved 310 bps to 29.2%.
• The book yield on Fortegra’s $1.33 billion investment portfolio rose to 3.3% in 4Q 2023 (from 2.7% 4Q 2022) while the overall rating of its holdings was AA.  The average duration is 2.5 years (compared with ~2.1 years in the previous quarter).
• 4Q 2023 sales at Tiptree Capital fell ~45% to $13.2 million, in part driven by the sale of the company’s shipping assets in 2022, while net income was $(407K) compared with $(787K) in 4Q 2022).  For the full year 2023, segment sales fell ~62.5% to ~$56 million net income of $(159K) versus $8.96 million in 2022.
• Corporate expenses were essentially flat at $12.1 million in 4Q 2023 (versus $12.5 million in the prior year quarter) and down to $40.2 million for the full year 2023 (versus $46.4 million in 2022) primarily due to the repayment of TIPT’s corporate level debt.
• In conjunction with 4Q 2023 results, the company declared a $0.06 dividend, which represents a 20% increase from the prior payout of $0.05.
• On this morning’s conference call, TIPT did specifically address the recent withdrawal of its planned initial public offering (IPO) of Fortegra, particularly in regards to the potential private capital options (i.e., Warburg’s investment in October 2021), other than to say, “although the recent market environment has been unconducive for a public offering we firmly believe Fortegra is strategically well positioned to maintain the trajectory of consistent growth and sustained underwriting profitability over the long term”.
• Our base case fair value for TIPT remains $24.50 per share based on a 12.5x multiple of projected 2024E net income at Fortegra (pro-rated for TIPT’s ultimate 68.6% ownership as well as a ~$41 million deferred tax liability) and a 0.5x multiple of book value, ex-NCI, at Tiptree Capital (see Exhibit #1 on page 2).