SSI WEEKLY NEWSLETTER
This weekly newsletter intends to share the most interesting event-driven situations I’ve looked at over the week as well as other updates and highlights from SSI.
Here is what you will find in this week’s newsletter.
- Portfolio Idea Updates: FAR, BHIL, OCI:AS, MRL:L
- Quick Idea Update: WOW
Disclaimer: All content on Special Situation Investments site and in the newsletter is not and should not in any circumstances be considered as investment advice or trading recommendation. All information presented is strictly for illustrative and educational purposes only. Please carry out your own research and due diligence.
PORTFOLIO IDEA UPDATES
CLOSED: Far Limited (FAR:AX) +33% in 2.5 years
I have decided to close FAR position at $0.505/share. I was waiting for the announcement of earnout monetization, but, after the latest update from the company, early monetization is less likely.
FAR and Woodside Energy have released their quarterly updates. The key takeaway is that FAR’s management has received several offers for the earn-out, but none were considered attractive enough “compared with holding the Contingent Payment”. While management is still open to earnout monetization, they haven’t provided any clear details on where things currently stand.
This is not necessarily a bad thing – selling the earnout at low price might have left FAR shareholders worse off, than keeping it till maturity. Assuming the earnout pays out fully (A$82m vs A$47m market cap), FAR shareholders stand to generate 20%+ IRR over the coming 3 years. And this scenario is still in the cards.
However, the key risks are that Sangomar production turns out to be lower than expected or oil price declines. We are experiencing the biggest turmoil in the Middle East in a long time, and the price of oil is barely above $70. If things settle down, oil could easily approach $58/barrel, the point at which the earnout would stop accruing. I am not trying to predict the oil price, just illustrating that this could be viewed as a very big risk and maybe that’s the key reason why the received offers for earnout monetization have been underwhelming. Oil price risk could be hedged, but that’s not a complication I am willing to get involved in.
On the bright side, the continuous buying from Harvest Lane – which raised its stake again this week to 18.8% – adds some confidence in the eventual positive outcome. Full FAR:AX write-up.
Benson Hill (BHIL) – another major shareholder might join the buyer consortium
This week, one of BHIL’s directors, who is also a managing partner at Grosvenor, stepped down from the company’s board. As a reminder, Grosvenor is the family office of the Duke of Westminster which owns 5.5% of BHIL. Shortly thereafter, the buyer consortium led by Argonautic Ventures confirmed that it has approached Grosvenor regarding the proposed buyout. This is a solid positive for the thesis, as it indicates that the PE consortium is still very much interested, and now Grosvenor – another large shareholder – is likely to join it. While BHIL’s stock price has reacted positively to the announcement, the spread to the $8.60/share non-binding takeover offer remains wide, currently at 21%. I continue to expect both sides to reach an agreement and finalize the binding agreement soon. Full BHIL write-up.
OCI N.V. (OCI:AS) – details on the dividend announced, further capital return might follow
As expected, OCI completed the divestment of its stake in Fertiglobe this week. It was also confirmed that €14.5/share dividend will be payable on November 14, with October 29 set as the record date. The distribution will be carried out as a return of capital. OCI hinted that further shareholder distributions may be forthcoming and more information will be communicated in due course.
The stock price has dropped following the announcement, likely due to the new CEO’s comment about entering a “new development phase with a refocus on investments and M&A.” This signals that a liquidation scenario is no longer on the table, and the size of any future dividends may be limited. OCI’s trajectory will now largely hinge on how well management handles future M&A. That said, given their strong track record with recent divestitures, value-destructive deals seem unlikely.
The margin of safety is also substantial, with OCI trading at a €7.9bn EV, compared to the $8.6bn in net cash expected from its four major asset sales. The market’s reaction seems overdone, and I anticipate the stock to re-rate once the €14.5/share dividend is distributed and more clarity on future capital allocation is provided. Full OCI:AS write-up.
Marlowe (MRL:L) – OPT position exited
I sold my OPT position at £1.60/share after it recovered a bit from the post-spin-off sell-off, with no clear further catalysts on the horizon. I’m still holding MRL, which continues to buy back stock daily. By my estimate, it still has £30m left for further repurchases (roughly 10% of the market cap). These buybacks are likely to create upward pressure on the share price. It’s also possible the company could be sold down the line, especially given MRL’s chairman, Lord Ashcroft’s, recent estate cleanup due to his age. Full MRL:L write-up.
QUICK PITCH UPDATE
WideOpenWest (WOW) – share price drifting lower, thesis remains intact
Idea Hive, the author of the WOW pitch, has recently shared his thoughts on the setup in light of the recent stock price drift. The key takeaway is that the recent hurricanes impacting Florida, where a significant portion of WOW’s infrastructure is located, are unlikely to affect the pending takeover of WOW. While the hurricanes caused outages, they do not appear to have resulted in significant damage to company’s infrastructure, as evidenced by company’s swift restoration of service to customers. Therefore, buyer consortium’s view of WOW’s long-term fair value should remain unchanged. WOW currently trades at only a 5% premium to the $4.8/share non-binding offer. Simply assuming that the offer price would be increased by the incremental capex the company has spent on its fiber build-out in recent years would imply a price target of c. $7/share or 40%+ upside. WOW guest pitch.