With a small delay, a few thoughts on the “strategic review process” at Logistec, a stock I had written up and added to my portfolio two months ago.
Govro has already published an excellent post about the situation in his Wintergem Blog here. He estimates that a sale at ~9xEV EBITDA could result in an offer of CAD 76 per share. However, he points out that this is just the start of a process and it could well be that there will be no sale at the end, especially as due to the high interest rates, the infrastructure sector is not super hot at the moment.
The Logistec share price has increased from around 43 CAD per share before the announcement to around 60 CAD at the time of writing. Funnily enough, this is almost exactly half way between the “undisturbed price” and Govro’s sale price estimate.
Correcting a mistake: Extra Asset
In my initial write-up, I made a (small) mistake: I kind of double counted the “extra asset”, the minority share in the Tremont Container Terminal. I calculated an adjusted value which was partially wrong. I do think that container terminal trade at a higher EV/EBITDA multiples than Logistec, but from that table, one should ignore the adjustment:
What was the initial investment case ?
Before deciding what to do after such news and the resulting price action, one should always go back and reflect what the original investment case was. This was the section from the initial write-up:
So implicitly, I had assumed that I could achieve mabye something between 50-100% over a 3-5 year period and that there was no catalyst. So clearly we do now have a potential catalyst-
The current 60 CAD would be at the very low end of my expectations, although clearly at a very compressed time period.
Timing considerations and who might buy this
Overall, the timing of this sales process really looks odd. They just made the largest M&A transaction in their history (FMT) and things seem to go really well according to the Q1 report, especially the Environmental segment seems to have fully recovered and humming nicely.
Overall, the Infrastructure Sector is currently a little bit strained. A lot of the large infrastructure investors (Pension funds, Insurance companies) have become overweight equity due to the loss in market value in bonds.
The only exception is the shipping sector. All the big shippers have made an absolute fortune last year. MSC, the secretive Italian/Swiss market leader is rumoured to have made 36 bn EUR EBIT from container shipping alone last year, accroding to TIKR, Maersk made 30 bn USD and Hapag-Lloyd 17 bn EUR.
For these guys, Logistec would be small change, however, I am not sure that they would be actually interested in owning the break bulk and Environmental assets. Maybe they are planning to sell the minority stake seperately (to partner MSC?) and shop the other segment to Infrastructure funds.
GIP, one of the largest Infrastructure investors is closing a 15 bn fund by the end of the year (down from an initially targeted 25 bn) and they do like Terminals. EQT, another manager, plans to raise 20 bn this year, so a lot of committed capital from this new funds is looking for investment despite the issues I had mentioend above.
One potential scenario could be, that Madeleine Paquin has thought about succession and decided that maybe the best way is to partner with a PE/Infrastructure fund, remain (partially) invested for another 5-7 years and exit then. This is something these kind of investors can do quite well. If I am not totally wrong, she will turn 60 this year and maybe she has decided to solve succession in this specific year of her life.
So overall, the timing really surprises me and clearly puts a dent into the “investing alongside the family” thesis, but I do think that they can achieve an OK price and I think (and hope) that they will not screw minority share holders.
I also think that this decision has not come lightly to them, especially for the CEO, who has spend almost 40 years or 2/3 of her life at the company.
Special situation math
If this would be a special situation and we would assume the 76 CAD exit price from Govro is realistic, the market would price in a 50/50 chance of a deal happening or not, which would be my own assumption at this stage in the process.
In case of the deal not happening, the stock price would clearly go down, maybe even back towards the 40-44 CAD range, esepcially as it is now clear that the family, especiall Madeleine, the CEO, is not in for the long run.
So buying addtional share at the current valuation without further information is not an option for me, especially as I am not familiar with such a process. In Germany, this kind of process does not exist, as we have seen in the Steico case, where the intend to sell “accidentially” leaked to the press.
What to do summary
When I try to summarize what I have written above, it looks like this:
- the timing is not optimal for this review and surprising, but it is also not super bad
- Adding to the position at the current level makes little sense, as the implict 50/50 probability seems to be fair
- Selling the share might be too early, as the current price is at the very low end of my expected outcome and as I don’t have that many better ideas at the moment-
My assessment could change if new information comes up or if I find a lot of great new ideas, but for the time being, I remain a sahreholder. The original thesis clearly has changed from investing alongside the family to “undervalued stock with a catalyst”, but so far I think there is no reason to change anything.
