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

UPCOMING SPIN-OFFS AND EXPECTED COMPLETION DATES:

• Baxter International Inc. (BAX) / Vantive – 2Q 2024
• Jacobs Solutions Inc. (J) / Critical Mission Solutions – 3Q 2024
• Western Digital (WDC) / HDD Business – 2H 2024
• MDU Resources Group (MDU) / Construction Services – 2H 2024
• Berry Global Group Inc. (BERY)  / HH&S And Films Businesses (to merge w/ Glatfelter) – 2H 2024
• Select Medical Holdings Corp. (SEM) / Concentra Business – 2H 2024
• Edwards Lifesciences Corp.(EW) / Critical Care Business – 2H 2024
• Holcim Ltd. (HOLN SW) / North American Business – 1H 2025

RECENT PUBLICATIONS:

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

May 23, 2024

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

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

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

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

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

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

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

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

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

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

May 13, 2024

In March 2024, BAX disclosed that “it has been in recent discussions with select private equity investors to explore a potential sale of the Kidney Care asset in lieu of the proposed spin-off of the business.” While no final decision has been made on the ultimate form of the Kidney Care separation, management stated it is committed to “separating“ the business in 2H 2024. The standalone business, if spun off, is expected to adopt the corporate moniker Vantive.

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

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

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

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

Radar Screen – May 2024

Monthly publication providing ongoing analysis on companies where we see potential for a value-unlocking event

Companies discussed this month:  Albany International (AIN), Alphabet Inc. (GOOG), APi Group Corp. (APG), Bloomin’ Brands (BLMN), California Resources Corp. (CRC), Carrier Global Corp. (CARR), Crown Castle Inc. (CCI),  Goodyear Tire & Rubber, Inc. (FLT), IAC Inc. (IAC), Liberty Broadband Corp. (LBRDK), Masimo Corp. (MASI), Matthews International Corp. (MATW), Natura & Co. (NTCO), Newpark Resources (NR), PAR Technology Corp. (PAR), RCI Hospitality Inc. (RICK), Stanley Black & Decker (SWK)*, TFI International (TFII), TriMas Corporation (TRS)

*New Entry this Month

Spin-Off Report Calendar – May 2024

Published monthly, The Spin-Off Calendar provides one-page summaries of every spin-off under coverage from the announcement date, followed by the filing of the Form 10 and continuing 60 days post completion.

Spin-Off Report Compendium – March 2024

Murray Stahl’s commentary on various investing themes and single stock recommendations.

European Spin-Off Compendium – April 2024

Murray Stahl’s commentary on various investing themes and single stock recommendations in Europe. 

Bits & Pieces – May 2024

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

Product Specialist

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

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

HIGH-CONVICTION RECOMMENDATIONS (LONG):

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

RECENT INITIATIONS:  TriMas Corporation (TRS)

LATEST PUBLICATIONS & UPDATES:

UPDATE:  Matthews International Corp. (MATW)

May 3, 2024

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

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

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

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

UPDATE:  Newpark Resources, Inc. (NR)

May 3, 2024

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

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

Management indicated the on-going strategic review at Fluid Systems continues to “move forward” and that management remained “optimistic” the process will be completed in “the first half” of 2024.  We estimate a deal would precipitate a significant re-rating of NR shares toward a valuation more in-line with specialty rental & services peers as opposed to a legacy oilfield services provider (i.e., high single-digit to low double-digit multiples versus low- to mid-single digit-type valuations).

Our base case fair value for NR remains ~$10 per share (31% upside from the current share price) based on an 8.5x blended multiple on 2025E adjusted EBITDA of $98.1 million, reflecting a 5.5x multiple at Fluid Systems and 9.5x at Industrial Solutions, while accounting for corporate costs and projected net debt.

Radar Screen – May  2024

Monthly publication providing ongoing analysis on companies where we see potential for a value-unlocking event

Companies discussed this month:  Albany International (AIN), Alphabet Inc. (GOOG), APi Group Corp. (APG), Bloomin’ Brands (BLMN), California Resources Corp. (CRC), Carrier Global Corp. (CARR), Crown Castle Inc. (CCI), Goodyear Tire & Rubber, Inc. (GT), IAC Inc. (IAC), Liberty Broadband Corp. (LBRDK), Masimo Corp. (MASI), Matthews International Corp. (MATW), Natura & Co. (NTCO), Newpark Resources (NR), PAR Technology Corp. (PAR), RCI Hospitality Inc. (RICK), Stanley Black & Decker (SWK)*, TFI International Inc. (TFII), TriMas Corporation (TRS)

*New Entry This Month

Product Specialist

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

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

UPCOMING SPIN-OFFS AND EXPECTED COMPLETION DATES:

• Baxter International Inc. (BAX) / Vantive – 2Q 2024
• Jacobs Solutions Inc. (J) / Critical Mission Solutions – 3Q 2024
• Western Digital (WDC) / HDD Business – 2H 2024
• MDU Resources Group (MDU) / Construction Services – 2H 2024
• Berry Global Group Inc. (BERY)  / HH&S And Films Businesses (to merge w/ Glatfelter) – 2H 2024
• Select Medical Holdings Corp. (SEM) / Concentra Business – 2H 2024
• Edwards Lifesciences Corp.(EW) / Critical Care Business – 2H 2024
• Holcim Ltd. (HOLN SW) / North American Business – 1H 2025

RECENT PUBLICATIONS:

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

May 13, 2024

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

In March 2024, BAX disclosed that “it has been in recent discussions with select private equity investors to explore a potential sale of the Kidney Care asset in lieu of the proposed spin-off of the business.” While no final decision has been made on the ultimate form of the Kidney Care separation, management stated it is committed to “separating“ the business in 2H 2024. The standalone business, if spun off, is expected to adopt the corporate moniker Vantive.

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

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

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

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

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

Radar Screen – May 2024

Monthly publication providing ongoing analysis on companies where we see potential for a value-unlocking event

Companies discussed this month:  Albany International (AIN), Alphabet Inc. (GOOG), APi Group Corp. (APG), Bloomin’ Brands (BLMN), California Resources Corp. (CRC), Carrier Global Corp. (CARR), Crown Castle Inc. (CCI),  Goodyear Tire & Rubber, Inc. (FLT), IAC Inc. (IAC), Liberty Broadband Corp. (LBRDK), Masimo Corp. (MASI), Matthews International Corp. (MATW), Natura & Co. (NTCO), Newpark Resources (NR), PAR Technology Corp. (PAR), RCI Hospitality Inc. (RICK), Stanley Black & Decker (SWK)*, TFI International (TFII), TriMas Corporation (TRS)

*New Entry this Month

Spin-Off Report Calendar – May 2024

Published monthly, The Spin-Off Calendar provides one-page summaries of every spin-off under coverage from the announcement date, followed by the filing of the Form 10 and continuing 60 days post completion.

Spin-Off Report Compendium – March 2024

Murray Stahl’s commentary on various investing themes and single stock recommendations.

European Spin-Off Compendium – April 2024

Murray Stahl’s commentary on various investing themes and single stock recommendations in Europe. 

Bits & Pieces – May 2024

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

Product Specialist

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

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

HIGH-CONVICTION RECOMMENDATIONS (LONG):

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

RECENT INITIATIONS:  TriMas Corporation (TRS)

LATEST PUBLICATIONS & UPDATES:

UPDATE:  Matthews International Corp. (MATW)

May 3, 2024

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

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

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

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

UPDATE:  Newpark Resources, Inc. (NR)

May 3, 2024

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

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

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

On the transactional front, management indicated that the on-going strategic review at Fluid Systems continues to “move forward” and that management remained “optimistic” the process will be completed in “the first half” of 2024.  We estimate a deal would precipitate a significant re-rating of NR shares toward a valuation more in-line with specialty rental & services peers as opposed to a legacy oilfield services provider (i.e., high single-digit to low double-digit multiples versus low- to mid-single digit-type valuations).

Our base case fair value for NR remains ~$10 per share (33% upside from the current share price) based on an 8.5x blended multiple on 2025E adjusted EBITDA of $98.1 million, reflecting a 5.5x multiple at Fluid Systems and 9.5x at Industrial Solutions, while accounting for corporate costs and projected net debt.

Radar Screen – May  2024

Monthly publication providing ongoing analysis on companies where we see potential for a value-unlocking event

Companies discussed this month:  Albany International (AIN), Alphabet Inc. (GOOG), APi Group Corp. (APG), Bloomin’ Brands (BLMN), California Resources Corp. (CRC), Carrier Global Corp. (CARR), Crown Castle Inc. (CCI), Goodyear Tire & Rubber, Inc. (GT), IAC Inc. (IAC), Liberty Broadband Corp. (LBRDK), Masimo Corp. (MASI), Matthews International Corp. (MATW), Natura & Co. (NTCO), Newpark Resources (NR), PAR Technology Corp. (PAR), RCI Hospitality Inc. (RICK), Stanley Black & Decker (SWK)*, TFI International Inc. (TFII), TriMas Corporation (TRS)

*New Entry This Month

Product Specialist

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

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

UPCOMING SPIN-OFFS AND EXPECTED COMPLETION DATES:

• Baxter International Inc. (BAX) / Vantive – 2Q 2024
• Jacobs Solutions Inc. (J) / Critical Mission Solutions – 3Q 2024
• Western Digital (WDC) / HDD Business – 2H 2024
• MDU Resources Group (MDU) / Construction Services – 2H 2024
• Berry Global Group Inc. (BERY)  / HH&S And Films Businesses (to merge w/ Glatfelter) – 2H 2024
• Select Medical Holdings Corp. (SEM) / Concentra Business – 2H 2024
• Edwards Lifesciences Corp.(EW) / Critical Care Business – 2H 2024
• Holcim Ltd. (HOLN SW) / North American Business – 1H 2025

RECENT PUBLICATIONS:

UPDATE:  Solventum Corp. (SOLV)

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

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

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

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

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

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

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

Radar Screen – May 2024

Monthly publication providing ongoing analysis on companies where we see potential for a value-unlocking event

Companies discussed this month:  Albany International (AIN), Alphabet Inc. (GOOG), APi Group Corp. (APG), Bloomin’ Brands (BLMN), California Resources Corp. (CRC), Carrier Global Corp. (CARR), Crown Castle Inc. (CCI),  Goodyear Tire & Rubber, Inc. (FLT), IAC Inc. (IAC), Liberty Broadband Corp. (LBRDK), Masimo Corp. (MASI), Matthews International Corp. (MATW), Natura & Co. (NTCO), Newpark Resources (NR), PAR Technology Corp. (PAR), RCI Hospitality Inc. (RICK), Stanley Black & Decker (SWK)*, TFI International (TFII), TriMas Corporation (TRS)

*New Entry this Month

Spin-Off Report Calendar – May 2024

Published monthly, The Spin-Off Calendar provides one-page summaries of every spin-off under coverage from the announcement date, followed by the filing of the Form 10 and continuing 60 days post completion.

Spin-Off Report Compendium – March 2024

Murray Stahl’s commentary on various investing themes and single stock recommendations.

European Spin-Off Compendium – April 2024

Murray Stahl’s commentary on various investing themes and single stock recommendations in Europe. 

Bits & Pieces – April 2024

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

Product Specialist

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

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

UPCOMING SPIN-OFFS AND EXPECTED COMPLETION DATES:

• Baxter International Inc. (BAX) / Vantive – 2Q 2024
• Jacobs Solutions Inc. (J) / Critical Mission Solutions – 3Q 2024
• Western Digital (WDC) / HDD Business – 2H 2024
• MDU Resources Group (MDU) / Construction Services – 2H 2024
• Berry Global Group Inc. (BERY)  / HH&S And Films Businesses (to merge w/ Glatfelter) – 2H 2024
• Select Medical Holdings Corp. (SEM) / Concentra Business – 2H 2024
• Edwards Lifesciences Corp.(EW) / Critical Care Business – 2H 2024
• Holcim Ltd. (HOLN SW) / North American Business – 1H 2025

RECENT PUBLICATIONS:

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

April 29, 2024

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

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

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

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

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

Radar Screen – May 2024

Monthly publication providing ongoing analysis on companies where we see potential for a value-unlocking event

Companies discussed this month:  Albany International (AIN), Alphabet Inc. (GOOG), APi Group Corp. (APG), Bloomin’ Brands (BLMN), California Resources Corp. (CRC), Carrier Global Corp. (CARR), Crown Castle Inc. (CCI),  Goodyear Tire & Rubber, Inc. (FLT), IAC Inc. (IAC), Liberty Broadband Corp. (LBRDK), Masimo Corp. (MASI), Matthews International Corp. (MATW), Natura & Co. (NTCO), Newpark Resources (NR), PAR Technology Corp. (PAR), RCI Hospitality Inc. (RICK), Stanley Black & Decker (SWK)*, TFI International (TFII), TriMas Corporation (TRS)

*New Entry this Month

Spin-Off Report Calendar – May 2024

Published monthly, The Spin-Off Calendar provides one-page summaries of every spin-off under coverage from the announcement date, followed by the filing of the Form 10 and continuing 60 days post completion.

Spin-Off Report Compendium – March 2024

Murray Stahl’s commentary on various investing themes and single stock recommendations.

European Spin-Off Compendium – April 2024

Murray Stahl’s commentary on various investing themes and single stock recommendations in Europe. 

Bits & Pieces – April 2024

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

Product Specialist

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

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

HIGH-CONVICTION RECOMMENDATIONS (LONG):

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

RECENT INITIATIONS:  TriMas Corporation (TRS)

LATEST PUBLICATIONS & UPDATES:

UPDATE:  Matthews International Corp. (MATW)

May 3, 2024

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

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

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

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

UPDATE:  Newpark Resources, Inc. (NR)

May 3, 2024

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

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

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

On the transactional front, management indicated that the on-going strategic review at Fluid Systems continues to “move forward” and that management remained “optimistic” the process will be completed in “the first half” of 2024.  We estimate a deal would precipitate a significant re-rating of NR shares toward a valuation more in-line with specialty rental & services peers as opposed to a legacy oilfield services provider (i.e., high single-digit to low double-digit multiples versus low- to mid-single digit-type valuations).

Our base case fair value for NR remains ~$10 per share (33% upside from the current share price) based on an 8.5x blended multiple on 2025E adjusted EBITDA of $98.1 million, reflecting a 5.5x multiple at Fluid Systems and 9.5x at Industrial Solutions, while accounting for corporate costs and projected net debt.

Radar Screen – May  2024

Monthly publication providing ongoing analysis on companies where we see potential for a value-unlocking event

Companies discussed this month:  Albany International (AIN), Alphabet Inc. (GOOG), APi Group Corp. (APG), Bloomin’ Brands (BLMN), California Resources Corp. (CRC), Carrier Global Corp. (CARR), Crown Castle Inc. (CCI), Goodyear Tire & Rubber, Inc. (GT), IAC Inc. (IAC), Liberty Broadband Corp. (LBRDK), Masimo Corp. (MASI), Matthews International Corp. (MATW), Natura & Co. (NTCO), Newpark Resources (NR), PAR Technology Corp. (PAR), RCI Hospitality Inc. (RICK), Stanley Black & Decker (SWK), TFI International Inc. (TFII), TriMas Corporation (TRS)

*New Entry This Month

Product Specialist

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

The Weekly Wrap-Up provides summaries of recent publications from 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)
• Tiptree Inc. (TIPT)
• Newpark Resources, Inc. (NR)
• Atlanta Braves Holdings (BATRK)
• TriMas Corporation (TRS)

RECENT INITIATIONS:  TriMas Corporation (TRS)

LATEST PUBLICATIONS & UPDATES:

Garrett Motion Inc. (GTX) – UPDATE

April 25, 2024

GTX reported 1Q 2024 sales down 6% (or 5% on a constant currency basis) to $915 million as softness in gasoline, diesel & commercial vehicle sales (primarily in Europe) amid on-going supply chain disruptions and commodity-driven deflation in prices, partially offset by aftermarket strength in North America, Brazil and China.  Adjusted EBITDA fell ~10% to $151 million (reflecting 80 bps of margin degradation to 16.5%).

Management repurchased $109 million worth of shares in 1Q 2024 and ended the year with a net leverage ratio of 2.3x (versus 2.2x at the end of 2023).  Management endeavors to complete the remaining $241 million of its share repurchase authorization during 2024.

GTX maintained its initial 2024E guidance, which calls 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.  The company expects a stronger 2H 2024 with results sequentially better in 2Q 2024 (versus 1Q 2024) but softer on a year-over-year basis.

On the electric vehicle (EV) or zero-emission vehicle (ZEV) front, GTX continues to garner pre-development projects for its E-Powertrain, E-Cooling Compressor and H2 Fuel Cell solutions/systems and is “on target to achieve” ~$1 billion of EV/ZEV sales (at or above the company’s existing margin profile) by 2030. Additionally, the company indicates that it secured two new awards in its large industrial turbo product set, a new vertical for GTX, which serves the power generation market.

In terms of the longer-term outlook, on which we note that management has solid visibility considering ~80% of sales over the next 5-years have already been award by its OEM customers, we concur with management’s contention that the core turbocharger business will be bigger in 2030 than it is today and that GTX will generate free cash that equals or exceeds the company’s current
market capitalization over the next five years.

Our base case fair value estimate for GTX remains ~$12.50 per share, 27% above the current share price.

APi Group (APG) – UPDATE

April 17, 2024

The company announced (and priced) a secondary offering of 11 million common shares at $37.50/share.  Proceeds are expected to be deployed toward “capital expenditures, working capital and acquisitions”.  Two days earlier, APG announced an agreement to acquire Elevated Facility Services for $570 million in cash, which is expected to close in 2Q 2024.  This transaction will provide APG entry into the $10 billion elevator and escalator services market.  Elevated generates $220 million of annual sales, of which 70% comes from inspections, services and repairs with a 20% adj. EBITDA margin profile (versus APG’s consolidated margin profile of 11.3% in 2023).  The deal will add approximately $44 million of incremental annual EBITDA and was priced at 12.95x.

APG also increased its previous 1Q 2024 guidance to $1.59-$1.61 billion (initial guidance was $1.56-$1.61 billion) with adjusted EBITDA of $172-$177 million (initial guidance was $165-$180 million and consensus of $173 million).  Our base case fair value estimate for APG remains $40/share reflecting a blended multiple of ~12.5x of 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.

Radar Screen – April  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), Newpark Resources (NR), *Natura & Co. (NTCO), PAR Technology Corp. (PAR), RCI Hospitality Inc. (RICK), TFI International Inc. (TFII), TriMas Corporation (TRS)

*New Entry This Month

Product Specialist

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

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

UPCOMING SPIN-OFFS AND EXPECTED COMPLETION DATES:

• Baxter International Inc. (BAX) / Vantive – 2Q 2024
• Jacobs Solutions Inc. (J) / Critical Mission Solutions – 3Q 2024
• Western Digital (WDC) / HDD Business – 2H 2024
• MDU Resources Group (MDU) / Construction Services – 2H 2024
• Berry Global Group Inc. (BERY)  / HH&S And Films Businesses (to merge w/ Glatfelter) – 2H 2024
• Select Medical Holdings Corp. (SEM) / Concentra Business – 2H 2024
• Edwards Lifesciences Corp.(EW) / Critical Care Business – 2H 2024
• Holcim Ltd. (HOLN SW) / North American Business – 1H 2025

RECENT PUBLICATIONS:

General Electric Co. (GE) / GE Vernova (GEV) – UPDATE

April 2, 2024

GE Completes Vernova Spin-Off; Rate GE at NEUTRAL ($139 FVE) and GEV at NEUTRAL ($134 FVE).

3M Co. (MMM) / Solventum (SOLV) – Update

April 1, 2024

MMM Completes Solventum Spin-Off; Rate MMM at NEUTRAL ($78 FVE); Rate SOLV at BUY ($103 FVE).

Radar Screen – April 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), Newpark Resources (NR), *Natura & Co. (NTCO), PAR Technology Corp. (PAR), RCI Hospitality Inc. (RICK), TFI International (TFII), TriMas Corporation (TRS)

*New Entry this Month

Spin-Off Report Calendar – April 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 – March 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), Tiptree Inc. (TIPT), Newpark Resources, Inc. (NR), Atlanta Braves Holdings (BATRK), TriMas Corporation (TRS)

RECENT INITIATIONS:  TriMas Corporation (TRS)

LATEST PUBLICATIONS & UPDATES:

APi Group (APG) – UPDATE

April 17, 2024

The company announced (and priced) a secondary offering of 11 million common shares at $37.50/share.  Proceeds are expected to be deployed toward “capital expenditures, working capital and acquisitions”.  Two days earlier, APG announced an agreement to acquire Elevated Facility Services for $570 million in cash, which is expected to close in 2Q 2024.  This transaction will provide APG entry into the $10 billion elevator and escalator services market.  Elevated generates $220 million of annual sales, of which 70% comes from inspections, services and repairs with a 20% adj. EBITDA margin profile (versus APG’s consolidated margin profile of 11.3% in 2023).  The deal will add approximately $44 million of incremental annual EBITDA and was priced at 12.95x.

APG also increased its previous 1Q 2024 guidance to $1.59-$1.61 billion (initial guidance was $1.56-$1.61 billion) with adjusted EBITDA of $172-$177 million (initial guidance was $165-$180 million and consensus of $173 million).  Our base case fair value estimate for APG remains $40/share reflecting a blended multiple of ~12.5x of 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.

TriMas Corporation (TRS) – INITIATION REPORT

March 21, 2024

TriMas, which reports three business segments – Packaging (52% of sales), Aerospace (27%) and Specialty Products (21%), is considering the sale of its energy-focused Arrow Engine business (currently housed in the Specialty Products segment) partly due to activist pressure from Barington Capital.  Additionally, the company could consider additional portfolio changes to increase its focus on the core Packaging sector, which may alleviate any conglomerate discount and improve longer-term operational performance with respect to growth, margins and capital allocation while also allowing investors to better target their investment dollars.  The case for maintaining the current operating structure is weakened by the poor share price performance in recent years.

Based on management guidance and commentary as well as peer and M&A valuations, TRS’s Packaging, Aerospace, and Specialty Products businesses could be valued at $26 per share, $14 per share, and ~$8.50 per share, respectively. Accounting for corporate costs and projected net debt of ~$14.50 per share yields a base case sum-of-the-parts fair value of $34 per share, 32% above the current share price.

Radar Screen – April  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), Newpark Resources (NR), *Natura & Co. (NTCO), PAR Technology Corp. (PAR), RCI Hospitality Inc. (RICK), TFI International Inc. (TFII), TriMas Corporation (TRS)

*New Entry This Month

Product Specialist

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