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.
- Idea Updates: SGRP, SAGE, CURN, EMBRAC-B:ST, 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.
IDEA UPDATES
Currency Exchange International (CURN) — shut-down of Canadian operations
CURN announced a shutdown of its Exchange Bank of Canada operations. The decision comes 1.5 months into the strategic review, following unsuccessful attempts to turn around the struggling segment. The company will now refocus on its US operations.
The company has hosted a conference call, which wasn’t exactly enlightening. Management did not provide any important details regarding the EBC exit (e.g. costs of discontinuation, long-term savings, capital unlocked, etc.), but promised to update investors on the Q1 call next month.
However, management confirmed that the exit from EBC won’t directly impact the US business. EBC had zero connection to the US banknotes segment since it wasn’t even allowed to sell dollars to the US, only internationally.
Over the next six months, the company will incur some discontinuation costs but is still expected to remain profitable throughout the period. By 2026, the business should be fully free of Canada’s losses. The Canadian segment lost $7.4m in EBITDA last year. Not all of that will translate to profit, but a lot of it should. There was some vague hinting at cross-segment expenses, such as executive salaries previously being allocated between the US and Canadian businesses. So some expenses will likely shift to the US segment. Management called those “stranded costs”. Still, it’s probably reasonable to expect $5-$6m in long-term profit tailwind from this exit. That is very meaningful compared to $21m in US segment EBITDA last year.
Also, an uplisting to the US is being considered. So if management plays it right – i.e. smoothly closes EBC, uplists, and ramps up shareholder returns (given the improved profitability and some capital unlocked), the upside from current levels could be very substantial.
The real question, however, is management’s competence. It didn’t look very impressive before. And now, after years of hyping up EBC, probably burning a lot of money on it, and then abruptly shutting it down after getting hit with some AML-related issues, it certainly doesn’t look very inspiring.
But then again… the stock just looks too cheap. Given the profit tailwinds and increased focus from management on the US business, maybe we don’t need that much in terms of execution to do well from here. Looking forward to more concrete updates from the company next month. Full CURN write-up.
SPAR Group (SGRP) — another delay in securing financing
SPAR Group announced a third extension for Highwire Capital’s financing commitment – this time to March 17. This is very positive for the merger break thesis, reinforcing the idea that Highwire is either struggling to secure funds for the buyout or has simply gotten cold feet. The stock price is now at $1.86/share (versus $2.5/share offer). If the merger falls apart, there is still plenty of air beneath – a 25%-45% drop wouldn’t be surprising. Full SGRP write-up.
SAGE Therapeutics (SAGE) — new public podcast on the setup
Andrew, author of the guest pitch, has released a nice podcast discussing the potential buyout of SAGE. It’s definitely worth a watch/listen, as it goes a bit deeper into some of the points from the write-up and includes a few additional details. You can find the podcast here. Meanwhile, SAGE continues to trade just below Biogen’s $7.22/share bid. The strategic review remains ongoing. Given the importance of SAGE’s key drug to Biogen and the lack of viable long-term options for SAGE to remain standalone, a higher offer seems likely. Full SAGE write-up.
WideOpenWest (WOW) — share price up significantly with no news
WOW’s stock price has climbed 16% this month. It now has returned to trading at a slight premium to $4.80/share non-binding offer from Crestview Partners. There’s been no news or announcements to explain the volatility. Stock prices of peers have also remained flat over the same period. The investment thesis remains intact – the parties are expected to agree on a meaningful buyout price increase soon. WOW guest pitch.
Embracer Group (EMBRAC-B:ST) — thesis refreshed
Daniel shared an update on Embracer Group following the successful spin-off of Asmodee. He also provided a refreshed sum-of-the-parts valuation, which now incorporates both TTM financials and pro-forma expectations for FY26.
The market still seems to be assigning zero value to Embracer’s now-public stake in Asmodee. If that changes and the stake gets priced in at even 70% of its current value, the upside for EMBRAC will be 20%.
If Embracer executes well on what seems to be reasonable growth estimates going forward, the upside might be 50-80%, depending on how much credit the market eventually gives to the stake in Asmodee.
There’s also one more potential catalyst – in May, the Q4 results should finally clear the books of the massive €1bn impairment from Q4’24. Once that rolls off the TTM window, Embracer will start screening as a profitable company, which could improve visibility and attract more investor interest. EMBRAC-B:ST guest pitch.