Update #4 - November 17, 2024
LTG, Reitman's, Titanium Transportation, HelloFresh and Gold Royalty
In this post I will dive into the recent developments, news, outlook and other relevant information of the following companies:
Learning Technologies Group $LTG
Reitman’s Canada $RET
Titanium Transportation $TTNM
HelloFresh $HFG
Gold Royalty GROY 0.00%↑
Learning Technologies Group
You can find the original thesis for LTF here:
H1 2024 Trading Update & Results
LTG informed of revenues of over £248M (-7.5% LFL) with adjusted EBIT of over £43M (+4.6% LFL). They also updated guidance after sale of VMS and Lorien, expecting £480M to £500M in sales and £88M to £93M in adjusted EBIT. They also mentioned that net debt as of June 30th was £57.2M. However, since VMS was sold in H2, the net debt as of August 30th was £1M.
Regarding GP Strategies, the company was temporarily suspended for eligibility of classified contracts. LTG mentioned that: “The suspension will remain in effect until GP Strategies returns to compliance with the applicable operating requirements” and that “the Board believes that the value of the contracts is not material in the context of total Group revenue and profit”.
Revenue declined 3.8% in a constant currency basis and adj. EBIT was up 5%, with margins improving 200 basis points to 17.3%. Cash conversion also improved and is strong at 70%. For Content & Services, the segment that includes GP Strategies, improved margins by 250 basis points to 14.2%, while software and platforms also improved 80 basis points to 25.8%. Interest payments were down significantly from a year ago and since there is no outstanding debt, interest payments will cease in H2, further improving profitability.
Regarding the GP regulatory problem, they have said that they are working on a subsidiary inside GP that will work with all government contracts and will be run independently to ensure they comply with regulatory requirements. Basically, GP is getting split up between government and commercial contracts. The commercial side will have about $350M in revenues. Jonathan Satchell said: “we hope that sometime during H1 of next year, license will be approved”.
Mr Satchell also mentioned that they may sell more companies in their portfolio. He also emphasized that GP was bought by taking £180M in debt and diluting 6%, and after just 2.5 years, margins have more than doubled for GP, cash generation has improved greatly and the debt is now fully paid down. This shows the value in LTG.
Also, regarding capital allocation, they said that the board is actively considering it but they will not take on leverage to buy back their own shares. However, they may do it with proceeds from sales of other companies or the FCF they generate in the coming months.
Potential Acquisition
On September 27th the board confirmed rumors that GASC APF LP along with certain managed or advised funds (including Atlantic Park), all of them labeled as “General Atlantic” approached the board with a cash offer to acquire LTG for 100 pence per share, which the board recommended unanimously.
The offer also included a provision that stated that: “The unlisted equity alternative would provide participating LTG shareholders the opportunity to re-invest their shareholding and co-invest in General Atlantic's unlisted acquisition vehicle”. Effectively this means that insiders will be able to hold their stake in LTG.
The deadline for an offer was initially October 25th but was extended to November 22nd. As of November 17th, there is still no offer presented.
I think that the offer is interesting for insiders Andrew Brode (chairman) who owns 14.81% and Jonathan Satchell (CEO) who owns 9.23%. Other large funds and long-term investors of LTG might be also interested in the offer. As a reminder, here are the largest owners of LTG:
This is not because they are looking to sell their stake but rather because they can take the company private and get a much higher valuation than on the stock market. However, it is not clear that the shareholders will approve the offer since the company has almost finished integrating GP Strategies and solving all the problems that have come up, and they are ready for another acquisition. All of this should move the stock to higher levels in the coming quarters, as catalysts like acquisitions or stock buybacks start to develop.
Reitman’s Canada
You can find the original thesis for Reitman’s here:
Approval of NCIB
During the quarter, the company approved the NCIB, though which they may acquire up to 10% of the Class A (non-voting) shares, which is 3.28M shares.
Q2 Results & Conference Call
Up to September 19th, 91,000 class A shares were purchased. They also mentioned that they can’t buy more because of the low volume of the stock.
Questions from Parma Investments, the biggest shareholder after the Reitman family.
Regarding the elephant in the room, the uplisting to the TSX, the following was said:
Analyst from Parma Investments: “Ourselves along with other think that shareholders have been requesting an uplisting to the main TSX to increase liquidity, analyst coverage and in turn, hopefully, to award the share valuation that we feel that you guys deserve. A few months ago, you promised it would be looked into but your board outside of Andrea (the CEO) and your Chairman have refused to engage with us on this, so we continue to believe that by not choosing to uplist it to the main board on the TSX, it’s not acting on the best interest of all shareholders and by choosing to not do so would be focusing on the preference of one large shareholder, being the majority owner. So, what I’d like please is an update on any progress, if it has been made on this front and if there hasn’t been progress why is that the case.”
CEO answered: “As this time, RCL will maintain its listing on the TSX Venture Exchange. In recent discussions with the controlling shareholder, the board was advised that it will not support any amendments to the share capital of the corporation. So, as you know, without the controlling shareholder’s support, no amendments to the share capital of the corporation can be adopted and therefore we are not able to graduate to the TSX. As you also know, we requested, after being on the TSX since 1947, requested a grant that was refused on a couple of occasions.
Having said that, we are excited about the future of RCL and continue to be absolutely laser-focused on executing our growth strategy and providing shareholder returns through those initiatives and more.”
Analyst replied: “I suppose if the decision has been made to not uplist, you enterprise value excluding leases is now currently negative. You know, you usually associate that with companies that have extensive cash burns. You guys are generating decent cash, so how do we get to a point where the board addresses the major disconnects between what you company is actually worth and what your shares are worth. What is going to be done given the decision to not uplist? What is going to be done outside of the operational day-to-day of the business to address that?”
CEO then said: “We are looking at many different things in terms of shareholder returns and we do believe that driving the strategic growth of the organisation is most important. We thank you for your questions and appreciate your point of view”.
At this point, it is clear that the company is ridiculously undervalued. However, the re-rating has become much more complicated and the cleanest and clearest path from here would be a tender offer coming from the Reitman family to repurchase all of the shares of RCL. This would come at a very reduced price for the Reitmans since the only true cost would be the premium paid over the cash value of the shares, and only for the shares not owned by the family. Regarding the board, it is quite possible that a lawsuit is on the way for them since they are not fulfilling their fiduciary duties to all the shareholders.
All in all, the potential profits remain the same, but the odds of those profits materializing have gone down significantly.
Titanium Transportation
You can find the original thesis for Titanium Transportatin here:
Titanium kept growing volumes during the quarter, as it has been doing for some time now. They mentioned that the environment was still challenging but they saw signs of improvement. Revenues grew 5% to $118M and EBITDA margins came in at 9.8%.
The logistics business grew 24% in volumes and 18.3% in revenues, although EBITDA was lower, with margins down from 9.7% to 6.5%. Titanium opened their eighth location in Virginia. For the trucking segment, EBITDA margins were 15.5%. Regarding Crane, the integration still impacted margins during the quarter.
Guidance was maintained at $440M to $460M in sales with margins of 8% to 10%. They also reduced net debt by $12M using FCF. The CEO commented that they were “relatively satisfied” with the quarter and that “spot rates are moving higher, giving us optimistic confidence that the worst of the downturn appears to be behind us”.
Some signs of improvement are starting to appear and they seem very optimistic, even saying that “we definitely expect a recovery in 2025”. Ted Daniel pointed towards March and April as the probable months of the beginning of the recovery.
All in all, the quarter was pretty much what was expected. Nothing new, just waiting for 2025 to come and with it the potential market recovery.
HelloFresh
You can find the original thesis for HelloFresh here:
Conference Call & Results
They started the conference call by explaining more the changes in the marketing strategy, which are beginning to show results already. In the past, they have focused on penetrating early-stage growing markets, but in Q1 they switched their strategy to build long-term brand strength and improve profitability and cash generation. This has led to a focus on marketing ROI, targeting customers with higher life-time values. They have also launched a loyalty program, HelloFresh+.
Focusing now on the results, for Q3 sales grew 2%, mainly driven by an increase of 3.8% in AOV. EBITDA of €72M beat expectations by 70%. YTD EBITDA was €235M and YTD FCF was €30M, and that is without the fourth quarter, which is seasonally strong. They also mentioned that they expect to maintain the 9% margin for meal kits, as opposed to the guidance given at the beginning of the year, in which they targeted an 8% margin. From 2025 onwards HelloFresh will focus more on FCF and adjusted EBIT, which is very good in my opinion, and they will start guiding more on those numbers. Finally, they have also lowered capex expectations for 2025 from €235M to €200M, which is also a positive change.
The stock has performed quite well and is now trading between €10 and €11, which an EV/EBITDA of x4, using 2024 EBITDA. There is still plenty of room for multiple expansion, which coupled with EBITDA growth in the coming years still provides a very interesting investment opportunity.
Share Repurchase Programs
As of November 17th, 11.4M shares or 6.6% of the company has been repurchased for an average price of 9.18€. Under the current program there are €22.3M left, which can buy about 2M or 1.2% of HelloFresh.
Gold Royalty
You can find the original thesis for Gold Royalty here:
The annual revenues have grown according to expectations to $9M YTD with $1.5M in cash from operations, plus $1.5M in land agreement proceeds. The target of $13M to $14M in revenue was confirmed, implying a strong fourth quarter.
Both Vares and Côte Gold should achieve nameplate capacity in Q4. Regarding Vares, there is a delay in the recognition of revenue by GR as they only recognize the revenue “upon delivery and sale of physical copper”.
David Garofalo commented: “while the current valuation of the company is frustrating, we are confident that our growing free cash flow profile will result in a re-rating of our share price. Our top priority for the growing free cash flow is paying down our revolving credit facility and adding to our balance sheet liquidity”.
In summary, the company is performing as expected with good revenue and cash flow growth, trying to pay down debt and waiting for opportunities to acquire more royalties.
Disclaimer
This article is not a financial advice. I am not a financial analyst. If you are going to invest do it under your own risk and after doing the appropriate due diligence.