Fair value remains $16 per share despite a modest reduction in our full-year adj. EBITDA estimate following 3Q 2108 results; strategic review to be concluded by year-end 2018 conference call

• In 3Q 2018, TIVO reported consolidated sales down 16.7% to $164.7 million (compared with consensus of $167 million) while so-called “core” sales fell 4.5% to $156.4 million.  Adjusted EBITDA declined 29% to $47 million (versus consensus of $47.3 million) while non-GAAP EPS of $0.24 compared with ~$0.40 in the prior year-period.
• For the first nine months of 2018, consolidated sales declined 13.9% to $527.4 million while “core” sales fell 2.2% to $491.4 million.  Adjusted EBITDA declined 26.7% to ~$158 million.
• The company indicated that its strategic review remains on-going and is expected to be completed no later than the year-end 2018 conference call; to that end, the company indicated it remains in “various active discussions”.
• Given the on-going review, the company continued to not provide financial guidance other than to say that while the company expected to post sequential sales growth in 4Q 2018 it also expected a sequential increase in legal expenses (due to timing of ITC trial with Comcast).
• Considering year-to-date results and commentary, we modestly lower our full-year adj. EBITDA outlook to $201 million (from $205 million). That said, our fair value estimate remains $16 per share based on unchanged multiples of 9x and 13x for Products and Licensing, respectively, as well as a slightly higher projected net debt figure (see Exhibit #1 on page 2).
• It remains our view that TIVO offers investors attractive upside in the event of strategic transaction, which we think could include a separation (and sale) of the company’s two businesses, or as investors gain more clarity into the company’s longer-term growth profile/earnings power.  To that end, we would view any potential weakness in today’s trading session as an attractive buying opportunity.

RDI confirms receipt of another unsolicited, conditional indication of interest from Patton Vision

• RDI has confirmed the receipt of another unsolicited indication of interest from a consortium led by Patton Vision (along with several potential private-equity backers, including TPG, Madison Dearborn and the Santo Domingo Group).
• The cash proposal, which expires November 21^st, values RDI’s Class A shares at $17.22 and its Class B shares at $37.38 (compared with yesterday’s closing prices of $15.29 and $29.60, respectively).
• For context, in May 2016, Patton Vision, a holding company controlled by Paul Heth, the chairman of Russian cinema chain Karo Film Holding, initially offered $17 per share in cash for all of RDI’s outstanding Class A and Class B shares.  The bid was subsequently increased to $18.50 per A & B share in December 2016 but ultimately rejected by RDI’s Board in March 2017.
• As for the current offer, RDI’s Board indicated it would review the proposal in “due course” while re-iterating its commitment to acting in the best interest of shareholders.
• Separately, RDI reported that in the first nine months of 2018 consolidated revenue had advanced 13% to $234 million while adjusted EBITDA had declined about 5.5% to $39 million.
• As well, the company intends to post a pre-recorded webcast to its website on Friday November 9^th; questions from investors can be submitted directly to RDI’s investor relations team (or, if preferable, we would be happy to pass them along.)
• Our current fair value estimate of $21 per share assigns $17 per share and $8 per share to RDI’s Cinema Exhibition and Real Estate businesses with an additional $8 per share being attributed to the company’s portfolio of investment & development properties (see Exhibit #1 on page 2).
• While RDI shares have declined about 4.5% since we initially highlighted the company in April 2018 (versus a roughly flat comp in the Russell 2000) we continue to see substantial value in the shares and recommend them to clients as an attractive investment.

BEL’s strategic review is on-going and management is “encouraged” by the level of interest; fair value increased to $19 per share, representing the low-end of our estimated potential take-out range of $19-$24 per share; 2018 adj. EBITDA guidance of $140-$150 million was re-affirmed

• In the first-nine months of 2018, BEL posted adjusted EBITDA growth of 15% to more than $124 million on top-line growth of roughly 2.5% to $454.5 million.
• As well, the company re-affirmed its full-year adjusted EBITDA guidance of $140-$150 million, which implies 13%-21% year over year growth.
• Moreover, BEL indicated that it remains fully engaged in its strategic review process, which began back in August 2018, and that it is “encouraged” by the level of third-party interest.
• To that end, it has been reported in the business press that the company has garnered interest from myriad potential strategic and financial buyers, including Ashkenazy Acquisition Corp. (private), Blackstone (NYSE: BX), Hilton (NYSE: HLT), Hyatt (NYSE: H), KKR (NYSE: KKR), and KSL Capital (private).
• We continue to think that the odds of a full or partial sale is high and it remains our position that an outright sale of the company to a strategic operator who could leverage its wider brand recognition and scale is likely the avenue that would unlock the most value for BEL shareholders.
• In the likely event a transaction is ultimately consummated we estimate a potential take-out value could be in the $19-$24 per share range, based on the mid-point of BEL’s F2018 guidance and previously offered takeout multiples,
• On an operating basis, our $19 per share fair value reflects a blended multiple of 15.0x on estimated F2019E adjusted EBITDA of ~$165 million and projected net debt of $535 million.

Fair value increased to $51 per share (from $48); TFII raised 2018E adj. EBITDA and EPS guidance to $665-$675 million and $3.35-$3.43, respectively; quarterly dividend increased to $0.24 per share

• In the first nine-months of 2018, TFII posted adjusted EBITDA growth of ~32% to $505.6 million on a ~4% increase in total revenue to $3.8 billion.  Adj. EPS increased 74% to $2.37.
• Year-to date results reflected improved performance across TFII’s portfolio amid solid underlying industry fundamentals and prompted management to increase its 2018E adjusted EBITDA and EPS guidance to $665-$675 million (from $635-$645 million) and $3.35-3.43 (from $3.21-$3.29), respectively.
• The company also increased its quarterly dividend to $0.24 per share (from $0.21 per share). Anecdotally, TFII continues to expect free cash flow of $355-$370 million (or ~$4.00 per share) in 2018 despites an increased capital spending budget of ~$190 million (previously $150 million).
• Looking into 2019, the company did not provide any specific guidance other than to express confidence in its ability to drive incremental earnings improvement (i.e. 2018 is not the peak).  As well, the company indicated it continues to contemplate a U.S.-based stock listing.
• In addition to offering attractive exposure to the earnings leverage associated with both the broad improvements in underlying transport fundamentals and the company’s own internal improvement efforts (as well as any longer-term portfolio optionality) we think TFII’s stock remains undervalued trading with a free cash flow yield of 9% and at 2018E EV/EBITDA and P/E multiples of ~8x and 13x, respectively.
• Our revised base case fair value estimate of $51 per share (previously $48 per share), which implies incremental upside of more than 15% (on top of the stock’s ~30% year to date return), reflects a blended multiple of ~8x on 2019E EBITDA of $715 million (previously $675 million) and projected net debt of ~$1.12 billion.

BEL is reportedly garnering interest from a range of potential strategic and financial acquirers; first-round bids said to be due to late-October and we estimate take-out offers could range from $19-$24 per share

• BEL’s exploration of strategic alternatives has reportedly garnered interest from myriad potential strategic and financial buyers, including Ashkenazy Acquisition Corp. (private), Blackstone (NYSE: BX), Hilton Worldwide (NYSE: HLT), Hyatt Hotels (NYSE: H), KKR (NYSE: KKR), and KSL Capital (private).
• In our view, this is not overly surprising given the attractiveness of BEL’s portfolio of one-of-a-kind assets as well as the current strength of the global hospitality market, generally, and the market for luxury hotel assets, specifically.  To that end, we continue to think that the odds of a full or partial sale occurring is high and it remains our position that an outright sale of the company to a strategic operator who could leverage its wider brand recognition and scale is likely the avenue that would unlock the most value for BEL shareholders.
• So while we see some modest potential downside to our standalone/operating valuation of $16 per share in the event no deal is reached, we calculate incremental upside to the $19-$24 per share range, based on the mid-point of BEL’s F2018 guidance and previously offered takeout multiples, in the likely event a transaction is ultimately consummated.
• For context, shares have risen 47% since our initial recommendation in February 2018 (versus a 7.5% gain in the Russell 2000) and 62% since the company announced its intent to explore strategic alternatives in August 2018 (compared with a 2.5% decline in the Russell 2000).  As such, particularly when weighed against the potential for incremental gains of ~20% at the mid-point of our aforementioned take-out range, we remain comfortable continuing to recommend BEL despite the potential for roughly 10% downside if no deal ultimately materializes.

On September 17, 2018, shares of Garrett Motion Inc. (NYSE: GTX) began trading on a “when-issued” basis in conjunction with the spin-off of the company from Honeywell International Inc. (NYSE HON). In initial trading, GTX-W shares were priced at $18.26 per share. Shares closed on Monday September 24 at $16.00. Assuming our prior 2019 EBITDA estimate of $513 million, shares are trading at 5.7x when including $4.7 billion in net debt and 74.3 million shares outstanding.

Our Garrett Motion Inc. fair value estimate was based on a 12.5x EV/EBITDA multiple and 16.0x P/E multiple (both based on our 2019 earnings estimates). It can be argued that a peer multiple closer to that of more auto-focused companies is more appropriate than the multiple we used in our initial valuation. Using more auto-focused peers such as BorgWarner Inc. (NYSE: BWA) (currently trading at 5.8x EBITDA) and Adient plc (NYSE: ADNT) (currently trading at 4.6x EBITDA), shares of GTX would be fairly valued between $8 and $32 per share (or $1 and $3 per share based on HON’s pre-spin shares outstanding). Note that the higher end of that range is based on recent trading in BWA and ADNT, which traded at 8.0x forward EBITDA within the last year.

Shares of HON traded light volume on a “when-issued” basis at $163.91 per share, which in turn implies a 13.6x EV/EBITDA multiple based on our 2019 EBITDA estimate of $9.3 billion (742.6 million shares outstanding and $5.6 billion In pro forma net debt). While the market is clearly assigning a more conservative multiple on shares of GTX than our initial valuation, we believe our investment thesis remains intact, which said that a pre-spin purchase of HON results in value unlocking as very little (if any) value was being assigned to the spin companies (GTX and Resideo, which will be spun off later this year).

In light of the current trading a near term price target of $32 could be assigned to shares of GTX, based on a multiple of 8.0x 2019E EBITDA of $513 million, which is closer to inline with auto peers including BWA and ADNT recent trading. A change in the valuation multiple framework for GTX does not impact the thesis on a pre-spin purchase of HON. It is still believed that the separation of Garrett and Resideo will eventually result in a more focused, higher cash flow generating company that investors should be attracted to.

While the shift in valuation appears stark on its face, recall that shares of Garrett will be distributed to HON shareholders of record on a one-for-ten basis. As such the impact on pre-spin HON fair value estimate approximates $4 per share – and closer to $3 based on a $32 near term target. Post-spin shares of HON are still fairly valued at $167, which is above the current share price including both GTX and Resideo, which supports our pre-spin HON recommendation. Shares of GTX may still experience a high degree of volatility in initial regular-way trading as large cap investors, ETFs, and other indices exit the far smaller GTW position in favor of remaining a HON shareholder.

HON shareholders of record as of September 18, 2018, will receive a distribution of 1 share of Garrett Motion Inc. common stock for every 10 shares of HON common stock. The distribution is expected to take place on October 1, 2018. Regular-way trading is expected to begin on October 1 on the NYSE under the symbol “GTX”. For more information, please see The Spin-Off Report on Honeywell dated September 13, 2018.

On September 14, 2018, Investec Plc (INVP: LN) announced that, following a strategic review, the company has decided to spin off its asset-management business (IAM) from its specialist bank and wealth and investment business. The specialist bank and wealth and investment businesses will remain part of the company’s current dual-listed structure. The transaction, which is subject to regulator and shareholder approvals, is expected to be completed within the next twelve months. IAM will be listed on the London Stock exchange with an inward listing on the JSE. Post-spin, Investec is expected to retain a minority stake in IAM following the demerger (amount to be disclosed in the future).

For its part, shares of Investec currently trade at 9.5x 2019 EPS estimates. In terms of unlocking value, the transaction appears to make sense in that shares of IAM should be rerated higher while the banking businesses valuation should remain fairly stable. We derive a pre-spin sum-of-the-parts fair value estimate of GBP 6.04 per share. The preliminary fair value estimate implies upside potential of about 15% from the current share price (GBP 5.27 as of this writing), suggesting that the separation may unlock significant value for shareholders. It should be noted that INVP shares have appreciated approximately 9% on this morning’s announcement.

Fair value remains $133 per share following F2018 results and SXI’s F2019-F2020 commentary; we think the opportunity for an improved focus on the core Engraving and Electronics businesses remains.

• For full-year F2018, SXI reported consolidated sales up 15% to $868 million with adjusted EBITDA, by our calculation, up ~27% to $132 million.  On a segment basis, SXI notably posted double-digit organic growth in the Engraving, Electronics and Hydraulics businesses.
• The company ended F2018 with net debt of $84 million (down from $103 million at the end of F2017) and a leverage ratio of ~1.6x (compared with its 3.5x covenant).
• The company projects capital spending of $35-$36 million in F2019, predominantly within Engraving and Electronics, with depreciation & amortization expense of $30-$32 million.
• Anecdotally, the company backed much of the growth and margin commentary that was discussed at its most recent investor day (and in our initiation piece).  To that end, we continue to expect continued mid-to-high single digit organic growth at the Engraving, Electronics and Hydraulics segments as well as margin improvement toward the 15% targets set for Food Service and Engineering Technologies segments.  [Note: our F2020E operating margin assumptions for Food Service and Engineering Technologies are 13.2% and 10%, respectively.]
• All told, our sum-of-the-parts fair value estimate remains unchanged at $133 per share, reflecting a blended multiple of 11x on F2020E EBITDA of ~$161 million.
• It remains our contention that at ~9x F2020E EV/EBITDA and a free cash flow yield of 6%, SXI trades at a discount to the sum value of its parts and we continue to see the opportunity for improved focus on the Engraving and Electronics businesses, which have relatively higher growth and margin profiles. To that end, we see optionality in the less core areas of SXI’s portfolio, which could be monetized to provide incremental growth capital to core businesses and/or be returned to shareholders.

On August 17, 2018, A.P. Moller – Maersk A/S (MAERSKB: CPH) announced that, following a strategic review, the company will seek a separate listing of Maersk Drilling Holding A/S. (Maersk Drilling). The planned separate listing is expected to be completed in 2019, and will be conducted via a demerger of Maersk Drilling via a distribution of shares in the new entity to MAERSKB shareholders. Maersk, a Danish conglomerate, is primarily an integrated container and logistics company. The company’s exit from its drilling operations business following the sale of Maersk Oil to Total S.A. is the culmination of a strategic refocus on the shipping and logistics industry. Notably the Maersk Oil sale generated proceeds in both cash and Total stock, and the company has indicated plans to spin off a large portion of its Total ownership stake. It has been reported that Maersk had sought bids for the drilling business prior to the announcement; however management was underwhelmed by the resultant bids. Management has noted that in conjunction with the demerger, $1.5 billion in debt financing has been secured to ensure Maersk Drilling with a sufficient capital structure.

On a preliminary basis, pre-spin shares of Maersk can be valued at DKK 10,435 per share (including the value of the TOTAL holdings), implying upside potential of about 17% from the current share price (DKK 8,872 as of this writing), suggesting that the separation may unlock significant value for shareholders. It should be noted that shares have declined approximately 20% over the trailing twelve months, with more recent pressure likely attributable to concerns over tariffs resulting in trade wars.

Withdraw recommendation of MCS with shares trading at a modest premium to our current fair value estimate

• MCS shares have returned ~60.5% since our initial recommendation in August 2017 (versus a 15% gain in the S&P 500 and a 20.5% rise in the Russell 2000).
• That said, with the stock trading at a modest premium to our current fair value estimate of $38 per share, which reflects a blended multiple of ~9x on 2019E EBITDA of ~$150.5 million, we prefer to maintain a disciplined approach and withdraw our recommendation, as of today’s close.
• We will continue to monitor MCS for an opportunity to re-recommend the shares if valuation shifts or incremental steps toward potential strategic alternatives materialize.