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 Pitches: FNA, ALLK, CPPTL
- Quick Pitch Updates: PGH:AX, EMBRAC, RNEW:L, FNCH, LTG: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 PITCHES
Paragon 28 (FNA) — Free CVR
Paragon 28 specializes in orthopedic solutions for feet and ankles. The company is getting acquired by Zimmer Biomet, a $22bn orthopedic giant. The deal terms are $13/share in cash + a non-transferable CVR. FNA stock is currently sitting at $13. The merger seems to be almost a done deal and is expected to close in H1 2025. There’s a pretty high chance this CVR pays out the full $1 after two years, and investors are currently not paying anything for this optionality. FNA quick pitch.
Allakos (ALLK) — Strategic review
This is a bet alongside Kevin Tang, a prominent biopharma investor, who recently filed a 13D disclosing a 10% stake in Allakos. ALLK is a busted biopharma, which is running a strategic review and is trading at the lower end of its estimated net cash ($0.275-$0.33/share) as of mid-2025. However, the company also has a lot of NOLs, with a full present value of $0.64/share. Management appears to be hunting for a reverse merger, and if they secure a deal that unlocks the value of NOLs (at least partially), the upside could be significant. Tang bought in at net cash, which suggests that he sees value in the operating loss assets. ALLK quick pitch.
Copper Property CTL Trust (CPPTL) — Liquidation
CPPTL is a real estate trust that is set to wind down by December 10, 2025. Upside to estimated NAV stands at 30%+. CPPTL’s entire remaining portfolio consists of 121 retail properties leased to JC Penney for at least the next 16 years. Management has recently started to aggressively market the assets. All properties are on the market already in a single package offer. Initial bids are expected by the end of February. CPPTL guest pitch.
QUICK PITCH UPDATES
Pact Group (PGH:AX) — already +35% in 5 months, potential for more upside
PGH’s controlling shareholder Raphael Geminder (owns 88%) is expected to make a move around mid-year to acquire the remaining minority shareholders. The stock price has soared this week despite no news or updates. The company even had to clarify to the regulator that it wasn’t aware of anything that could have suddenly surprised the market. The stock is now trading at A$1.05/share, above the original A$1/share target. The idea has already delivered a +35% return in just 5 months, and Dan (author of the pitch) took the opportunity to exit his position.
However, SSI member puppyeh has shared a detailed take suggesting there could still be plenty of upside left. He is estimating a potential takeout value in the A$1.50–A$2/share range. Full comment is included below.
The stock is now trading at A$1, more or less. The company was forced to report better-than-expected numbers – not really a surprise given the incentives here – that portend, in my view, something like A$280mm EBITDA and A$150mm clean EBIT for the full year (FY25, i.e., the current year, which is almost completed). Even with the increase in net debt – which could be due to working capital games as well as higher near-term capex (we need to wait for the full details) – the CY EV/EBITDA on my numbers is about 4.7x (including leases), EV/EBIT is about 5.5x. This is still far and away the cheapest packaging name amongst any of the relevant comps in Australia or NA (which trade at 10-15x EV/EBIT, more or less).
The salient point, I believe, is that if you go back to the last valuation report – by Kroll, from Oct 2023 – they used a composite 5.9x-6.5x EV/EBITDA multiple in their valuation work, and concluded a fair value range of A$1.06-A$1.52. That report included a fake A$104mm in ‘adjusted borrowing’, a totally fictitious number that I still cannot believe was not called to account at the time – to apparently adjust for seasonality in the working capital in the business (that was never evidenced in the balance sheet movements intra-year in the company’s history). That fake debt ‘adjustment’ alone cost the valuation 30c per share – i.e., true fair value at that time was around A$1.5/share at the mids. There were of course many other problems with that valuation report, all in the direction of lowering equity value.
This brings us back to today. The float has consolidated into the hands of the holdouts. The business has clearly bottomed and, despite capex fun and games, is doing better. Fair value was never 84c, it was probably A$2 two years ago; now, the business has delevered and the PnL is improving. There remain many incentives for the majority owner to take out the minorities (tax offsets, efficiences, public company costs, press humiliation risk, ability to pay divs). It seems to me the urgency to take out the minorities will only increase, as the stock price increases and as the business performance demonstrates that another insane low-ball bid takeout is not possible.
Despite all this, and the gaping distance in valuation b/w this name and all other listed comps/prior transactions, even if you simply accord Kroll’s last mid-point multiple (6x) on the current earnings power of the company, and do not arbitrarily include A$100mm of extra debt, then the implied equity value here is $2.05/share. I still feel that is far too low given all of the above, but that is basically the starting point for a future take out scenario here.
Embracer Group (EMBRAC-B:ST) — spin-off completed, +40% gain so far
Asmodee (ticker: ASMDEE-B:ST) began trading on February 7. On a combined basis, Asmodee and Embracer now trade at 246 SEK, in line with the original optimistic price target of c. 240 SEK. However, the market is still valuing Embracer’s €400m investment in Asmodee at zero. Recent Q3 results were solid as well. Daniel (author of the pitch) will provide an updated SOTP soon. The idea has played out well so far, delivering a 40% return in just 3.5 months. EMBRAC guest pitch.
Finch Therapeutics Group (FNCH) — thesis refresh
SSI member Arquitos has put together a nice refresher on the FNCH thesis. Quick summary: FNCH won a jury trial against Ferring Pharmaceuticals and was awarded a one-time licensing fee plus pre-trial interest totaling $30m. Future royalties and potential enhanced damages are still to be determined by the judge. FNCH is now awaiting the post-trial decision, expected by the end of this quarter. The stock trades at a $20m market cap. The judge’s ruling could be a major catalyst. Key items to be decided include future royalty that could be worth $10m-$20m to FNCH, enhanced damages that could add $30m-$60m on top of the original award, and attorney fees that could exceed $20m. FNCH guest pitch.
Ecofin U.S. Renewables Infrastructure Trust (RNEW:L) — wind down is advancing
The investment management agreement has been terminated, and the investment manager will now “work with the Board towards an orderly transition during its 12-month notice period.” That suggests the liquidation could be wrapped up within a year. There’s a chance RNEW already has bids lined up for the remaining assets and decided to kick things off by terminating the IM contract. The stock is trading at $0.29/share, a 45% discount to its most recent NAV of $0.53/share. RNEW:L guest pitch.
PLAYED OUT: Learning Technologies Group (LTG:L) +8% in a week
Shareholders approved the merger, and the spread narrowed to minimal levels – a nice 8% return in 1 week. While I expected the deal to pass easily, the vote was tighter than anticipated (79% in favor, 21% against), barely clearing the 75% threshold. But hey, a win is a win. LTG guest pitch.