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: OCI:AS, CURN
- Quick Pitch Updates: TIFS:L, EMBRAC, GDRZF, LTG:L, GRFS
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
OCI N.V. (OCI:AS) — clarification on RemainCo’s profitability
OCI’s IR department confirmed that the expected mid-cycle EBITDA guidance for the European Nitrogen business is $150m (see this communication shared by SSI member Incubatec). This is a significant reduction from the previously implied $250m, which was based on OCI’s earlier combined guidance for the Nitrogen and Methanol businesses ($500m) and Methanol’s standalone guidance ($250m) provided by MEOH, the buyer of this segment. However, OCI’s outlook for the Nitrogen business actually hasn’t changed. Management clarified that they have consistently allocated the combined $500m EBITDA guidance with a 30%/70% split between Nitrogen and Methanol. The discrepancy arose simply because MEOH’s view of the Methanol business is a bit more conservative than OCI’s, which skewed the perceived contribution of the Nitrogen segment.
Anyways, if OCI’s management now says mid-cycle EBITDA is $150m (rather than $250m), this is the number we should use in calculations.
At the current price of €11/share, OCI trades at a significant discount to its pro-forma net cash (€16.14/share), expected after the Methanol segment sale closes in mid-2025. The market is assigning no value to the remaining Nitrogen business, which could be worth an additional €3-€4/share, depending on whether corporate overheads are included in the $150m EBITDA guidance (this remains unclear).
Management plans to distribute another $1bn in dividends after the Methanol sale concludes. I believe these catalysts should drive a significant re-rating of OCI’s stock price. Full OCI:AS write-up.
Currency Exchange International (CURN) — new buyback program announced
CURN announced another 5% share buyback authorization. This wasn’t because the previous authorization was exhausted, but because it expired. As of November 28, CURN had acquired only 149k shares out of the 322k previously authorized, so less than 50%. The buyback pace hasn’t improved much since fiscal Q3 results (July 31), and remains slow.
CURN is significantly undervalued and trades at $102m market cap, compared to $115m in net cash (mostly WC) and $19m in TTM EBITDA. Annual results should be out in late January. Full CURN write-up.
QUICK PITCH UPDATES
PLAYED OUT: TI Fluid Systems (TIFS:L) +10% In 1 Month — definitive agreement announced, spread narrowed
TIFS and Apollo have finally signed the binding papers, with takeover price unchanged at £2/share. As expected, the spread has immediately narrowed to just 4%. With 35% of TIFS shareholders already on board and minimal regulatory risk involved, the transaction should close smoothly in H1 2025. TIFS:L quick pitch.
Learning Technologies Group (LTG:L) — PUSU deadline extended
The PUSU deadline for the potential takeover of LTG by private equity firm General Atlantic has been extended to December 6. The offer price remains at £1/share, and the spread is currently at 10%. This deal has a high probability of success. Management supports the offer, major shareholders are likely to roll over their stakes, regulatory risks are minimal, and General Atlantic is a serious buyer. If a definitive agreement is reached, the spread should narrow significantly. There’s also a chance of competing bids emerging. LTG:L quick pitch.
Grifols (GRFS) — a potential post-mortem trade
The potential Grifols buyout by BAM has fallen apart, but the discount between Class B (GRFS or GRF-P:MC) and Class A shares (GRF:MC) has barely budged. It’s currently at 23%, compared to the historical range of 30%-40%.
This has sparked an interesting discussion among SSI members (snowball, Avi, WH) about a potential reverse arbitrage trade: long Class A shares, short Class B shares, betting on the discount widening to its historical norm. The risk of other bidders emerging for Grifols seems low, given the drawn-out and ultimately unsuccessful BAM saga. There is plenty of borrow availability for Class B shares on IB.
The key risk is that Grifols could decide to merge the two share classes, eliminating the discount entirely. Management has been considering this for a while. One proposed option involved allowing Class B shareholders to convert to Class A shares by paying the price difference. However, the CFO stated at the beggining of the year that the move wouldn’t be practical at current share price lows, as it would generate limited funding for the company. He indicated that management would revisit the idea once prices recover. This suggests that, in the short term, the reverse arbitrage trade could still be viable.
Embracer Group (EMBRAC-B:ST) — update on Asmodee
Daniel has provided an update on Asmodee, one of the world’s largest board game companies, which is expected to be spun-off from Embracer Group in Q1 2025. The spin-off timeline was reafirmed during the recent capital markets day. Operational performance guidance for Asmodee was in line with expectations, with margin improvement and growth projected for next year. The key update was that Embracer will also invest €400m in the SpinCo to strengthen its balance sheet, using proceeds from the recent sale of Easybrain. That doesn’t affect the overall picture too much but will lower Asmodee’s leverage from over 4x to just over 2x. Regarding tariffs risk, management simply stated that they partner with Western manufacturers for many of their games, including Catan, which is US-made.
Daniel noted that he would likely sell his Asmodee shares if the market cap reaches at least €1.5bn post-spin-off, due to concerns about the company’s M&A strategy and the fact that Embracer will retain a 25% stake in the SpinCo anyways.
Asmodee’s upcoming spin-off has also been recently covered by Dungeon Investing (see the write-up here).
Embracer Group continues to trade with a significant conglomerate discount. Daniel estimates a potential upside of ~21% in his base case scenario and 42% in his optimistic scenario. Key catalysts include the Asmodee spin-off, a potential spin-off of the Coffee Stain business, and increased awareness of the Lord of the Rings franchise due to an upcoming cinematic release. EMBRAC-B:ST guest pitch.
Gold Reserve (GDRZF) — tax reassessment
GDRZF received a concerning notice from the Canadian Revenue Agency (CRA). The agency is proposing to reassess approximately US$1.13bn of GDRZF’s historical income as taxable. This could trigger a significant tax liability for the company. The “income” to be reassessed by the agency includes $740m award in 2014, which hasn’t even been collected yet. So CRA’s move seems a bit far-fetched and has clearly been triggered by GDRZF’s recent relocation to Bermuda. The company will now respond to the agency, but if the matter isn’t resolved, CRA may proceed with the reassessment, forcing GDRZF to appeal to the Tax Court of Canada. The key concern here is that if GDRZF fights this in court, it will be required to post 50% of the assessed tax liability as collateral.
Other than that, Citgo’s auction is moving towards the next round of bidding. GDRZF’s claim stands at $1bn. The stock could be worth $8.50/share if the claim is paid in full. GDRZF guest pitch.