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.

Newest Publications & Updates

UPDATE: Matthews International Corporation (NASDAQ: MATW) 
July 28, 2023

MATW reports 3Q F2023 results modestly ahead of consensus and sees full-year F2023 adj. EBITDA of “at least $220 million” (within its prior guidance of $215-$235 million); fair value increased to $51 per share (from $50)

• Last night, after the market close, MATW reported 3Q F2023 consolidated sales up 11.9% (or ~12.3% on a constant currency basis) to $471.9 million (vs. consensus of $465.5 million) with a ~22% increase in adjusted EBITDA to ~$56.2 million (vs. consensus of $55.5 million). Adj. EPS were $0.74 (up ~27.5% versus $0.58 in the prior year period and consensus of $0.65).
• By segment, sales at the Memorialization segment rose 2.7% to ~$209 million with a 24.5% increase in adj. EBITDA to ~$40 million while sales at Industrial Technologies increased 66.5%, most notably driven by the energy storage business (including the Olbrich and R+S acquisitions), to $130.5 million with an ~27.5% increase in adj. EBITDA to ~$15.0 million.  At SGK, sales fell ~5.5% to ~$132.5 million while adj. EBITDA increased 12.5% to ~$16.5 million (as adverse conditions in Europe as well as currency headwinds were offset by recent cost reductions and pricing pass-throughs).
• The company ended 3Q F2023 with net debt of $735.7 million, including $39.3 million in cash and $775 million of debt, and a net leverage ratio of 3.3x (versus 3.5x in 2Q F2023, 3.85x in 1Q F2023 and 3.5x at the end of F2022). The company’s long-term target remains “at or below 3.0x”.
• In terms of guidance, the company maintained its full-year F2023 adjusted EBITDA guidance of $215-$235 million (compared with $210.4 million in F2022) while noting that it expects adj. EBITDA will be “at least $220 million”; anecdotally, Industrial Technologies should post ~$500 million of sales in F2023, primarily driven by the energy storage business, while Memorialization continues to perform better than pre-pandemic levels even as death rates continue to normalize. At SGK, market conditions are expected to remain challenged, given its significant European exposure, but pricing conditions are improving, and the cost reduction efforts taken earlier in the year (with more to come over the next six months) should drive further margin improvement in the remainder of F2023 and F2024.
• Anecdotally, management indicated on this morning’s conference call that its outlook continues to reflect a “cautious” stance on the timing of revenue recognition of existing orders in the energy storage business as well as the timing of future orders, of which management suggests it is in multiple later-stage negotiations (e.g., “all” of the battery manufacturers in the Asia Pacific region).
• Our base case fair value estimate for MATW is increased to $51 per share (from ~$50 per share), reflecting a blended multiple 9.5x multiple (unchanged) on our F2024E adjusted EBITDA of $~$247 million (previously ~$245 million) and net debt of ~$672.5 million (previously ~$704.5 million)

UPDATE: Garrett Motion Inc. (NASDAQ: GTX)
July 27, 2023

GTX reports 2Q 2023 results; raises full-year guidance for the 2^nd consecutive quarter with the bottom end of its FCF guide implying a ~17% yield; repurchases were modest during in 2Q 2023 but have ramped into July and the company plans $200 million of early debt repayment in 3Q 2023

• This morning, before the market open, GTX reported 2Q 2023 sales up 18% (or 19% on a constant currency basis) to $1.01 billion, driven by both new product ramps and OEM restocking, with 23% growth in adj. EBITDA to $170 million (vs. $138 million in 2Q 2022).  Net income and adj. free cash flow (FCF) were $71 million and $140 million, respectively, compared with $85 million and $23 million in the prior year period.
• For 1H 2023, GTX posted sales growth of 12.5% to $1.98 billion with 19% growth in adj. EBITDA to $338 million.  Net income and adj. FCF were $152 million and $228 million, respectively, compared with $173 million and $61 million in the prior year period.
• The company ended 2Q 2023 with a net leverage ratio of 2.15x (compared with 1.64x at the end of 2022 and 1.87x at the end of 2Q 2022).  GTX repurchased $17 million worth of stock during 2Q 2023 (under its $250 million authorization) but indicates that that figure has ramped to $80 million as of July 25^th.  As well, the company plans $200 million of early debt repayment in 3Q 2023 in pursuit of its 2024 net leverage target of ~2.0x (that said, we would note that 80% of GTX’s long-term debt is fixed at less than 3.2% over the next three years with no significant debt maturities until 2028).
• In terms of guidance, management increased its full-year outlook for the second straight quarter (see Exhibit 1 on page 2); net sales are now projected to be $3.84-$4.03 billion (versus prior guidance of $3.79-$3.98 billion), implying constant currency growth of 6%-11% (previously 5%-10%) with adjusted EBITDA and FCF of $620-$670 million and $340-$440 million, respectively (versus prior guides of $585-$635 million and $315-$415 million).  GAAP net income is projected to be $255-$290 million (up from the previous range of $231-$268 million).
• Management’s current projections assume light vehicle production of ~84 million units (up from the previous 1% growth assumption) along with a Euro/Dollar exchange rate of 1.11 (previously 1.07).  Research & Development (R&D) costs and capital expenditures are expected to be ~4.3% (previously 4.4%) and 2.3% (unchanged) of net sales, respectively, of which 50% and 20% (both unchanged), respectively, will be devoted to electrical technology innovation.
• On the latter electric vehicle (EV) or zero-emission vehicle (ZEV) front, GTX continues to garner pre-development projects for its E-Powertrain, E-Cooling Compressor and H2 Fuel Cell solutions/systems and it continues to target ~$1 billion of EV/ZEV sales (at or above the company’s existing margin profile) by 2030.
• Our base case fair value estimate for GTX remains ~$11 per share, reflecting an 8.0x multiple on our 2024E adjusted net income forecast of ~$349 million and a fully diluted share count of ~266 million.

Radar Screen – July 2023

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

Companies discussed this month:  Alphabet Inc. (GOOG), APi Group Corp. (APG), California Resources Corp. (CRC), Carrier Global Corp. (CARR), Crown Holdings Inc. (CCK), FLEETCOR Technologies, Inc. (FLT), Enhabit Inc. (EHAB), Hasbro, Inc. (HAS), IAC Inc. (IAC), Liberty Broadband Corp. (LBRDK), Matthews International Corp. (MATW), MDU Resources Group, Inc. (MDU), PAR Technology Corp. (PAR), RCI Hospitality Inc. (RICK), Stanley Black & Decker (SWK), Tiptree Inc. (TIPT), Western Digital Corp. (WDC) 

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.

Newest Publications & Updates

COMPREHENSIVE REPORT: Lions Gate Entertainment (NYSE: LGF/A, LGF/B)
June 24, 2023

On July 12, 2023, after the market close, Lions Gate Entertainment (NYSE: LGF/A, LGF/B) issued a press release announcing that the company filed a public Form 10 registration statement with the SEC to conduct a tax-free spin-off of its Motion Picture and Television Production business segments, collectively referred to as LGF’s Studio Business. The transaction, which is targeted to be completed by the end of September 2023, is subject to customary closing conditions, including an effectiveness declaration of a Form 10 filing with the SEC and final approval from the company’s Board of Directors, amongst others. Following the separation, the parent company will control the Starz cable television station operations. Post separation, the spin company will adopt the corporate moniker Lions Gate Entertainment Corp. (“New Lionsgate”) and the parent company will change its corporate name to Starz Entertainment Corp. (“New Starz”). As of this writing, share distribution ratios and post-spin capital structures have yet to be finalized. LGF’s current CEO Jon Feltheimer, CFO James W. Barge, and COO Brian Goldsmith will all remain with the Studio business following the spin.

In terms of rationale, the undoing of the ill-timed/miscalculated acquisition of Starz appears to be the main motive. The increased prevalence of cord-cutting, whether a true industry phenomenon or just a STARZ-specific issue, is pressuring the company to invest in original content, which competes for investment with the studio business, especially when considering that cash flow is largely generated from the Lions Gate film library and the Starz international operations continue to operate at a loss. Following the LIONSGATE+ write-downs, it would appear that the value of Starz will be far below the 2016 purchase price, and the Studio business will likely look more attractive to investors and potential acquirers as a standalone company. In reference to the potential acquisition of the Studio business, which may make sense for another production company to add scale, it should be noted that there may be near term impediments to a potential acquisition of the spin company in order to maintain the tax status of the spin-off. Those restrictions may not apply to the parent company, however. Notably the separation creates a pure-play content company (New Lionsgate) and a pure-play premium subscriber platform (New Starz), a reverse from the Starz acquisition rationale, which at least in part was driven by increasing diversification of revenue away from heavy reliance on blockbuster theatrical releases.

In the context of better positioning the post-spin companies to create shareholder value, it is worthy to consider that it was reported by Reuters in 2017 that toy and game manufacturer Hasboro Inc. (NASDAQ: HAS) attempted to purchase LGF for a reported minimum of $40 per share. At the time of the reports LGF shares traded at slightly above $29 per share. Further, at the close of the STARZ acquisition on December 8, 2016, shares of LGF traded at $26.06.

On a pre-spin basis, we assign a fair value estimate of $8 per share to pre-spin LGF, consisting of $7 per share in value from New Lionsgate and $1 per share in value from New Starz, and assign a NEUTRAL rating. While it appears that you would be getting the Starz business for virtually free by our valuation exercises, we refrain from recommending shares as continued headwinds at Starz and the inherent lumpiness of the film industry, combined with the current writers (and actors) strike inserts increased risk to our fair value estimate while not providing for a large enough margin of safety to be comfortable with a more positive recommendation. Post-spin, although inherently somewhat erratic, we would favor the Studio business over Starz given the large library of content controlled, which should provide some degree of top line stability, and the potential for acquisitive suitors over the long term provide a more attractive investment opportunity than the Starz business, in our view.

Radar Screen – July 2023

Monthly publication providing ongoing analysis on companies with potential for a value-unlocking event

Companies discussed this month:  Alphabet Inc. (GOOG), APi Group Corp. (APG), California Resources Corp. (CRC), Carrier Global Corp. (CARR), Crown Holdings Inc. (CCK), FLEETCOR Technologies, Inc. (FLT), Enhabit Inc. (EHAB), Hasbro, Inc. (HAS), IAC Inc. (IAC), Liberty Broadband Corp. (LBRDK), Matthews International Corp. (MATW), MDU Resources Group, Inc. (MDU), PAR Technology Corp. (PAR), RCI Hospitality Inc. (RICK), Stanley Black & Decker (SWK), Tiptree Inc. (TIPT), Western Digital Corp. (WDC) 

Spin-Off Report Calendar – July 2023

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 – April 2023

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

European Spin-Off Compendium – April 2023

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

Bits & Pieces – July 2023

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.

Newest Publications & Updates

UPDATE: Atlanta Braves Holdings, Inc. (NASDAQ: BATRK)
July 19, 2023

Last night, after the market close, Liberty Media completed the 1-for-1 split-off of Atlanta Braves Holdings, Inc. (formerly Liberty Braves Group); new shares will begin trading this morning; our base case fair value estimate remains $50 per share

• Last night, after the market close, Liberty Media completed the previously announced split-off of A19lanta Braves Holdings, Inc., including ownership of The Atlanta Braves Major League Baseball (MLB) team, its stadium, Truist Park, as well as the adjacent mixed-use development, The Battery Atlanta, into a separate, publicly traded, asset-backed equity (as opposed to its previous multi-class tracking stock structure).
• To that end, the company redeemed all of the previously outstanding Series A, B, & C shares of the Liberty Braves Group for one share in the corresponding common stock of the new Atlanta Braves Holdings (with all intergroup interests being settled & extinguished).
• There was no record date for the transaction; as such, all holders of Liberty Braves Group’s common stock at the split-offs’ 5 p.m. effective time last night, July 18^th, automatically received their allotted shares.
• In terms of the new listings, Atlanta Braves Holdings’ Series A and C common stock will begin trading on the NASDAQ under the tickers BATRA and BATRK this morning, July 19^th, while the Series B common stock will trade in the OTC market under the ticker BATRB.
• It remains our view, this transaction would reduce complexity, widen the potential shareholder base and help further narrow the so-called tracking stock discount as well as facilitate the eventual, tax-efficient monetization of the Atlanta Braves Holdings’ assets.
• Our base case fair value estimate remains $50 per share, reflecting a ~$47 per share valuation for the Atlanta Braves MLB team, based on a 5.5x multiple of 2023E regular season ballpark sales, a $9 per share valuation for the company’s real estate/development assets (i.e., The Battery Atlanta), reflecting a 6.5% capitalization rate on our stabilized net operating income estimate, and net debt of ~$ 5 per share.
• For reference, Liberty Braves Holdings expects to report 2Q 2023 results on August 4, 2023, before the market open and hold a conference call that morning at 10 a.m. (ET); call-in at (877) 704-2829.

Radar Screen – July 2023

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

Companies discussed this month:  Alphabet Inc. (GOOG), APi Group Corp. (APG), California Resources Corp. (CRC), Carrier Global Corp. (CARR), Crown Holdings Inc. (CCK), FLEETCOR Technologies, Inc. (FLT), Enhabit Inc. (EHAB), Hasbro, Inc. (HAS), IAC Inc. (IAC), Liberty Broadband Corp. (LBRDK), Matthews International Corp. (MATW), MDU Resources Group, Inc. (MDU), PAR Technology Corp. (PAR), RCI Hospitality Inc. (RICK), Stanley Black & Decker (SWK), Tiptree Inc. (TIPT), Western Digital Corp. (WDC) 

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.

Newest Publications & Updates

COMPREHENSIVE REPORT: NCR Corp. (NYSE: NCR)
June 20, 2023

On September 15, 2022, after the market close, NCR Corp. (NYSE: NCR) announced plans to separate its digital commerce and ATM businesses into a separate, publicly traded companies. The separation is targeted to be completed in early 4Q 2023 and is subject to customary closing conditions, such as final Board approval, an effectiveness declaration of the company’s Form 10 filing by the SEC, and an opinion on the tax-free status of the separation. In conjunction with the spin announcement, management stated that throughout the review process, the company received “material interest in a whole company sale,” as well as interest in various individual segments.

As of today, the company operates under five segments: Retail (29% of revenue in 2022), Hospitality (12%), Digital Banking (7%), Payments and Network (16%), and Self-Service Banking (33%). In recent years, the company has particularly focused on shifting sales offerings from hardware sales and onetime perpetual software license offerings to multiyear subscription-based revenue streams, positioning the company as a Software-as-a-Service (“SaaS”) provider to financial, retail, and hospitality companies.

Since prior to a strategic review announcement in early 2022, NCR has been a constant target of speculation as to whether it would be acquired in whole or part, with commonality in potential suitors throughout the years. The company has worked to transform itself from a hardware manufacturer with a perpetual sales license model into more of a SaaS company that also supplies hardware, in particular in relation to Retail, Hospitality, Digital Banking, and Self-Service Banking. While management is often queried on the subject during earnings conference calls and in person, their responses are measured, as required. The latest buyout speculation surrounds the potential sale of the Digital Banking business ahead of the planned spin-off.

In terms of rationale, management believes that the current structure obfuscates the underlying business characteristics of both businesses, with a particular impact on the ATM operations. Historically investors have looked at the ATM business as a steady state operation that will likely face structural headwinds in an increasingly cashless world. It should be noted that while cashless transactions continue to increase, cash in circulation is also increasing, benefiting from global wealth creation in international markets. As a standalone entity, the shift to the ATMaaS model’s financial benefits will be more clearly articulated. On the parent company side, the transition to a SaaS-based model should also increase and provide a growing, recurring revenue base over time that capitalizes on increased use of technology-enabled solutions across the retail and hospitality division, with the digital banking operations providing upside optionality in the event that management enters into a sale of the division, as has been speculated in the financial press. (Notably if the Digital Banking business remains within the parent company, the high margin and growing revenue would also benefit furthering of the Retail and Hospitality R&D spend in support of future growth.)

On a pre-spin basis, we fairly value shares of NCR at $32 per share, consisting of approximately $11 per share in value from ATMCo. and $21 per share from the parent company. At this level, we are valuing shares at 7.6x our consolidated EBITDA estimate, which on the whole appears attractive when compared to SaaS companies, as well as considering the healthy cash flow from ATMCo., and opportunities for revenue acceleration at both post-spin companies if management can successfully implement customer shifts to the ATMaaS and SaaS platforms. Given the favorable business trends, combined with the implied upside to our fair value estimate, we rate shares of pre-spin NCR at BUY. Post-spin, despite managements conjecture that investors appear interested in the ATMCo.’s cash flow characteristics, we would posit that NCR shareholders may rotate out of ATMCo. given the view that the ATM business is a legacy business that lacks growth, in favor of the parent company, which may initially pressure the new company’s share price.

Radar Screen – July 2023

Monthly publication providing ongoing analysis on companies with potential for a value-unlocking event

Companies discussed this month:  Alphabet Inc. (GOOG), APi Group Corp. (APG), California Resources Corp. (CRC), Carrier Global Corp. (CARR), Crown Holdings Inc. (CCK), FLEETCOR Technologies, Inc. (FLT), Enhabit Inc. (EHAB), Hasbro, Inc. (HAS), IAC Inc. (IAC), Liberty Broadband Corp. (LBRDK), Matthews International Corp. (MATW), MDU Resources Group, Inc. (MDU), PAR Technology Corp. (PAR), RCI Hospitality Inc. (RICK), Stanley Black & Decker (SWK), Tiptree Inc. (TIPT), Western Digital Corp. (WDC) 

Spin-Off Report Calendar – July 2023

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 – April 2023

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

European Spin-Off Compendium – April 2023

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

Bits & Pieces – July 2023

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.

Newest Publications & Updates

COMPREHENSIVE REPORT: Tiptree Inc. (NASDAQ: TIPT)
July 12, 2023

Tiptree Inc. (NASDAQ: TIPT) operates two business segments: (1) Insurance, which is a group of specialty insurance companies operating as Fortegra (89.5% of sales and ~90% of adj. net income in 2022) that focuses on underwriting niche commercial and personal property & casualty insurance as well as offering capital-light, unregulated, fee-generating warranty solutions in the U.S. and Europe; and (2) Tiptree Capital, which seeks to acquire quality small & middle market businesses outside the insurance sector. Since its founding in 2007, TIPT has invested in ~20 companies with realized internal rates of return (IRRs) nearing 25% although its primary current investments are in cash & short-dated U.S. treasuries along with the mortgage originations and senior housing sectors.  

By our calculation, TIPT, at ~7.5x 2024E adj. net income, trades at a meaningful discount to the sum value of its parts, particularly its majority ownership in Fortegra, which has posted 20%-plus compound annual growth in sales and net income since 2017 but seemingly trades at a significant discount to the valuations awarded specialty insurance peers in both the public and private markets.  In that context, following a scuttled attempt at an initial public offering (IPO) in April 2021, Fortegra secured a minority investment from Warburg Pincus in October 2021, which, at the time, appraised the business at a post-money valuation of ~$725 million (or ~13.5x trailing 12-month net income). Moreover, recent indications suggest that management, who collectively owns 31.5% of TIPT, is likely to revisit its strategic options for Fortegra (including an IPO, spin-off or sale) as its robust growth profile persists and new issue market conditions improve, which we think would unlock substantial value for shareholders.  (Conversely, TIPT could monetize the investments held at Tiptree Capital.)  

Based on management guidance & commentary as well as peer and M&A valuations, TIPT’s Insurance business, Fortegra, could be valued at ~$22 per share based on a 12.5x multiple of 2024E net income while Tiptree Capital could be valued at ~$3 per share based on a 0.5x multiple of book value (ex-NCI), yielding a base case sum of the parts value of $24.50 per share (with bull & bear cases of ~$29 and ~$20 per share, respectively).  Potential catalysts include the separation/monetization of assets, including Fortegra and/or the investments held at Tiptree Capital, accretive M&A, share repurchases, and/or better than expected growth and margins, particularly at Fortegra. Risks include management execution, competition, regulation, increased adverse claims/investment losses, cyberattacks/technology breaches, persistent inflation and/or a recession.

UPDATE: APi Group Corp. (NYSE: APG)
July 11, 2023

Ahead of a conference appearance later today, APG indicates 2Q 2023 adj. EBITDA will “at or above the midpoint” of its initial guidance and that leverage will be within its targeted range by year-end despite a return to bolt-on M&A; fair value increased to $31 per share (from $30 per share) 

•  Ahead of an appearance at an industry conference at 1:40 p.m. on July 11th, APG indicated that 2Q 2023 adjusted EBITDA would come in “at or above the midpoint” of its initial $195-$205 million with organic net revenue growth in the high-single digits.
• Along with the implied EBITDA margin expansion, APG noted that free cash flow conversion continues to improve and will allow the company to reduce its net leverage ratio to within its 2.0x-2.5x target, albeit toward the higher end, by the end of 2023 despite a recent return to M&A in the Safety Services business.
• On the latter M&A point, the company indicated that it had completed a $35 million acquisition within the core Safety Service segment at the end of 2Q 2023 and that it expects to complete at least two more bolt-on transactions, again within the Safety Services segment, during 3Q 2023.  The combined annual net revenue contribution from these three acquisitions is projected to be ~$35 million (as well as immediately accretive to the company’s EBITDA margin.)
• The company will report actual 2Q 2023 results on August 3^rd, before the market open, with a conference call at 8:30 a.m. (ET).
• For context, APG ended 1Q 2023 with net debt of $2.311 billion, including $363 million in cash and $2.594 billion of debt, and a net leverage ratio of 3.1x (versus 3.2x at the end of F2022).
• In terms of earnings guidance, recall APG increased its full-year 2023 sales and adjusted EBITDA outlook to $6.875-$7.025 billion (up from $6.8-$6.95 billion) and $740-$780 million (up from $735-$775 million), respectively following 1Q 2023.
• The company’s initial 2Q 2023 guidance called for net sales of $1.75-$1.78 billion along with adjusted EBITDA of $195-$205 million.
• Anecdotally, the company has maintained its long-term (i.e., 2025) financial goals, which target generating ~60% of its sales from inspections, services & monitoring as well as a consolidated adjusted EBITDA margin of 13%. Free cash flow conversion is targeted to be 80% (relative to adj. EBITDA and up from ~65% in 2023) and its leverage target remains 2.0x-2.5x (which, again, the company expects to achieve, at least at the high end, by year-end 2023).
• Our base case fair value estimate for Api Group (APG) increases to $31 per share (from $30 per share), reflecting a blended multiple of ~11.5x on F2024 adjusted EBITDA of ~$875.5 (previously $831 million) along with projected net debt of ~$1.30 billion.

Radar Screen – July 2023

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

Companies discussed this month:  Alphabet Inc. (GOOG), APi Group Corp. (APG), California Resources Corp. (CRC), Carrier Global Corp. (CARR), Crown Holdings Inc. (CCK), FLEETCOR Technologies, Inc. (FLT), Enhabit Inc. (EHAB), Hasbro, Inc. (HAS), IAC Inc. (IAC), Liberty Broadband Corp. (LBRDK), Matthews International Corp. (MATW), MDU Resources Group, Inc. (MDU), PAR Technology Corp. (PAR), RCI Hospitality Inc. (RICK), Stanley Black & Decker (SWK), Tiptree Inc. (TIPT), Western Digital Corp. (WDC) 

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.

Newest Publications & Updates

ALERT: Lions Gate Files Form 10 to Spin-Off Studio Business
July 13, 2023

On July 12, 2023, after the market close, Lions Gate Entertainment (NYSE: LGF.A, LGF.B) issued a press release announcing that the company has filed a public Form 10 registration statement with the SEC to conduct a tax-free spin-off of its Motion Picture and Television Production business segments, collectively referred to as LGF’s Studio Business. The transaction, which is targeted to be completed by the end of September 2023, is subject to customary closing conditions including an effectiveness declaration of a Form 10 filing with the SEC and final approval from the company’s Board of Directors, amongst others. Following the separation, the parent company will control the company’s Straz cable television station operations.

Currently, LGF reports three operating segments: (1) Motion Picture (29% of consolidated sales and 54% of segment profit in March-ending F2023); (2) Television Production (38% of F2023 sales and 26% of segment profit); and (3) Media Networks (33% of F2023 sales and 21% of segment profit).

Motion Picture controls the company’s theatrical release of motion pictures, sale and rental of film productions, licensed films, and television programs, via packaged media and through digital media platforms, and licensing of film productions for linear and video-on-demand services international licensing. Television Production licenses scripted and unscripted series, made for TV movies, mini-series, and documentary programing, as well as the sale and rental of television series and movies through packaged media and digital media platforms. Media Networks primarily consists of the company’s STARZ branded premium subscription video services, which are distributed via traditional cable operators, over-the-top streaming platforms, and direct-to-consumer through the Straz app. Notably, LGF acquired Starz in 2016 for $4.4 billion in cash and stock.

On a consolidated basis, the company generated F2023 adjusted operating income before depreciation & amortization (OIBDA) of $358 billion (compared with $402 million in F2022). The company does not offer specific financial guidance (and its results can be lumpy based on the strength/appeal of its film slate in any given year), but current consensus estimates call for F2024 and F2025 sales of $4.3 billion and $4.5 billion, respectively, along with adjusted OIBDA of $425 million and $494 million for F2024 and F2025, respectively.

Based on current trends, consensus forecasts, and management commentary, it can reasonably be projected that LGF’s Media Networks segment could generate adjusted OIBDA of ~$145 million in F2025E. Assuming the standalone business were valued at ~5.0x, a modest discount to peers such as AMC Networks (NASDAQ: AMCX) and Discovery Inc. (NASDAQ: DISCA), value of $724 million could be derived. (Notably, this value could be conservative, considering that LGF purchased STARZ for $4.4 billion in 2016.)

Applying a 12x multiple to the remaining TV and Motion Picture businesses, which include a content library that generates annual sales approaching $800 million (with cash margins exceeding 50%), suggests a remaining value of ~$4.7 billion. (Again, considering recent M&A activity, including the MGM/AMZN transaction as well as Comcast’s [NASDAQ: CMSCA] ~$4.1 billion purchase of DreamWorks in August 2016, which represented an estimated EV/EBITDA multiple of ~24.5x, this valuation could be conservative in the event of a sale.) Accounting for capitalized corporate costs of $100 million at about 10x, and current net debt, including minority interest, of $1.8 billion suggests a sum-of-the-parts fair value of ~$2.6 billion, or ~$11.50 per share (based on a share count of 229.5 million).

UPDATE:  PHINIA Inc. (NYSE: PHIN)
July 12, 2023

The Sell-Off in PHINA Presents An Increasingly Attractive Risk Reward Scenario, In Our View; Upgrade PHIN to BUY (from NEUTRAL), Maintain $33 FVE

On July 3, 2023, after the market close, BorgWarner Inc. (NYSE: BWA) completed the spin-off of its fuel systems and aftermarket business into a standalone, publicly traded company called PHINIA Inc. (NYSE: PHIN).

Shares of PHINA have declined 45% since the close of trading on July 5, 2023, on total volume of 30.0 million shares. (For context, PHIN has 46.9 million shares outstanding.)

Following this precipitous sell-off, which we think has been perpetuated by BWA investors clearly favoring owning the parent company as well as index selling related to PHIN’s exclusion from the S&P 500, our view has become increasingly positive in regards to the margin of safety that the shares currently present. As such, we UPGRADE shares of PHINA Inc. and maintain our $33 fair value estimate.

While shares may still see some modest incremental downward pressure, we view the fact that 63% of shares outstanding have turned over, combined with today representing the fifth day of regular-way trading, which we have historically found is a precursor to more normalized trading volumes and less volatility emerging, as relevant leading indicators. (To that end, our research over the years has suggested selling pressure typically abates five to seven trading days post distribution.)

For reference, our fair value estimate is based on a 4.0x multiple of 2024E EBITDA of $519 million. Management has guided for 2023 EBITDA of $485 – $505 million, and 2025 targets of ~$3.7 billion in revenue and 14% – 15% EBITDA margins, which at the low end equates to approximately $518 million.

At today’s price, shares of PHIN are currently trading at 3.35x our 2024 EBITDA estimate, and 3.6x the low end of management’s guidance for this year.

For PHINIA, we do see significant cash flow generation from its product portfolio over the coming years. However, we acknowledge that the company likely does not receive a valuation multiple above low single digits given its end market exposure.

Radar Screen – July 2023

Monthly publication providing ongoing analysis on companies with potential for a value-unlocking event

Companies discussed this month:  Alphabet Inc. (GOOG), APi Group Corp. (APG), California Resources Corp. (CRC), Carrier Global Corp. (CARR), Crown Holdings Inc. (CCK), FLEETCOR Technologies, Inc. (FLT), Enhabit Inc. (EHAB), Hasbro, Inc. (HAS), IAC Inc. (IAC), Liberty Broadband Corp. (LBRDK), Matthews International Corp. (MATW), MDU Resources Group, Inc. (MDU), PAR Technology Corp. (PAR), RCI Hospitality Inc. (RICK), Stanley Black & Decker (SWK), Tiptree Inc. (TIPT), Western Digital Corp. (WDC) 

Spin-Off Report Calendar – July 2023

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 – April 2023

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

European Spin-Off Compendium – April 2023

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

Bits & Pieces – July 2023

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.

Newest Publications & Updates

UPDATE:  Lab Corp. (NYSE: LH) 
July 3, 2023

Lab Corp. Completes Spin-Off of Fortrea Holdings; Rate LH at NEUTRAL with a $219 FVE, Rate FTRE at NEUTRAL with a $35 FVE

• On June 30, 2023, after the market close, Laboratory Corporation of America Holdings (“Lab Corp”) (NUSE: LH) completed the spin-off of its clinical development business into a standalone, publicly traded company called Fortrea Holdings Inc. (NASDAQ: FTRE).
• LH shareholders of record received one share of FTRE for every share of LH owned as of June 20, 2023.
• As previously disclosed, Fortrea will be added to the S&P SmallCap 600 effective prior to the opening of trading on July 6, 2023. LH will remain a member of the S&P 500 following the spin-off.
• On Friday, shares of LH and FTRE closed trading in the when-issued market at $207.94 and $34.01, respectively. We maintain our post-spin fair value estimates of $219 and $35 for Lab Corp and Fortrea, respectively. Given limited upside to our post-spin fair value estimates, we rate both shares at NEUTRAL.
• Notably, since our initial LH report, shares have increased by 7.5% versus a 2.6% price increase for the S&P 500.
• If post-spin shares were to pull back from current levels, we would favor owning the parent company (LH) as we view the apparent near ending of COVID-related revenue declines and margin reversion as being priced in, with multiple expansion to that of peers providing more upside potential versus spin company’s business.
• For more details, please refer to The Spin Off Report dated June 13, 2023, and UPDATE dated June 29, 2023

UPDATE:  BorgWarner Inc. (NYSE: BWA)
July 5, 2023

BWA Completes the Spin-Off of PHINIA Inc.; Rate BWA at NEUTRAL with a $44 FVE; Rate PHINIA at NEUTRAL with a $33 FVE

• On July 3, 2023, after the market close, BorgWarner Inc. (NYSE: BWA) completed the spin-off of its fuel systems and aftermarket business into a standalone, publicly traded company called PHINIA Inc. (NYSE: PHIN).
• BWA shareholders of record received one share of PHIN for every five shares of BWA owned as of June 23, 2023.
• As previously disclosed, PHINIA Inc will be added to the S&P SmallCap 600 effective prior to the opening of trading on July 6, 2023. BWA will remain a member of the S&P 500 following the spin-off.
• We maintain our post-spin fair value estimates of $44 per share for post-spin BWA, and $33 for PHIN.
• Given limited upside to our fair value estimate, we rate shares of post-spin BWA and PHIN at NEUTRAL. On a post-spin basis, we would favor the BWA remain co. businesses as the path to electrification provides for a greater growth story versus PHINIA, granted they achieve their profitability goal on the eProducts portfolio and successfully manage their M&A integrations.
• For PHINIA, we would be incrementally positive if shares traded at a significant discount to our fair value estimate, as we do see significant cash flow generation from its product portfolio over the coming years. However, would remain cautious as the company likely does not receive a valuation multiple above low single digits given its end market exposure.
• For more details, please refer to The Spin Off Report dated June 20, 2023, and UPDATE dated June 29, 2023.

Radar Screen – July 2023

Monthly publication providing ongoing analysis on companies with potential for a value-unlocking event

Companies discussed this month:  Alphabet Inc. (GOOG), APi Group Corp. (APG), California Resources Corp. (CRC), Carrier Global Corp. (CARR), Crown Holdings Inc. (CCK), FLEETCOR Technologies, Inc. (FLT), Enhabit Inc. (EHAB), Hasbro, Inc. (HAS), IAC Inc. (IAC), Liberty Broadband Corp. (LBRDK), Matthews International Corp. (MATW), MDU Resources Group, Inc. (MDU), PAR Technology Corp. (PAR), RCI Hospitality Inc. (RICK), Stanley Black & Decker (SWK), Tiptree Inc. (TIPT), Western Digital Corp. (WDC) 

Spin-Off Report Calendar – July 2023

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 – April 2023

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

European Spin-Off Compendium – April 2023

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

Bits & Pieces – May 2023

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.

Newest Publications & Updates

UPDATE: Griffon Corporation (NYSE: GFF)
June 30, 2023  

Close coverage of GFF, as of today’s close; shares appreciated sharply but with the strategic review concluded (for now) with no meaningful portfolio changes we will reallocate our resources elsewhere; that said, we will look to re-recommend if valuation shifts or renewed efforts toward strategic alternatives emerge

• For context, GFF returned 26.4%, including the $2 per share special dividend paid on May 19^th, (compared with an 11.1% increase in the S&P 500 and a 1.1% rise in the Russell 2000) since our most recent recommendation in September 2022. 
• While we continue to see value in GFF on a sum of the parts basis, with the strategic review having concluded (for now) with no meaningful portfolio changes (albeit with improved returns to shareholders) we prefer to remain disciplined and reallocate our resources toward ideas that better fit our “value plus catalyst” approach.
• On the fundamental front, while we continue to expect solid results at the HBP segment we think underlying fundamentals will remain challenged at CPP (and that management’s margin improvement initiatives will take time to gain significant traction).

UPDATE: Liberty Braves Group (NASDAQ: BATRK) 
June 30, 2023

Liberty Media expects to complete the split-off of Atlanta Braves Holdings on July 18^th, after the market close; fair value remains $50 per share

• This morning, before the market open, Liberty Media announced that it expects to complete the previously announced split-off of Atlanta Braves Holdings, Inc., including ownership of The Atlanta Braves MLB team, its stadium, and The Battery mixed-use development into a separate, publicly traded, asset-backed equity (as opposed to its current multi-class tracking stock structure), on July 18, 2023, after the market close.  
• As previously announced, the transaction, which is still subject to shareholder approval at the July 17^th special meeting, is expected to be completed via the redemption of each currently outstanding Series A, B, & C shares for one share in the corresponding common stock of the new Atlanta Braves Group (with all intergroup interests being settled & extinguished).
• Liberty expects Atlanta Braves Holdings Series A and C common stock will begin trading on the NASDAQ tickers BATRA and BATRK on July 19^th while the Series B common stock will trade OTC under the ticker BATRB.
• In remains our view, this transaction will reduce complexity and help alleviate the current so-called tracking stock discount as well as facilitate the eventual, tax-efficient monetization of the Braves Group’s assets.
• Our base case fair value estimate remains $50 per share, reflecting a ~$47 per share valuation for the Atlanta Braves MLB team, based on a 5.5x multiple of 2023E regular season ballpark sales, a $9 per share valuation for the company’s real estate/development assets (i.e., The Atlanta Battery), reflecting a 6.5% capitalization rate on our stabilized net operating income estimate, and net debt of ~$ 5 per share.
• For context, our ~$2.895 billion valuation for the Atlanta Braves baseball team implies an ~11.5% premium to the most recent 2023 Forbes valuation of $2.6 billion, which we note represented a ~24% year over year increase from its 2022 valuation of ~$2.1 billion.

UPDATE: XPO, INC. (NYSE: XPO) 
June 27, 2023

YELL now trading below $1 per share as the company files a breach of contract lawsuit against the Teamsters union and suggests the company could be out of cash by mid-July, which would “likely force the Company into liquidation”

• Per the company’s legal assertions, the union has blocked management’s restructuring efforts, dubbed One Yellow, which are “essential to the Company’s survival” and that “without these crucial reforms, which are standard practice in the industry today, Yellow likely will not survive, 30,000 jobs will be lost, including 22,000 union jobs, and its shareholders, including the federal government, which owns ~30.1% of Yellow stock, will be severely damaged”.  (On the latter point, YELL indicates that it had attempted to reach out directly to the Biden Administration as well as other politicians, such as Sen. Bernie Sanders in hopes of brokering a deal but to “no avail”.)
• Further, management asserted that the completion of its restructuring initiative during 2023 is “critical to Yellow’s ability to survive, particularly given that Yellow faces, among other things, the imminent need to refinance $1.3 billion of debt – a $567.4 million term loan maturing on June 20, 2024 and a $729.4 million U.S. Treasury loan maturing on September 30, 2024.”
• Anecdotally, the company indicated that it could run out of cash as soon as mid-July (a pull-forward of its previous commentary, which suggested a  cash crunch in August, at which time its creditors “will likely force the Company into liquidation”
• Assuming YELL, which generated ~$4.7 billion of U.S. LTL revenue in 2022 (but is chronically unprofitable), were forced into liquidation or even if it manages to survive (but continues to bleed market share) it would result in material market share and pricing gains for the remaining players, including XPO, Inc. (NYSE: XPO), Old Dominion (NASDAQ: ODFL), Saia (NASDAQ: SAIA) and ArcBest (NASDAQ: ARCB) as well as Fed Ex (NYSE: FDX) and TFI International (NASDAQ: TFII).
• To that end, we estimate that XPO, who in mid-2022 implemented plans to expand its overall door capacity by ~6% in key constrained markets (as well as increase its driver recruitment/training efforts) by 1Q 2024, likely has at least 5%-15% in excess truck/terminal capacity (that we assume would quickly be erased in the event of a consolidation event).
• Under these assumptions, even excluding fuel surcharges, we calculate that applying a 9.0x multiple (compared with the peers SAIA and ODFL, which currently trade at ~12x and ~16x, respectively) there could ~$4-$20 per share of potential incremental upside for XPO in the event YELL’s negotiations with both labor and lenders actually devolves into bankruptcy or it manages to limp along as it has in the past.
• Our base case fair value, which assumes the status quo persists in terms of LTL market dynamics, for post-spin XPO is $60 per share, reflecting a 9.0x multiple on 2024E adj. EBITDA of $1.025 billion and projected net debt of $2.175 billion

Radar Screen – July 2023

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

Companies discussed this month:  Alphabet Inc. (GOOG), APi Group Corp. (APG), California Resources Corp. (CRC), Carrier Global Corp. (CARR), Crown Holdings Inc. (CCK), FLEETCOR Technologies, Inc. (FLT), Enhabit Inc. (EHAB), Hasbro, Inc. (HAS), IAC Inc. (IAC), Liberty Broadband Corp. (LBRDK), Matthews International Corp. (MATW), MDU Resources Group, Inc. (MDU), PAR Technology Corp. (PAR), RCI Hospitality Inc. (RICK), Stanley Black & Decker (SWK), Tiptree Inc. (TIPT), Western Digital Corp. (WDC) 

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.

Newest Publications & Updates

UPDATE: Griffon Corporation (NYSE: GFF)
June 30, 2023  

Close coverage of GFF, as of today’s close; shares appreciated sharply but with the strategic review concluded (for now) with no meaningful portfolio changes we will reallocate our resources elsewhere; that said, we will look to re-recommend if valuation shifts or renewed efforts toward strategic alternatives emerge

• For context, GFF returned 26.4%, including the $2 per share special dividend paid on May 19^th, (compared with an 11.1% increase in the S&P 500 and a 1.1% rise in the Russell 2000) since our most recent recommendation in September 2022. 
• While we continue to see value in GFF on a sum of the parts basis, with the strategic review having concluded (for now) with no meaningful portfolio changes (albeit with improved returns to shareholders) we prefer to remain disciplined and reallocate our resources toward ideas that better fit our “value plus catalyst” approach.
• On the fundamental front, while we continue to expect solid results at the HBP segment we think underlying fundamentals will remain challenged at CPP (and that management’s margin improvement initiatives will take time to gain significant traction).

UPDATE: Liberty Braves Group (NASDAQ: BATRK) 
June 30, 2023

Liberty Media expects to complete the split-off of Atlanta Braves Holdings on July 18^th, after the market close; fair value remains $50 per share

• This morning, before the market open, Liberty Media announced that it expects to complete the previously announced split-off of Atlanta Braves Holdings, Inc., including ownership of The Atlanta Braves MLB team, its stadium, and The Battery mixed-use development into a separate, publicly traded, asset-backed equity (as opposed to its current multi-class tracking stock structure), on July 18, 2023, after the market close.  
• As previously announced, the transaction, which is still subject to shareholder approval at the July 17^th special meeting, is expected to be completed via the redemption of each currently outstanding Series A, B, & C shares for one share in the corresponding common stock of the new Atlanta Braves Group (with all intergroup interests being settled & extinguished).
• Liberty expects Atlanta Braves Holdings Series A and C common stock will begin trading on the NASDAQ tickers BATRA and BATRK on July 19^th while the Series B common stock will trade OTC under the ticker BATRB.
• In remains our view, this transaction will reduce complexity and help alleviate the current so-called tracking stock discount as well as facilitate the eventual, tax-efficient monetization of the Braves Group’s assets.
• Our base case fair value estimate remains $50 per share, reflecting a ~$47 per share valuation for the Atlanta Braves MLB team, based on a 5.5x multiple of 2023E regular season ballpark sales, a $9 per share valuation for the company’s real estate/development assets (i.e., The Atlanta Battery), reflecting a 6.5% capitalization rate on our stabilized net operating income estimate, and net debt of ~$ 5 per share.
• For context, our ~$2.895 billion valuation for the Atlanta Braves baseball team implies an ~11.5% premium to the most recent 2023 Forbes valuation of $2.6 billion, which we note represented a ~24% year over year increase from its 2022 valuation of ~$2.1 billion.

UPDATE: XPO, INC. (NYSE: XPO) 
June 27, 2023

YELL now trading below $1 per share as the company files a breach of contract lawsuit against the Teamsters union and suggests the company could be out of cash by mid-July, which would “likely force the Company into liquidation”

• Per the company’s legal assertions, the union has blocked management’s restructuring efforts, dubbed One Yellow, which are “essential to the Company’s survival” and that “without these crucial reforms, which are standard practice in the industry today, Yellow likely will not survive, 30,000 jobs will be lost, including 22,000 union jobs, and its shareholders, including the federal government, which owns ~30.1% of Yellow stock, will be severely damaged”.  (On the latter point, YELL indicates that it had attempted to reach out directly to the Biden Administration as well as other politicians, such as Sen. Bernie Sanders in hopes of brokering a deal but to “no avail”.)
• Further, management asserted that the completion of its restructuring initiative during 2023 is “critical to Yellow’s ability to survive, particularly given that Yellow faces, among other things, the imminent need to refinance $1.3 billion of debt – a $567.4 million term loan maturing on June 20, 2024 and a $729.4 million U.S. Treasury loan maturing on September 30, 2024.”
• Anecdotally, the company indicated that it could run out of cash as soon as mid-July (a pull-forward of its previous commentary, which suggested a  cash crunch in August, at which time its creditors “will likely force the Company into liquidation”
• Assuming YELL, which generated ~$4.7 billion of U.S. LTL revenue in 2022 (but is chronically unprofitable), were forced into liquidation or even if it manages to survive (but continues to bleed market share) it would result in material market share and pricing gains for the remaining players, including XPO, Inc. (NYSE: XPO), Old Dominion (NASDAQ: ODFL), Saia (NASDAQ: SAIA) and ArcBest (NASDAQ: ARCB) as well as Fed Ex (NYSE: FDX) and TFI International (NASDAQ: TFII).
• To that end, we estimate that XPO, who in mid-2022 implemented plans to expand its overall door capacity by ~6% in key constrained markets (as well as increase its driver recruitment/training efforts) by 1Q 2024, likely has at least 5%-15% in excess truck/terminal capacity (that we assume would quickly be erased in the event of a consolidation event).
• Under these assumptions, even excluding fuel surcharges, we calculate that applying a 9.0x multiple (compared with the peers SAIA and ODFL, which currently trade at ~12x and ~16x, respectively) there could ~$4-$20 per share of potential incremental upside for XPO in the event YELL’s negotiations with both labor and lenders actually devolves into bankruptcy or it manages to limp along as it has in the past.
• Our base case fair value, which assumes the status quo persists in terms of LTL market dynamics, for post-spin XPO is $60 per share, reflecting a 9.0x multiple on 2024E adj. EBITDA of $1.025 billion and projected net debt of $2.175 billion

Radar Screen – June 2023

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

Companies discussed this month:  Alphabet Inc. (GOOG), APi Group Corp. (APG), California Resources Corp. (CRC), Carrier Global Corp. (CARR), Crown Holdings Inc. (CCK), FLEETCOR Technologies, Inc. (FLT), Griffon Corp. (GFF), Hasbro, Inc. (HAS), IAC Inc. (IAC), JELD-WEN (JELD), Liberty Broadband Corp. (LBRDK), Matthews International Corp. (MATW), MDU Resources Group, Inc. (MDU), PAR Technology Corp. (PAR), RCI Hospitality Inc. (RICK), Stanley Black & Decker (SWK), Tiptree Inc. (TIPT), Western Digital Corp. (WDC)

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.

Newest Publications & Updates

UPDATE:  Lab Corp. (NYSE: LH) 
June 29, 2023

Fortrea to Join S&P SmallCap 600; Spin-Off to be Completed on June 30, 2023, Maintain BUY Rating on Pre-Spin LH

• On June 28, 2023, after the market close, S&P Dow Jones Indices announced that Fortrea Holdings Inc., the clinical development business of Laboratory Corp. of America Holdings Inc. (NYSE: LH), will be added to the S&P SmallCap 600 effective prior to the opening of trading on July 6, 2023. LH will remain a member of the S&P 500 following the spin-off.
• LH is scheduled to complete the spin-off of Fortrea Holdings Inc. on June 30, 2023, after the market close. Fortrea is expected to trade on the NASDAQ under the symbol “FTRE” beginning on July 3, 2023.
• When-issued trading in Fortrea and LH (ex-distribution) closed last night at $34.26 and $204.25, as compared to our post-spin fair value estimates of $35 per share and $219 per share. We fairly value pre-spin shares of LH at $255 per share.
• Given the strength in both post-spin company’s base businesses, the lessening impact of COVID-related revenue on the parent company, and margin improvement opportunities at Fortrea, combined with the implied upside from the current share price to our pre-spin fair value estimate, we continue to rate pre-spin shares of LH at BUY ahead of the spin-off.
• If regular-way shares were to trade at prices approximating the current when-issued pricing, we would favor owning the parent company (LH) as we view the apparent near ending of COVID-related revenue declines and margin reversion as being priced in, with multiple expansion to that of peers providing upside potential versus the implied post-spin LH share price.
• For more details, please refer to The Spin Off Report dated June 13, 2023.

UPDATE:  BorgWarner Inc. (NYSE: BWA)
June 29, 2023

PHINA to Join S&P SmallCap 600; Spin-Off to be Completed on July 3, 2023, Maintain NEUTRAL Rating on Pre-Spin BWA

On June 28, 2023, after the market close, S&P Dow Jones Indices announced that PHINIA Inc., the fuel systems and aftermarket business of BorgWarner Inc. (NYSE: BWA), will be added to the S&P SmallCap 600 effective prior to the opening of trading on July 6, 2023. BWA will remain a member of the S&P 500 following the spin-off.

BWA is scheduled to complete the spin-off of PHINIA Inc. on July 3, 2023, after the market close. PHINIA is expected to trade on the NYSE under the symbol “PHIN” beginning on July 5, 2023.

When-issued trading in PHINIA and BWA (ex-distribution) closed last night at $37.00 and $40.00 (albeit in anemic first day trading volumes), as compared to our post-spin fair value estimates of $33 per share and $44 per share. We fairly value pre-spin shares of BWA at $51 per share.

Given limited upside to our fair value estimate, we rate shares of pre-spin BWA at NEUTRAL. On a post-spin basis, we would favor the BWA remain co. businesses as the path to electrification provides for a greater growth story versus PHINIA, granted they achieve their profitability goal on the eProducts portfolio and successfully manage their M&A integrations.

For PHINIA, we would be incrementally positive if shares traded at a significant discount to our fair value estimate, as we do see significant cash flow generation from its product portfolio over the coming years. However, would remain cautious as the company likely does not receive a valuation multiple above low single digits given its end market exposure.

For more details, please refer to The Spin Off Report dated June 20, 2023

Radar Screen – June 2023

Monthly publication providing ongoing analysis on companies with potential for a value-unlocking event

Companies discussed this month:  Alphabet Inc. (GOOG), APi Group Corp. (APIG), California Resources Corp. (CRC), Carrier Global Corp. (CARR), Crown Holdings Inc. (CCK), FLEETCOR Technologies, Inc. (FLT), Griffon Corp. (GFF), Hasbro, Inc. (HAS), IAC Inc. (IAC), JELD-WEN (JELD), Liberty Broadband Corp. (LBRDK), Matthews International Corp. (MATW), MDU Resources Group, Inc. (MDU), PAR Technology Corp. (PAR), RCI Hospitality Inc. (RICK), Stanley Black & Decker, Inc. (SWK), Tiptree Inc. (TIPT), Western Digital Corp. (WDC)

Spin-Off Report Calendar – June 2023

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 – April 2023

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

European Spin-Off Compendium – April 2023

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

Bits & Pieces – May 2023

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

Product Specialist

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