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.
- New Quick Pitches: DXLG, LUNA
- Idea Updates: CURN, DK, HEPS, RNEW:L
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.
NEW QUICK PITCHES
Last week, I shared two new quick pitches on SSI.
Destination XL Group (DXLG)
Destination XL Group received a non-binding proposal at $3/share from its largest shareholder, Fund 1 Investments, which holds a 21% stake. Management has acknowledged the offer and is in the process of reviewing it. Spread is at 14% and the bidder noted: “we are prepared to increase our proposed price”. The downside to pre-announcement trading prices seems to be quite limited. DXLG quick pitch.
Luna Innovations (LUNA)
As I highlighted in the pitch, this was largely a one-day-only opportunity, as trading of the stock has since shifted to the Expert Market. LUNA is down 90% from 2023 levels due to a pending financial restatement and an information vacuum. There are reasons to believe the business is still performing well, and the equity could be worth multiples of the current price. I expect the reporting issues to be resolved soon, with the company eventually either relisting on Nasdaq at much higher levels or being sold. LUNA quick pitch.
IDEA UPDATES
Currency Exchange International (CURN) — strategic review for EBC
It seems CURN has been unable to turn around its struggling Canadian operations. A strategic review has been initiated for its Exchange Bank of Canada (see the quote below). Hopefully, the upcoming annual results, expected by the end of January, will provide more clarity on the situation. Full CURN write-up.
Special Committee of independent directors is actively considering a range of strategic options for its wholly-owned subsidiary, Exchange Bank of Canada (“EBC”), a federally chartered non-deposit-taking Canadian Schedule I bank. The strategic review aims to explore opportunities to maximize long-term value for shareholders and focus the Company’s resources towards its profitable U.S. operations.
Delek US (DK) — another acquisition completed by DKL
DKL completed the acquisition of Gravity Water Midstream for $285m. The deal was done at an attractive multiple (<5.5x EBITDA) and was touted as synergistic. The more important aspect is that pro-forma DKL “will be approaching greater than 70% of its EBITDA coming from third-party sources.” Higher independance of DKL is positive for the deconsolidation thesis and SOTP value unlock for DK.
DK now trades at $18.9/share compared to $22.8/share value of its DKL stake. On top of that, management values DK’s standalone operations at $29.8-$36.7/share, based on mid-cycle earnings. Sum-of-the-parts discount here remains very wide, but that is unlikely to change until management shows a clear path towards the deconsolidation of DKL. DK quick pitch.
D-Market Electronic Services & Trading (HEPS) — several regulatory approvals received
While the sale of Hepsiburada’s controlling stake to Kaspi has secured four regulatory approvals, it still awaits clearance from Turkey’s Capital Markets Board (CMB). The possibility that the activist could force Kaspi to also bid for the remaining minority shares is still alive. HEPS shares currently trade at around $3, significantly below Kaspi’s $4.75/share offer for the controlling stake. HEPS quick pitch.
Ecofin U.S. Renewables Infrastructure Trust (RNEW:L) — change of the chairman
RNEW’s chairman is set to step down from the board this month, with wind-down specialist Brett Miller taking over. This seems to be a positive development for the liquidation thesis. RNEW currently trades at $0.30/share – 43% discount to its most recent NAV of $0.53/share. RNEW guest pitch.