Drop Coverage of XPO Inc. and RXO Inc. Effective Immediately

• On November 1, 2022, before the market open, XPO Logistics Inc. (NYSE: XPO) completed the spin-off of its North American truck brokerage business into a standalone, publicly traded company. The spin company adopted the corporate moniker RXO Inc. and trades on the NYSE under the ticker “RXO”. XPO subsequently changed its corporate moniker to XPO Inc.
• Given the transactions have now passed our coverage mandate of 90 days post-spin, we DROP coverage of XPO Inc. and RXO Inc. effective immediately.
• Our prior estimates and fair values for XPO, and RXO should no longer be relied on.

Crane Holdings Co. to Complete Crane Co Spin-Off on April 3, 2023

• Crane Holding Co. (NYSE: CR) has announced that it will compete the previously announced spin-off of Crane Co. after the market close on April 3, 2023.
• The spin company expects to trade on the NYSE under the ticker “CR”. CR shareholders of record as of March 23, 2023, will receive one share of new CR for every one shares of Crane Holdings Co. owned.
• Following the separation, the parent company will adopt the corporate moniker Crane NXT Co. and trade on the NYSE under the symbol “CXT”.
• When-issued trading for Crane Co. is expected to begin on or about March 29, 2023, under the symbol “CR WI”. Shares of Crane NXT will trade ex-distribution under the ticker “CXT WI” on or about
  the same date.
• In addition, on March 9, 2023, CR held investor days for both New CR and CXT, in which the companies reaffirmed previously stated guidance for both post spin entities. In 2023, New CR is expected
  to generate $1.98 billion in revenue, $280 million in operating profit, $321 million in adjusted EBITDA, and EPS of $3.40-$3.70.
• For its part, CXT is guided to generate 2023 revenue, operating profit, adjusted EBITDA, and EPS of $1.36 billion, $319 million, $364 million, and $3.65-$3.95 per share, respectively.
• In terms of rationale, management clearly believes that by separating the PMT business from the AE, PFT, and EM segments, the market will more easily be able to compare both companies to their respective peer sets.
• The crux of management’s argument for separating the PMT business is rooted in its belief that CXT will attract a more focused investor base that will re-rate the stock to more accurately reflect the growth, margin, and technology attributes of the business. Management believes that Crane NXT is most comparable to SMID-cap industrial technology companies, which have historically traded in the low- to mid-double digit range on forward EV/EBITDA. Historically, sell-side coverage has looked more toward traditional payment companies that trade in the mid-single digit range as a proxy for valuing PMT within the current conglomerate structure.
• The ultimate success of the spin-off in terms of creating shareholder value will be dependent on the re-rating of Crane NXT. While it is our opinion that the business attributes of the PMT business warrant a premium multiple to traditional payment peers, it remains unclear what the actual market multiple will be. It is probable that the shares will trade lower in initial trading, as a lack of analyst coverage and shareholder rotation out of the parent company are likely to depress the shares. Following initial trading, Crane NXT will become a “show me” story, where management probably will have to more clearly articulate its business and growth strategies, along with meeting its financial targets, before a fully SMID-cap industrial technology multiple could be awarded. That said, we see value in Crane NXT and expect that over time, the market will expand the multiple awarded to the shares.
• Shares of CR currently trade at 9.1x the consensus 2024 EBITDA estimate. Following the separation, Crane Co. will be compared directly to flow control and aerospace part supplier peers, which respectively trade at approximately 13.0x and 10.5x the consensus 2024 EBITDA estimate. If we assume CR shares currently assign weighted peer multiples (based on 2022 adjusted operating income contribution) to AE and PFT, this implies that Crane NXT is valued at approximately 7.1x, which would be slightly ahead of the aforementioned “traditional payment” peers, yet below the SMID-Cap industrial technology group. (It should be noted that over the past five- and ten-year periods, shares of CR have traded, on average, at 8.2x.)
• On a pre-spin, sum-of-the-parts basis, we assign a fair value estimate to Crane Holdings Co. of $132 per share, consisting of $74 per share in value from new Crane Co. and $58 per share in value from post-spin Crane NXT. Given the implied upside to our fair value estimate, combined with our favorable outlook on an eventual re-rating of Crane NXT, we recommend shares of CR ahead of the planned separation.
• For more details, please refer to The Spin Off Report dated February 10, 2023.

IDT’s growth businesses continue to post solid results in 2Q F2023; anecdotally, management’s near-term focus remains on profitable growth at NRS and net2phone with spin-off plans seemingly still on hold given the current market environment

• Last night, after the market close, IDT reported a 2Q F2023 consolidated sales decline of 7% to $314 million, as a 14% decline at Traditional Communications offset strong growth at NRS, BOSS Money and net2phone, where sales were up 87%, 47% and 31%, respectively. Adjusted EBITDA, on a consolidated basis, increased ~25% to $23.4 million while adj. EPS more than doubled to $0.62 (from $0.30 in the prior year period).
• Our base case fair value for IDT is ~$55 per share, which values IDT’s Traditional Communications segment at 2.5x 2023E EBITDA, applies sales multiples of 2.5x and ~7.0x to the company’s net2phone and Fintech businesses, respectively, and accounts for projected net cash (see Exhibit 1 on page #2).

Please see the attached Hidden Opportunities Update on IDT Corporation (NYSE: IDT).

ECN initiates a review of strategic alternatives; as a result, today’s Investor Day will be postponed but 4Q 2022 results will be issued on March 22nd after the market close

• This morning, before the market open, ECN announced that it has hired advisors to assist in a review of strategic alternatives, which could include strategic funding and capital relationships as well as a wide range of other options, as the company looks to drive continued growth and unlock incremental shareholder value.
• Our fair value is ~C$7 per share, which assigns value of $9 per share to Triad Financial, the manufactured housing business, and ~$2 per share to Source One, which is focused on the marine and recreational vehicle verticals (see Exhibit 1 on page #2). [Note: Per share figures are converted from USD at an exchange rate of ~1.35x.]

SNC posts in-line 2022 results and 2023E guidance; makes progress toward completion on two of three remaining LSTK Projects; announces strategic review, particularly focused on the Linxon business

• This morning, before the market open, SNC reported 2022 consolidated sales growth of ~2.4% to $7.5 billion, including 4.9% growth to $6.6 billion at the core SNCL Services business. Total adjusted EBITDA was $453 million (compared with $525 million in 2021) while adj. EBITDA from professional services & project management (PS&PM, which includes SNCL Services and Capital) was $389 million (compared with $434 million in 2021).
• Disappointingly, backlog on its legacy LSTK Projects was roughly flat sequentially at $685 million (albeit down ~41% vs. 2021) due to cost inflation. That said, with the physical construction work on 2 of its 3 remaining LSTK projects (i.e., Eglinton & Trillium) being substantively completed in 4Q 2022 the company sees future losses largely being overhead costs, which are not as subject to cost inflation/overruns, needed to manage the final “hand over” of the projects to clients (which is expected to occur in 2023 with the final project being completed in 2024). For context, overhead expenses are expected to be roughly flat year over year (at ~$44 million) in 2023.
• SNC ended 2022 with net recourse & limited recourse debt of $1.3 billion and a leverage ratio of 2.9x (compared with 3.3x at the end of 3Q 2022). As calculated by SNC’s credit agreement, the leverage ratio stood at ~2.5x (compared with its 3.75x covenant).
• In terms of the 2023 outlook, management expects SNCL Services organic revenue growth of 5%-7% with an adj. EBIT margin of 8%-10%. The Engineering Service subsegment (~60% of consolidated sales) is expected to post an adj. EBITDA margin of 14%-16%. Corporate SG&A and amortization expenses are projected to be ~$130 million and ~$90 million, respectively. Based on a capital spending budget of $80-$100 million, SNC expects to be cash flow negative in 1H 2023 but positive in 2H 2023 (see Exhibit 1 on page #2). The company maintained its longer-term (2022-2024E) financial guidance (see Exhibit 2 on page #2).
• Additionally, the company announced a strategic review aimed at further optimizing its portfolio; near-term, the review is focused on Linxon, a majority owned PS&PM joint venture with Hitachi ABB Power primarily serving power substations (that we currently assign ~$1 per share of value within the SNCL Services business) although management indicated that in the medium-term it may evaluate options for its
  remaining stake in Highway 407 ETR (which we currently value at ~$10 per share within the Capital segment).
• Our fair value remains $37.50 per share, which assign value of $45 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 estimate value of its stake in Highway 407, while accounting for future LSTK losses, corporate overhead and net debt (see Exhibit 3 on page #3).

OSPN, per Reuters, is reportedly exploring strategic options, including a sale, on the heels of a solid 2023 outlook and an increase to its long-term financial guidance

• This afternoon, Reuters reported that OSPN has hired Evercore as an advisor to explore strategic options, including a sale, in a process that the outlet expects could attract interest from both strategic and financial buyers. (For context, the company has been under pressure by long-term holder Legion Partners, which holds two Board seats, as well as more recent activist entrants, including Ancora Advisors and Altai Capital.)

• Notably, this news comes on the heels of yesterday’s earnings release, in which the company reported 2022 sales growth of 2% to $219 million with adjusted EBITDA of $6.4 million (versus a $5.1 million loss in the prior period).

• In terms of 2023 guidance, the company projected top-line growth of6%-11% to $232-$242 million, including annual recurring revenue growth (ARR) growth of 13%-18% to $157-$164 million, with adjusted EBITDA of $3-$6 million.

• Additionally, the company boosted its longer-term financial goals, which target compound annual top-line growth of 12%-14% through 2025 (versus the previous target of 10%-12%), including ARR growth of 20% or higher (in-line with previous commentary). Gross margin is expected to exceed 70% (versus the prior commentary of “approximately” 70%) in 2025 and the adjusted EBITDA margin is projected to be in a range of 10%-12% (compared with the prior guidance of 8%-10%).

• The company ended 2022 with no long-term debt and $96.5 million (or ~$2.45 per share) in cash.

• Our fair value remains $32 per share, valuing OSPN’s Hardware business at 2.5x EBITDA, the legacy/non-recurring licensing and core/recurring software & services businesses at sales multiples of 1.0x and 8.5x, respectively, and accounting for ~$100 million of projected net cash

IAC reports 4Q 2022 and full-year 2022 results; recent share price appreciation of more than 20% notwithstanding the so-called IAC “stub” has actually gotten cheaper (relative to our initial recommendation in December 2022)

• Last night, after the market close, IAC reported 4Q 2022 sales up 8% to $1.247 billion with adjusted EBITDA of $99.7 million (compared with $3.5 million in 4Q 2021). For the full year 2022, sales increased 42%, primarily driven by the Meredith acquisition, to $5.235 billion with adj. EBITDA of $199.6 million (compared with $107.3 million in 2021).
• In terms of the outlook, the company provided 2023 adjusted EBITDA guidance of $270-$400 million, including $250-$300 million and $60-$100 million at Dotdash Meredith and Angi, respectively (compared with $152 million and ~$45 million, respectively, in 2022). Adjusted EBITDA at Search and Emerging & Other is expected to be $40-$50 million and $20-$40 million, respectively (compared with $83.5 million and a ~$1.5 million loss in 2022). Corporate costs are expected to be $90-$100 million while stock-based compensation and depreciation & amortization expenses are projected to be $120-$140 million and $310-$345 million, respectively.
• Importantly, we would highlight that despite the recent share price appreciation of more than 20%, the implied value of IAC’s so-called “stub” has actually declined to less than $400 million (from slightly over $1 billion at the time of our initial recommendation in December 2022). For context, this represents the lowest implied valuation we have seen over the last two years and a material discount to our fair value estimate of ~$3.23 billion (see Exhibits 1 & 2 on page #2).
• 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 ~$3 per share. For its public holdings, based on discounted prices of ~$2.20 and ~$34 per share, we value ANGI at ~$11 per share and MGM at ~$25 per share. Accounting for remaining corporate costs as well as net debt yields a total sum-of-the-parts value of ~$67 per share (with bull and bear cases of ~$92 and ~$43 per share, respectively).

PCS Research Group welcomes and encourages your feedback. Please feel free to call us if we can be of service.

GTX reports 4Q 2022 and full-year results; issues full-year 2023 guidance, which, at the midpoint, calls for ~2.5% growth in sales and adj. EBITDA along with ~12% free cash flow growth (assuming flat global light vehicle production year over year) suggesting Series A conversion is not likely to be a 1H 2023 event

• This morning, before the market open, GTX reported 4Q 2022 sales up 4% (or ~15% on a constant currency basis) to $898 million with 8.5% growth in adj. EBITDA to $140 million. Net income and adj. free cash flow were $112 million and $132 million, respectively, compared with $132 million and $151 million in the prior year period.
• For the full year 2022, top-line sales were down 1% (but up ~8% on a constant currency basis) to $3.6 billion with a 6% decline in adj. EBITDA to $570 million. Net income and adj. free cash flow were $390 million and $313 million, respectively, compared with $538 million $367 million in 2021. (For context, full-year results were broadly toward the higher-end of the company’s most recent 2022 guidance; see Exhibit 1 on page #2).
• The company ended 2022 with a net leverage ratio of 1.64x (compared with 2.33x at the end of 2021, 1.87x in 2Q 2022 and 1.75x at the end of 3Q 2022). Notably, ~80% of GTX’s long-term debt is fixed (at a rate of less than 3.2%) over the next three years with no significant maturities until 2028.
• In terms of the 2023 outlook, GTX’s initial guidance (see Exhibit #2 on page 2) calls for sales of $3.55-$3.85 billion (up ~2.5% at the mid-point although on a constant currency basis revenue is expected to grow 1%-6%). Adj. EBITDA is expected to be $555-$615 million (a ~2.5% increase at the mid-point) while adj. free cash flow is projected to be $300-$400 million (up ~12% at the mid-point). GAAP net income is projected to be $255-$300 million.
• Guidance is based on the assumption of flat global light vehicle production as well as a 2023 Euro/Dollar exchange rate of 1.05 EUR to 1.00 USD. Additionally, the company expects capital and R&D spending will remain roughly flat at 2.4% and 4.6% of sales (of which 20% and 50%, respectively, will be spent on electrification technologies).
• For our part, while we view today’s guidance as relatively solid, given the macro backdrop and currency headwinds, we note a degree of disappointment that, at least at the mid-point, GTX’s 2023 adj. EBITDA guide is below the $600 million threshold necessary to force the Series A preferred stock conversion. (That said, at the high-end it is possible that conversion could occur near year-end 2023.)
• Our base case fair value estimate for GTX is ~$11 per share, reflecting an 8.0x multiple on our 2024E adjusted net income forecast of $420 million and a fully diluted share count of ~320 million (see Exhibit #3 on page 2).

PCS Research Group welcomes and encourages your feedback. Please feel free to call us if we can be of service.

Drop Coverage of FTAI Aviation Ltd. and FTAI Infrastructure Inc. Effective Immediately

• On August 1, 2022, after the market close, Fortress Transportation and Infrastructure Investors LLC (NASDAQ: FTAI) completed the spin-off of its infrastructure business into a standalone public company named FTAI Infrastructure Inc. (NASDAQ: FIP). FTAI subsequently changed its corporate moniker to FTAI Aviation Ltd.
• Given the transactions have now passed our coverage mandate of 90 days post-spin, we DROP coverage of FTAI Aviation Ltd. and FTAI Infrastructure Inc. effective immediately.
• Our prior estimates and fair values for FTAI, and FIP should no longer be relied on.

Drop Coverage of GSK PLC and Haleon PLC Effective Immediately

• On July 18, 2022, before the market open, GSK PLC (NYSE: GSK) completed the spin-off of its consumer healthcare business into Haleon PLC (NYSE: HLN).
• Given the transactions have now passed our coverage mandate of 90 days post-spin, we DROP coverage of GSK PLC and Haleon PLC effective immediately.
• Our prior estimates and fair values for GSK, and HLN should no longer be relied on