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: PAR Technology (PAR)
May 11, 2023

PAR looks on track to grow recurring revenue in the 20%-30% range (and approach cash flow positivity/profitability) in 2023; conference call commentary suggests multiple potential transactional catalysts could be on the table in the relative near-term

On May 10, after the market close, PAR posted 1Q 2023 consolidated sales up 25.1% to $100.4 million (versus consensus of $90.1 million) with adj. EBITDA and EPS losses of $8.8 million and $0.46 per share, respectively (compared with the consensus loss estimates of $5.5 million and $0.36 per share, respectively, and prior year losses of $2.9 million and $0.26 per share).

Financials aside, we note that on last night’s conference call, management commentary seemingly suggested that several transactional-related catalysts could be on the table in the relative near-term, including a sale of the Government business, accretive M&A within the Restaurant segment (that accelerates PAR’s path to profitability) as well the potential for interest in the company from either strategic and/or private equity suitors (see Exhibit #1 on page 2).

All told, our fair value estimate for PAR is revised to $45 (from $55), reflecting value of $50 per share (previously $59) for the Restaurants/Retail segment, based on a blended 2024E sales multiple of 4.5x (previously 4.8x) and $4 per share (previously $3) for the Government business, based on a 12.5x 2024E EV/EBITDA multiple, and accounting for ~$290.5 million (previously $225 million) of projected net debt (see Exhibit #2 on page 3).

UPDATE: IAC Inc. (IAC)
May 10, 2023

IAC increases 2023E adj. EBITDA guidance; share repurchases ramped during 1Q 2023, reflecting market stabilization as well as management’s view the so-called IAC “stub” is materially undervalued; fair value increased to $72 per share (from $67) 

On May 9, after the market close, IAC reported 1Q 2023 sales down 18% to $1.084 billion, as all business lines experienced softness led by a 23% decline at DotDash Meredith, with adjusted EBITDA growth of ~18% to $9.1 million (compared with $7.1 million in 1Q 2022), led by a return to profitability at Angi.  Excluding certain restructuring, transaction and lease impairment charges at Dotdash Meredith adj. EBITDA increased ~59% to $54 million (versus $34 million in 1Q 2022).

Importantly, we would highlight that despite the recent share price appreciation, the implied value of IAC’s so-called “stub” has actually remained relatively flat over the last several quarters, which, for context, represents the lowest implied valuation we have seen over the last two years and a material discount to our fair value estimate of ~$3.34 billion.

IAC management ramped its share repurchase activity during 1Q 2023 by buying back 3.1 million shares for $158 million or $50.86 per share (with an additional 3.8 million shares under its existing authorization).  The company also invested an additional $104 million in ride-sharing company Turo, bringing its ownership to 31% (from 26.7%) and purchased the land under its NYC headquarters for ~$80 million.

In terms of valuation, among its private holdings, based on IAC’s guidance and commentary, as well as peer and M&A valuations, we value Dotdash Meredith at $26 per share and Emerging & Other at $10 per share, which awards per share values of $7 and $3 to Care.com and Vivian Health, respectively, while assigning zero value to the other businesses (i.e., Mosaic, The Daily Beast, IAC Films and Newco). Search’s profits are assumed to partially offset corporate costs, while Turo is valued at ~$4 per share. For its public holdings, based on discounted prices of ~$2.40 and ~$40 per share, we value ANGI at ~$11.50 per share and MGM at ~$29.50 per share. Accounting for remaining corporate costs as well as net debt yields a total sum-of-the-parts value of ~$72 per share (with bull and bear cases of ~$94 and ~$45 per share, respectively).

Radar Screen – May 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), Natura & Co. Holding (NTCO), PAR Technology Corp. (PAR), RCI Hospitality Inc. (RICK), 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:  Jacobs Solutions Inc. to Spin-Off Critical Mission Solutions Business
May 9, 2023

On May 9, 2023, Jacobs Solutions Inc. (NYSE: J) announced its intention to spin-off the company’s Critical Mission Solutions (“CMS”) business into an independent, standalone, publicly traded company. The transaction is targeted to be completed in 2H F2024.

Currently, J operates two lines of business: Critical Mission Solutions (CMS) and People & Places Solutions (P&PS). In addition, the company consolidates the results of its 65% majority ownership stake in PA Consulting. In F2022 the company generated $14.9 billion in revenue and $1.6 billion in adjusted EBITDA.

The separation announcement follows the company’s March 2022 introduction of a three-year strategy that identified three key “growth accelerators”: Climate Response, Consulting & Advisory and Data Solutions. From the outside, it would appear that J is separating the CMS business in an attempt to kick start the growth accelerators by focusing on water, environment, energy transition, and transportation, which align into growth areas of climate response, data solutions, and consulting & advisory. CMS on the other hand, will be focused on national priorities such as space, national security, nuclear remediation, and 5G technology, which will provide a stable revenue base with long-term contracts.

In theory the spin-off would result in post separation Jacobs exhibiting higher growth and margins, while CMS will be a leading government services provider. On a pro-forma basis, as a standalone company, CMS would have generated $4.4 billion in revenue and operated with an 8% operating margin in F2022. Excluding the CMS contribution, in F2022 Jacobs would have had sales of approximately $10.5 billion and operated with an adjusted operating margin of approximately 12%.

Shares of J have largely traded in line with other government services providers, and currently trades at 11.0x the 2024 consensus EBITDA estimate. Non-government focused tech enabled peers generally trade at a higher multiple, albeit in a wide range of 13x to 30x.  Following the separation, CMS may see slight multiple contraction to the lower end of government focused peers while the parent company would see a degree of multiple expansion to represent the higher growth and margin profile post-spin.

Based on management’s commentary on pro-forma F2022 results, and forecasting F2023 revenue growth at levels in line with 1H F2023, and slight improvement in F2024, we forecast CMS generating $382.5 million in EBITDA, and post-spin Jacobs generating $1.4 billion. Applying a 10.0x multiple to CMS, and a 13.0x multiple to post-spin J, on a preliminary sum-of-the-parts basis, we fairly value shares of J at $147 per share when incorporating current net debt and shares outstanding.

MDU Resources Group Inc. (MDU) / Knife River (KNF) – Comprehensive Report
May 5, 2023

On August 4, 2022, before the market open, MDU Resources Group Inc. (NYSE: MDU) announced that the company plans to separate its aggregates-based, vertically integrated construction materials and contracting provider, Knife River Corp., into a standalone, publicly traded company via a tax-free spin-off.  MDU will distribute at least 80.1% of outstanding shares of Knife River Holdings to MDU shareholders and the company is expected to trade on the NYSE under the ticker “KNF.” MDU will retain up to 19.9% of KNF shares, which the company intends to dispose of via a debt exchange, distribution to shareholders, or in a sale for cash. The separation will be completed on May 31, 2023, after the market close, with shareholders of record as of May 22, 2023, receiving one share of KNF for every four shares of MDU held.

Given what appears to be the first step in fully separating the regulated businesses from non-regulated, we expect that following the spin-off of Knife River, shares of the regulated business would begin to be re-rated to more closely approximate the underlying utility operators, while Knife River would be comparable to other aggregate and construction services companies. Notably, if the company does end up separating the regulated businesses fully (via another spin-off or through another method such as a sale), the parent MDU company would significantly reduce its earnings volatility, which may attract a more dividend-focused investor base, while Knife River and the third company would attract more industrial/cyclical industry focused investor base.

On a pre-spin, sum-of-the-parts basis, we assign a fair value estimate of $32 per share to MDU Resources. On a post-spin basis, we value shares of Knife River at $28 per share and MDU Resources at $25 per share. Given limited upside to our fair value estimate, we rate shares of MDU at NEUTRAL prior to the Knife River spin-off.

Radar Screen – May 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), Natura & Co. Holding (NTCO), PAR Technology Corp. (PAR), RCI Hospitality Inc. (RICK), Tiptree Inc. (TIPT), Western Digital Corp. (WDC)

Spin-Off Report Calendar – May 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 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:  Jacobs Solutions Inc. to Spin-Off Critical Mission Solutions Business
May 9, 2023

On May 9, 2023, Jacobs Solutions Inc. (NYSE: J) announced its intention to spin-off the company’s Critical Mission Solutions (“CMS”) business into an independent, standalone, publicly traded company. The transaction is targeted to be completed in 2H F2024.

Currently, J operates two lines of business: Critical Mission Solutions (CMS) and People & Places Solutions (P&PS). In addition, the company consolidates the results of its 65% majority ownership stake in PA Consulting. In F2022 the company generated $14.9 billion in revenue and $1.6 billion in adjusted EBITDA.

The separation announcement follows the company’s March 2022 introduction of a three-year strategy that identified three key “growth accelerators”: Climate Response, Consulting & Advisory and Data Solutions. From the outside, it would appear that J is separating the CMS business in an attempt to kick start the growth accelerators by focusing on water, environment, energy transition, and transportation, which align into growth areas of climate response, data solutions, and consulting & advisory. CMS on the other hand, will be focused on national priorities such as space, national security, nuclear remediation, and 5G technology, which will provide a stable revenue base with long-term contracts.

In theory the spin-off would result in post separation Jacobs exhibiting higher growth and margins, while CMS will be a leading government services provider. On a pro-forma basis, as a standalone company, CMS would have generated $4.4 billion in revenue and operated with an 8% operating margin in F2022. Excluding the CMS contribution, in F2022 Jacobs would have had sales of approximately $10.5 billion and operated with an adjusted operating margin of approximately 12%.

Shares of J have largely traded in line with other government services providers, and currently trades at 11.0x the 2024 consensus EBITDA estimate. Non-government focused tech enabled peers generally trade at a higher multiple, albeit in a wide range of 13x to 30x.  Following the separation, CMS may see slight multiple contraction to the lower end of government focused peers while the parent company would see a degree of multiple expansion to represent the higher growth and margin profile post-spin.

Based on management’s commentary on pro-forma F2022 results, and forecasting F2023 revenue growth at levels in line with 1H F2023, and slight improvement in F2024, we forecast CMS generating $382.5 million in EBITDA, and post-spin Jacobs generating $1.4 billion. Applying a 10.0x multiple to CMS, and a 13.0x multiple to post-spin J, on a preliminary sum-of-the-parts basis, we fairly value shares of J at $147 per share when incorporating current net debt and shares outstanding.

MDU Resources Group Inc. (MDU) / Knife River (KNF) – Comprehensive Report
May 5, 2023

On August 4, 2022, before the market open, MDU Resources Group Inc. (NYSE: MDU) announced that the company plans to separate its aggregates-based, vertically integrated construction materials and contracting provider, Knife River Corp., into a standalone, publicly traded company via a tax-free spin-off.  MDU will distribute at least 80.1% of outstanding shares of Knife River Holdings to MDU shareholders and the company is expected to trade on the NYSE under the ticker “KNF.” MDU will retain up to 19.9% of KNF shares, which the company intends to dispose of via a debt exchange, distribution to shareholders, or in a sale for cash. The separation will be completed on May 31, 2023, after the market close, with shareholders of record as of May 22, 2023, receiving one share of KNF for every four shares of MDU held.

Given what appears to be the first step in fully separating the regulated businesses from non-regulated, we expect that following the spin-off of Knife River, shares of the regulated business would begin to be re-rated to more closely approximate the underlying utility operators, while Knife River would be comparable to other aggregate and construction services companies. Notably, if the company does end up separating the regulated businesses fully (via another spin-off or through another method such as a sale), the parent MDU company would significantly reduce its earnings volatility, which may attract a more dividend-focused investor base, while Knife River and the third company would attract more industrial/cyclical industry focused investor base.

On a pre-spin, sum-of-the-parts basis, we assign a fair value estimate of $32 per share to MDU Resources. On a post-spin basis, we value shares of Knife River at $28 per share and MDU Resources at $25 per share. Given limited upside to our fair value estimate, we rate shares of MDU at NEUTRAL prior to the Knife River spin-off.

Radar Screen – May 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), Natura & Co. Holding (NTCO), PAR Technology Corp. (PAR), RCI Hospitality Inc. (RICK), Tiptree Inc. (TIPT), Western Digital Corp. (WDC)

Spin-Off Report Calendar – May 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 – April 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: PAR Technology (PAR)
May 11, 2023

PAR looks on track to grow recurring revenue in the 20%-30% range (and approach cash flow positivity/profitability) in 2023; conference call commentary suggests multiple potential transactional catalysts could be on the table in the relative near-term

On May 10, after the market close, PAR posted 1Q 2023 consolidated sales up 25.1% to $100.4 million (versus consensus of $90.1 million) with adj. EBITDA and EPS losses of $8.8 million and $0.46 per share, respectively (compared with the consensus loss estimates of $5.5 million and $0.36 per share, respectively, and prior year losses of $2.9 million and $0.26 per share).

Financials aside, we note that on last night’s conference call, management commentary seemingly suggested that several transactional-related catalysts could be on the table in the relative near-term, including a sale of the Government business, accretive M&A within the Restaurant segment (that accelerates PAR’s path to profitability) as well the potential for interest in the company from either strategic and/or private equity suitors (see Exhibit #1 on page 2).

All told, our fair value estimate for PAR is revised to $45 (from $55), reflecting value of $50 per share (previously $59) for the Restaurants/Retail segment, based on a blended 2024E sales multiple of 4.5x (previously 4.8x) and $4 per share (previously $3) for the Government business, based on a 12.5x 2024E EV/EBITDA multiple, and accounting for ~$290.5 million (previously $225 million) of projected net debt (see Exhibit #2 on page 3).

UPDATE: IAC Inc. (IAC)
May 10, 2023

IAC increases 2023E adj. EBITDA guidance; share repurchases ramped during 1Q 2023, reflecting market stabilization as well as management’s view the so-called IAC “stub” is materially undervalued; fair value increased to $72 per share (from $67) 

On May 9, after the market close, IAC reported 1Q 2023 sales down 18% to $1.084 billion, as all business lines experienced softness led by a 23% decline at DotDash Meredith, with adjusted EBITDA growth of ~18% to $9.1 million (compared with $7.1 million in 1Q 2022), led by a return to profitability at Angi.  Excluding certain restructuring, transaction and lease impairment charges at Dotdash Meredith adj. EBITDA increased ~59% to $54 million (versus $34 million in 1Q 2022).

Importantly, we would highlight that despite the recent share price appreciation, the implied value of IAC’s so-called “stub” has actually remained relatively flat over the last several quarters, which, for context, represents the lowest implied valuation we have seen over the last two years and a material discount to our fair value estimate of ~$3.34 billion.

IAC management ramped its share repurchase activity during 1Q 2023 by buying back 3.1 million shares for $158 million or $50.86 per share (with an additional 3.8 million shares under its existing authorization).  The company also invested an additional $104 million in ride-sharing company Turo, bringing its ownership to 31% (from 26.7%) and purchased the land under its NYC headquarters for ~$80 million.

In terms of valuation, among its private holdings, based on IAC’s guidance and commentary, as well as peer and M&A valuations, we value Dotdash Meredith at $26 per share and Emerging & Other at $10 per share, which awards per share values of $7 and $3 to Care.com and Vivian Health, respectively, while assigning zero value to the other businesses (i.e., Mosaic, The Daily Beast, IAC Films and Newco). Search’s profits are assumed to partially offset corporate costs, while Turo is valued at ~$4 per share. For its public holdings, based on discounted prices of ~$2.40 and ~$40 per share, we value ANGI at ~$11.50 per share and MGM at ~$29.50 per share. Accounting for remaining corporate costs as well as net debt yields a total sum-of-the-parts value of ~$72 per share (with bull and bear cases of ~$94 and ~$45 per share, respectively).

UPDATE: SNC Lavalin (TSE: SNC)
May 9, 2023

SNC posts solid 1Q 2023 results but maintains full-year guidance; further progress was made toward the completion of legacy LSTK projects, which are expected to be significantly less of a drag in 2H 2023; fair value increased to $38.50 per share (from $37.50 per share)

On May 9, before the market open, SNC reported 1Q 2023 consolidated sales up 7.15% to $2.023 billion, including ~10.8% growth to $1.836 billion in the core SNCL Services business. Total adjusted EBITDA increased ~36% to $160.5 million (compared with ~$118 million in 1Q 2022) with professional services & project management (PS&PM, which includes SNCL Services and Capital) posting 34.5% growth to ~$156 million (compared with $112.6 million in 1Q 2022).

Importantly, the backlog on its legacy LSTK Projects business declined ~$168 million sequentially (i.e., versus 4Q 2023) to $518 million and was down ~46% when compared with $956.6 million in 1Q 2022. The segment adjusted EBIT loss improved to $9 million in 2Q 2023 (as compared with a $31 million loss in the prior year period). The company still expects to “hand over” 2 of the remaining 3 projects to the clients in 2023 (with the final project being completed in 2024); to that end, the company expects to generate positive free cash flow in 2H 2023.

Our fair value for SNC is increased to $38.50 per share (from $37.50), which assigns value of $46 per share to SNCL Services, based on a blended multiple of ~9.5x, and $10 per share for the Capital segment, wholly comprised of the estimated value of its stake in Highway 407, while accounting for future LSTK losses, corporate overhead and net debt.

UPDATE: The Liberty Braves Group (BATRK)
May 5, 2023

Liberty Media expects to complete the split-off of The Braves Group into a separate, publicly traded asset-backed equity by the end of 2Q 2023; fair value increased to $50 per share (from $42) on updated 2023E estimates

In conjunction with its 1Q 2023 earnings release, Liberty Media indicated that it still plans to complete the previously announced split-off of The Braves Group, 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), by the end of 2Q 2023.

The transaction 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). In 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 ~$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.

In terms of conference call commentary, the only discussion pertaining to the Braves Group was focused on the current regional sports network (RSN) landscape (following the bankruptcy of the Diamond Sports Group in April 2023). Mr. Greg Maffei, Liberty’s chief executive, indicated that the Braves, unlike other teams, continue to receive payments under its current contract, which, in his view, reflects the strength of the Atlanta market and the profitability of its underlying RSN. As such, the company does not anticipate theirs will be a contract Diamond attempts to void during the upcoming bankruptcy proceedings (and even if they did the company thinks it has alternatives that would allow it to “get paid” as well as deliver its product to the fanbase).

Radar Screen – May 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), Natura & Co. Holding (NTCO), PAR Technology Corp. (PAR), RCI Hospitality Inc. (RICK), 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: APi Group Corporation (APG)
May 4, 2023

APG tops guidance and consensus in 1Q 2023; slightly increases full year sales and adj. EBITDA forecasts

On May 4, before the market open, APG reported 1Q 2023 consolidated sales up 9.7% (or ~12.1% on a constant currency basis) to $1.614 billion (compared with guidance of $1.54-$1.56 billion and consensus of $1.55 billion) with a ~15% (or 17.6% on a constant currency basis) increase in adjusted EBITDA to $147 million (versus guidance of $135-$145 million and consensus of $140.6 million; see Exhibit #1 on page 2). Adj. EPS were up nearly 9% to $0.25 (versus consensus of $0.24).

Our base case fair value estimate for Api Group (APG) remains $30 per share, reflecting a blended multiple of ~11.5x on F2024 adjusted EBITDA of ~$831 million along with projected net debt of ~$1.335 billion.

UPDATE:  Griffon Corporation (GFF)
May 3, 2023

GFF modestly increases F2023 adj. EBITDA guidance despite a reduction in top-line expectations, reflecting continued strength at HBP and weakness at CPP; ramps shareholder return program via dividends and share repurchases

On May 3, before the market open, GFF reported 2Q F2023 consolidated sales down 9% (or ~12% on an organic basis) to $711 million with a ~2% decrease in adjusted EBITDA to ~$137 million. Adj. EPS were $1.21 (down ~11% versus $1.36 in the prior year period) although on a GAAP basis the loss per share was $1.17 due to a $132.8 million intangible asset impairment at the CPP segment.

Our base case fair value estimate for Griffon Corp. (GFF) remains $46.50 per share, reflecting a blended multiple of 9.3x on F2023 adjusted EBITDA of $427.7 million along with projected net debt of ~$1.44 billion (see Exhibit #2 on page 2).

UPDATE:  Matthews International Corporation (MATW)
April 28, 2023

Matthews reports 2Q F2023 results slightly ahead of our expectations and maintains “cautious” full-year F2023 adj. EBITDA guidance

MATW reported 2Q F2023 consolidated sales up 7.8% (or ~10% on a constant currency basis) to $479.6 million with a ~6% increase in adjusted EBITDA to ~$58.5 million. Adj. EPS were $0.65 (down ~12% versus $0.74 in the prior year period).

By segment, sales at the Memorialization segment rose 1.3% to $222.9 million with an 11.8% increase in adj. EBITDA to $48 million while Industrial Technologies sales increased 60.5%, most notably driven by the energy storage business (including the Olbrich and R+S acquisitions), to $125.5 million with an ~8% increase in adj. EBITDA to $15.5 million. At SGK, sales fell ~10.5% to $131.2 million while adj. EBITDA declined 18% to $11 million (as adverse conditions in Europe as well as currency headwinds continued to negatively impact the business).

Our base case fair value estimate for MATW remains ~$50 per share, reflecting a blended multiple 9.5x multiple on our F2024E adjusted EBITDA of ~$245 million and net debt of ~$704.5 million.

Radar Screen – May 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), Natura & Co. Holding (NTCO), PAR Technology Corp. (PAR), RCI Hospitality Inc. (RICK), Tiptree Inc. (TIPT), Western Digital Corp. (WDC)

Product Specialist

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

Newest Publications & Updates

MDU Resources Group Inc. (MDU) / Knife River (KNF) – Comprehensive Report
May 5, 2023

On August 4, 2022, before the market open, MDU Resources Group Inc. (NYSE: MDU) announced that the company plans to separate its aggregates-based, vertically integrated construction materials and contracting provider, Knife River Corp., into a standalone, publicly traded company via a tax-free spin-off.  MDU will distribute at least 80.1% of outstanding shares of Knife River Holdings to MDU shareholders and the company is expected to trade on the NYSE under the ticker “KNF.” MDU will retain up to 19.9% of KNF shares, which the company intends to dispose of via a debt exchange, distribution to shareholders, or in a sale for cash. The separation will be completed on May 31, 2023, after the market close, with shareholders of record as of May 22, 2023, receiving one share of KNF for every four shares of MDU held.

Given what appears to be the first step in fully separating the regulated businesses from non-regulated, we expect that following the spin-off of Knife River, shares of the regulated business would begin to be re-rated to more closely approximate the underlying utility operators, while Knife River would be comparable to other aggregate and construction services companies. Notably, if the company does end up separating the regulated businesses fully (via another spin-off or through another method such as a sale), the parent MDU company would significantly reduce its earnings volatility, which may attract a more dividend-focused investor base, while Knife River and the third company would attract more industrial/cyclical industry focused investor base.

On a pre-spin, sum-of-the-parts basis, we assign a fair value estimate of $32 per share to MDU Resources. On a post-spin basis, we value shares of Knife River at $28 per share and MDU Resources at $25 per share. Given limited upside to our fair value estimate, we rate shares of MDU at NEUTRAL prior to the Knife River spin-off.

Radar Screen – May 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), Natura & Co. Holding (NTCO), PAR Technology Corp. (PAR), RCI Hospitality Inc. (RICK), Tiptree Inc. (TIPT), Western Digital Corp. (WDC)

Spin-Off Report Calendar – May 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 – April 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:  Matthews International Corporation (MATW)
April 28, 2023

Matthews reports 2Q F2023 results slightly ahead of our expectations and maintains “cautious” full-year F2023 adj. EBITDA guidance

MATW reported 2Q F2023 consolidated sales up 7.8% (or ~10% on a constant currency basis) to $479.6 million with a ~6% increase in adjusted EBITDA to ~$58.5 million. Adj. EPS were $0.65 (down ~12% versus $0.74 in the prior year period).

By segment, sales at the Memorialization segment rose 1.3% to $222.9 million with an 11.8% increase in adj. EBITDA to $48 million while Industrial Technologies sales increased 60.5%, most notably driven by the energy storage business (including the Olbrich and R+S acquisitions), to $125.5 million with an ~8% increase in adj. EBITDA to $15.5 million. At SGK, sales fell ~10.5% to $131.2 million while adj. EBITDA declined 18% to $11 million (as adverse conditions in Europe as well as currency headwinds continued to negatively impact the business).

Anecdotally, management indicated on this morning’s conference call that its outlook reflects 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 remains ~$50 per share, reflecting a blended multiple 9.5x multiple on our F2024E adjusted EBITDA of ~$245 million and net debt of ~$704.5 million.

Radar Screen – April 2023

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

Companies discussed this month:  Alphabet Inc. (GOOG), 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), Natura & Co. Holding (NTCO), PAR Technology Corp. (PAR), RCI Hospitality Inc. (RICK), Tiptree Inc. (TIPT), Western Digital Corp. (WDC)

Product Specialist

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

Newest Publications & Updates

UPDATE:  Madison Square Garden Entertainment
April 21, 2023

Madison Square Garden Entertainment Corp. (NYSE: MSGE) completed the spin-off of its traditional live entertainment business. New Madison Square Garden Entertainment Corp. now trades on the NYSE under the ticker “MSGE”. The parent company has adopted the corporate moniker MSG Sphere Co. and trades on
the NYSE under the ticker “SPHR”.

Based on the initial trading prices, incorporating net debt as well as the implied market capitalization of New MSGE, we calculate shares of SPHR have an adjusted market capitalization of just $306 million and an enterprise value of $1.4 billion.

Notably, the implied valuation is in stark contrast to our valuation of MSG Networks and the Sphere venue, which we value at approximately $1.8 billion on an enterprise value basis.  Incorporating net debt of $1.0 billion, we fairly value shares of SPHR at $38 per share and assign a BUY rating to MSG Sphere Co.

In terms of New MSGE, the current pricing is roughly in line with our $31 fair value estimate, as such we assign a NEUTRAL rating to MSGE.

Radar Screen – April 2023

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

Companies discussed this month:  Alphabet Inc. (GOOG), 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), Natura & Co. Holding (NTCO), PAR Technology Corp. (PAR), RCI Hospitality Inc. (RICK), Tiptree Inc. (TIPT), Western Digital Corp. (WDC)

Spin-Off Report Calendar – April 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 – April 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: Garret Motion Inc. (GTX)
April 17, 2023

GTX announced preliminary 1Q 2023 results indicating net sales rose 8% (or ~13% on a constant currency basis) to $970 million with adjusted EBITDA growth of ~15% to $168 million (versus $143 million in 1Q 2022). Net income was ~$81 million (versus $88 million in the prior quarter) while adj. free cash flow (FCF) was $88 million(compared with $38 million in the year ago period).

The company still expects to report actual 1Q 2023 results before the market open on Monday, April 24, 2023 (with a conference call that morning at 8:30
a.m.).

At quarter-end, the company had net debt of $902 million, including $291 million of cash and $1.19 billion of debt. That said, following the aforementioned debt offering the company expects a pro forma net leverage ratio of ~2.7x (compared with 1.65x at the end of 2022 and 2.3x at the end of 2021). The company’s longer-term leverage target remains ~2.0x.

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 ~$348.5 million
and a fully diluted share count of ~263.5 million.

Radar Screen – April 2023

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

Companies discussed this month:  Alphabet Inc. (GOOG), 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), Natura & Co. Holding (NTCO), PAR Technology Corp. (PAR), RCI Hospitality Inc. (RICK), Tiptree Inc. (TIPT), Western Digital Corp. (WDC)

Product Specialist

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

Newest Publications & Updates

UPDATE:  Madison Square Garden Entertainment
April 21, 2023

Madison Square Garden Entertainment Corp. (NYSE: MSGE) completed the spin-off of its traditional live entertainment business. New Madison Square Garden Entertainment Corp. now trades on the NYSE under the ticker “MSGE”. The parent company has adopted the corporate moniker MSG Sphere Co. and trades on
the NYSE under the ticker “SPHR”.

Based on the initial trading prices, incorporating net debt as well as the implied market capitalization of New MSGE, we calculate shares of SPHR have an adjusted market capitalization of just $306 million and an enterprise value of $1.4 billion.

Notably, the implied valuation is in stark contrast to our valuation of MSG Networks and the Sphere venue, which we value at approximately $1.8 billion on an enterprise value basis.  Incorporating net debt of $1.0 billion, we fairly value shares of SPHR at $38 per share and assign a BUY rating to MSG Sphere Co.

In terms of New MSGE, the current pricing is roughly in line with our $31 fair value estimate, as such we assign a NEUTRAL rating to MSGE.

Radar Screen – April 2023

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

Companies discussed this month:  Alphabet Inc. (GOOG), 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), Natura & Co. Holding (NTCO), PAR Technology Corp. (PAR), RCI Hospitality Inc. (RICK), Tiptree Inc. (TIPT), Western Digital Corp. (WDC)

Spin-Off Report Calendar – April 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 – April 2023

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

Product Specialist

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