SSI WEEKLY NEWSLETTER
Happy New Year, everyone! I want to say a huge thanks to all subscribers for continuing to support SSI, sharing profitable investment opportunities, and actively participating in discussions – without you, SSI would not be as exciting as it is today. Thanks for subscribing and for being a part of the Special Situation Investments community!
Here is what you will find in this week’s newsletter.
- 2024 Performance Review
- Idea Updates: KRON, PAC:AX, RWI:L, AVAP:L, NWYF, MMLP.
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.
2024 PERFORMANCE REVIEW
I have published 2024 Review post, where I look back at last year’s performance, key refinements for 2025, and important lessons learned from the biggest mistakes of 2024.
Overall, I’m pleased with how SSI is evolving – 85 investment ideas posted during the year, active discussions, member contributions, and overall productivity have been fantastic. However, the Tracking Portfolio’s returns last year were a disappointment – a loss of 1% mostly driven by 3 positions. For those short on time, here’s a key excerpt from the post highlighting the refinements planned for 2025:
All of this reinforces a recurring conclusion: I’m likely being too conservative in separating Portfolio Ideas from Quick Pitches. Fairly often I receive questions from members asking why a certain idea was categorized as a Quick Pitch rather than added to the Portfolio. The typical reasons include lower liquidity, lower conviction, or the idea being sourced from someone else. Yet the reality is that I personally invest in most of the Quick and Guest Pitches myself.
It’s clear that the current approach, instead of highlighting the “highest conviction ideas”, has been creating confusion and negatively impacting SSI’s performance. It’s time for a change. Moving forward, I’ll be refining the categorization as follows:
- Portfolio Ideas – these will include all event-driven setups compelling enough for me to invest in personally. Some write-ups may be quite extensive, while others might end up being shorter, more concise takes on the situation. Many of the Quick/Guest Pitches shared over the past two years could have easily qualified. So you can expect to see more Portfolio Ideas going forward. Low liquidity names will still be excluded from the Tracking portfolio and posted as Quick Pitches only.
- Quick Pitches – these will include all other intriguing setups that I come across during my routine scan process but I am not yet confident enough to invest in personally. The idea is that other members might have different selection criteria and still like the situation or benefit later on from SSI’s tracking. Quick pitches will also include setups that are very timely and need to be shared with the board ASAP, even if I haven’t had enough time to fully research them. For longtime members, this is essentially a return to the original purpose of Quick Pitches when they launched in 2020, and were later adjusted for the weekly newsletter in 2022.
I believe this change will be a win-win – it will streamline my decision-making process, reduce confusion, and likely result in more ideas being shared with members.
IDEA UPDATES
Kronos Bio (KRON) — Genentech partnership terminated
KRON terminated its partnership with Genentech. The partnership involved Kronos using its proprietary drug discovery platform to identify potential drug compounds, which Genentech would then develop. This termination, coupled with the recent discontinuation of a key clinical trial, 83% workforce reduction, and CEO’s resignation, reinforces the odds that the ongoing strategic review will culminate in a sale or reverse merger.
The announcement also noted that KRON made an undisclosed one-time payment to Genentech. I doubt the sum was significant, as the agreement was set to expire this month anyway, with KRON having an option to extend it by only six months. I’m estimating the termination fee at $2m, which reduces my NAV estimate for Q1’25 by 4 cents to $1.35/share. Spread to NAV is 35% at current prices. That seems too wide and will likely narrow significantly with a favorable strategic review outcome. Full KRON write-up.
Pacific Current Group (PAC:AX) — proxy for the buyback released
PAC released a proxy for the buyback. It included several important updates:
- Shareholder meeting date to approve the tender is set for January 30.
- The buyback will be for 25m shares, totaling A$300m at A$12/share. This represents 48% of total shares outstanding.
- The 3 largest shareholders – River Capital (22.43%), Perpetual (15.76%), and Regal Funds (10.73%) – support the buyback but have not stated whether they will tender or not.
- Management estimates that if the offer is fully subscribed, then pro-forma fair-value NAV will rise from A$13.47/share to A$14.81/share. The A$13.47/share figure is as of Jun’24 and is mostly likely higher today (there have seen several asset sales and FX changes).
- Buyback period will be February 10 to March 7.
Last week, PAC also agreed to fully divest interest in one of its Tier 1 boutiques, Banner Oak. The redemption was done at a slight premium to fair-value NAV, coming in at around A$30m compared to the A$23.9m fair-value NAV as of June 2024. This is another signal that PAC is gradually moving towards full liquidation.
I continue to like this setup. PAC shares are trading slightly below tender price and materially below pro-forma NAV. The company continues to dispose assets and is now returning a large pile of cash to shareholders. Downside still seems to be limited. The key question is whether the top 3 shareholders will tender or not at A$12/share. This will reveal what they actually think about the value of the company. PAC quick pitch.
Renewi (RWI:L) — PUSU deadline extended
Renewi has received a non-binding takeover offer from Macquarie Asset Management at £8.7/share. PUSU deadline has been extended to January 23. The current spread is 8.6%. Definitive agreement appears likely. Macquarie is a top-tier buyer with extensive expertise in the waste management sector. Renewi’s management has already signaled approval of the offer price, and three shareholders, holding a combined 15%, have signed irrevocable support agreements. RWI quick pitch.
Martin Midstream Partners (MMLP) — some thoughts on the eventual outcome
MMLP was being acquired by its general partner for $3.05/share. This drew opposition from an activist, which countered with offers of $4/share and $4.50/share. I marked the idea as “played out” in October when the GP raised its own offer to $4.02/share and a definitive agreement was signed. The spread immediately settled at zero.
Interestingly, the privatization has been terminated by mutual consent with the GP, citing feedback from shareholders as the main reason. That’s surprising – were shareholders really planning to go all out against management and push for an even higher price? My expectation was that the revised $4.02/share offer would secure support.
The competing offer from the activist remains ignored, and MMLP will likely stay public for at least another year, when the GP might rebid. As such, I’m not jumping back in. All of this confirms my earlier gut feeling about management’s intentions and demonstrates yet again how challenging activism can be in MLP buyout setups. MMLP quick pitch.
PLAYED OUT: Avation (AVAP:L) +22% in 1 Year
Activists Rangeley Capital and Jeremy Raper have reduced their stake in AVAP from 26% to 15%, selling nearly half their position at 150p. Their involvement and potential pressure on management were key components of the investment thesis, but this sale suggests they no longer view the risk/return as favorable. The sale happened at the same time as AVAP’s recent stock buyback, and the number of shares repurchased closely matched the number sold by the activists. So it kind of seems that the buyback might’ve been orchestrated to cash out the large shareholders. While the discount to NAV remains significant at 45% and the activists still hold a 15% stake, the recent developments have led me to materially trim my own position in AVAP. The idea returned 22% in 1 year. AVAP quick pitch.
PLAYED OUT: Northway Financial (NWYF) +7% in 3 Months
Another successful community bank merger in the pocket. Regulatory approvals came through in late December, and the merger closed on January 2. The idea delivered 7% return over three months, though it’s worth noting that liquidity was fairly limited. NWYF quick pitch.