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: SGRP, CURN
- Quick Pitch Updates: EM, DXLG, RVNC, RWI:L, MON:V, RNEW:L, EMBRAC
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
Currency Exchange International (CURN) – annual results
CURN reported annual results: on adjusted basis, i.e. excluding one-off items/non-cash charges for Canadian operations, it was business as usual, with payments business continuing to grow at a +20% clip. Exchange Bank of Canada operations are now under strategic review. Although management did not shed any further light on this during the call, my impression is that this business will be sold.
The company remains cheap, trading just slightly above its net working capital levels – $99m market cap vs $74m net working capital. Adjusted EBITDA during each of the last two fiscal years stood at $19m and adjusted net income at $10m. If it were not for the issues with the Canadian operations during FY2024, I am guessing the market would put more trust in this earnings power of the business and the stock would be materially higher.
Very limited buybacks at these levels are frustrating. The company only utilized half of its 5% repurchase authorisation for FY2024. A similar size buyback program is now in place again. These are at least partially limited by the volume on the Toronto stock exchange. When pressed by analyst on why the company does not leave Toronto stock exchange, the CEO Randolph Pinna was evasive (see quote below). Full CURN write-up.
“Again, the business that we do in Canada is under review. Again, our default is we continue to run our bank as we have. As I’ve said, we’ve been seeing improved profitability of the bank putting aside this regulatory dispute. But as far as listing in the Toronto Stock Exchange, we — it’s been a good market. Canada has been a good area for us, but NASDAQ is not ruled out. But right now, we have a lot more important priorities than our stock exchange, if that’s what you were talking about exiting Canada’s Stock Exchange. So we intend for the next year or so for sure to be a TSX-listed company. And our business in Canada is being focused on so that it begins — our investment will help our shareholding position.”
SPAR Group (SGRP) – founder sold shares again
Insider sales continue. Robert Brown, one of the founders, has offloaded another 42k shares since mid-December, at prices ranging from $1.85 to $1.92/share. That’s very weird (but quite positive for the deal break thesis) given that the company is in the process of being acquired at $2.5/share. The stock now trades at $2/share. If the merger fails to close, SGRP would likely fall around 30-40% from the current levels. Full SGRP write-up.
QUICK PITCH UPDATES
Smart Share Global (EM) — already up +14% in 1 week
EM retained advisors to evaluate the non-binding $1.25/share offer from management and Trustar Capital. Over the week, the spread has narrowed from 20% at the time of the write-up to just 5% now (after accounting for ADS cancellation fees). There’s a chance the offer could be raised, given it comes at a substantial 25% discount to net cash and the company’s operating business is at breakeven. However, the review process is likely to stretch on for several months. With the risk/reward now less attractive, I’ve substantially trimmed my position. EM quick pitch.
Destination XL Group (DXLG) — signed confidentiality agreement with the potential acquirer
DXLG signed a confidentiality and non-disclosure agreement with its suitor and major shareholder – Fund 1 Investments. The agreement includes a standstill provision. The spread to the $3/share bid has narrowed from 15% to 7%. While this proposal is likely to be rejected as too low, a price bump seems to be in the cards. DXLG quick pitch.
Revance Therapeutics (RVNC) — improved offer accepted by management
As expected, RVNC’s management wasted no time accepting the improved $3.65/share proposal from Crown Labs. The stock promptly jumped and is now trading at the offer price.
The ball is in Teoxane’s court. To be fair, the odds of an overbid look slim. The board described Crown’s proposal as “the only fully-financed offer currently available to Revance’s stockholders,” which means that Teoxane would need to not only come back with a higher bid (likely $4+/share) but also swallow a substantial termination fee and secure financing for its offer to even be considered.
However, the downside risk of waiting for Teoxane’s response seems minimal. If no competing bids emerge, Crown should have no trouble reaching the 50% threshold. In fact, 6% of shareholders had already tendered their shares even before the improved offer became public.RVNC quick pitch.
Renewi (RWI:L) — another PUSU deadline extension
PUSU deadline for Macquarie to present a binding offer for RWI has been extended again, this time to February 13. The spread to £8.7/share non-binding bid currently stands at 8%. I continue to expect both parties to finalize a definitive agreement soon. Macquarie has a top-tier reputation and significant experience in the waste management space. The offer is also supported by RWI’s management and equity holders, who collectively own 15% of the company. RWI:L quick pitch.
Montero Mining and Exploration (MON:V) — activist exited his position
Major shareholder Jeremy Raper has fully exited his position in Montero (see his comment here). While Jeremy remains confident that Tanzania will pay the remaining two tranches of the settlement, his main concern is the prolonged lack of guidance on legal, funding, and administrative costs. Two months have already passed since the settlement announcmeent. MON is now trading at C$0.305/share, compared to the estimated net cash of C$0.38–C$0.42/share that should be available for distribution, assuming no significant surprises on the cost side. MON-V quick pitch.
Ecofin U.S. Renewables Infrastructure Trust (RNEW:L) – improved alignment of incentives
RNEW’s management fee structure has been updated to better align incentives with shareholders. Previously, the fee was 1% per annum of the company’s NAV (up to $500m), paid quarterly. Starting this year, the fee will be calculated based on the lower of the company’s market cap or NAV. Given that the stock is trading at 43% discount to NAV, the resulting savings will not be trivial. RNEW guest pitch.
Embracer Group (EMBRAC-B:ST) – divestment completed
The divestment of Easybrain has been completed. The next major catalyst is the spin-off of Asmodee, expected in Q1 2025. EMBRAC is already trading in line with Daniel’s (author of the guest pitch) base case target. 20% upside remainins to the more optimistic target of around SEK 240. EMBRAC guest pitch.