David Waters of Alluvial Capital Management has highlighted an opportunity for a potential sale of Logistec (LGT-B:TO), an operator of terminals at ports in Eastern Canada and the US. LGT is a great business with strong pricing power and consistent demand, as evidenced by its 50+ years of profitability and 14% revenue and EBITDA CAGR over the past 10 years. Despite the superb fundamentals and strong historical performance, LGT shares price has barely moved from its 2018 levels, while earnings have doubled. The stock is currently valued at only 6x 2023 EBITDA and 10x FCF.
One potential catalyst for the stock could be the full company sale by the end of the year. In May 2023, LGT’s controlling shareholder (45% economic and 77% voting stake) informed management of its intention to sell the interest in LGT. The company has since launched a strategic review, with an outright company sale among the potential options. Given the strong appetite for port-related assets from infrastructure investors and pension funds, there is likely to be no shortage of bidders for LGT. One potential acquirer could be Caisse de Depot et Placement du Quebec, which is already a large existing holder of Logistec.
In a sale scenario, LGT could reasonably be valued at 9x 2023 EBITDA, suggesting a price target of $90+/share or a 37%+ upside. Even if no deal materializes, the downside is limited by strong fundamentals of the business. I think it is worth noting, however, that LGT-B shares have already risen 55% since the strategic review announcement in May.
Note: The ‘Ideas Elsewhere’ section is intended to highlight interesting event-driven investment ideas by other authors. These ideas are not my own, and I am simply summarizing them to bring attention of SSI subscribers. I do not intend to actively follow the developments of these ideas, so you should expect limited updates or follow-ups in the comments section.