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: IDT Corporation (IDT)
March 9, 2023
On March 9, 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).
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UPDATE: ECN Capital Corp. (TSE: ECN)
March 8, 2023
On March 8, 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].
UPDATE: SNC-Lavalin (TSE: SNC)
March 3, 2023
On March 3, 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).
Our fair value remains $37.50 per share, which assigns 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).
UPDATE: One Span, Inc. (OSPN)
March 2, 2023
On March 2nd 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.)
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.
INITIATION: Matthews International Corp. (MATW)
February 13, 2023
In our view, MATW could consider a range of potential value-unlocking measures under pressure from activist investor Barington Capital, a ~0.56% holder, which, pursuant to a recent cooperation agreement, is serving as a consultant to MATW’s management & Board (until 30 days prior to the 2024 Annual Meeting). For context, MATW has been previously covered by Hidden Opportunities (in both 2016 & 2017-2018); to that end, we have contended, at various times, that the company is undervalued relative to the sum value of its parts, which include a steady, high-cash-flow-generating death-care business as well as a rapidly expanding energy storage business/industrial technologies segment (along with what we view as a somewhat less attractive, albeit still cash-flow-accretive, packaging/brand management business).
Based on management guidance and commentary as well as peer and M&A valuations, MATW’s Memorialization, Industrial Technologies, and SGK Brand Solutions businesses could be valued at $41 per share, $34 per share, and $14 per share, respectively. Accounting for corporate costs and projected net debt of ~$39 per share yields a base case sum-of-the-parts fair value of $50 per share (with bull and bear cases of ~$57 and ~$42 per share, respectively).Potential catalysts include the separation/monetization of any of MATW’s diverse businesses, accretive M&A, share repurchases, leverage reductions and/or better than expected growth and margins, particularly at the Industrial Technologies segment.
Radar Screen – March 2023
Monthly publication providing ongoing analysis on companies where we see potential for a value-unlocking event
Companies discussed this month: Amerco (UHAL), Crown Holdings Inc. (CCK), Griffon Corp. (GFF), Hasbro, Inc. (HAS), IAC Inc. (IAC) JELD-WEN (JELD), Liberty Broadband (LBRDK), Lions Gate (LGF), Matthews (MATW), Par Technology (PAR), Penn National Gaming (PENN), RCI Hospitality (RICK), Teck Resources (TECK), Tiptree Inc. (TIPT), The J.M. Smucker Co. (SJM), Western Digital (WDC), Whirlpool Corp. (WHR)
Product Specialist
Rich Albanese
ralbanese@pcsresearchgroup.com
+1 646-839-5566