Happy belated Christmas everyone. Hope everyone had a happy holiday and will have a great New Years.
There were a lot of insider buys over the past week so we have a busy morning. Bill Ackman bought Howard Hughes above his tender offer price. An activist company bought Groupon and think they can get 25% EBITDA margins. Mill Road Capital added to their stake of Noodles and Co. And a health care company saw insider transactions from the CEO, CFO and two directors. This healthcare company is guiding to positive EBITDA in 2023 and could have multiple expansion should they meet their projections.
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The largest insider transaction came from Groupon Inc. (GRPN) when Jan Barta purchased 6.7 million shares for $7.28 per share or a total purchase price of $49 million. The SEC Filing is a bit confusing as there were also some stock sales of Groupon on the same date. The shares were purchased through the private equity company, Pale Fire Capital. Pale Fire Capital ran an activist campaign on Groupon over the summer and has two board seats. Pale Fire’s thinks Groupon can generate 25% EBITDA margins with growth and has helped to hire a technology team to turn the ship around. Per the blog post Pale Fire Capital put out in November:
PFC is already actively helping Groupon’s management team with strategy and advising on product setup as well as assisting on identifying potential key team members for the company, which is publicly traded in the United States. The goal is to reverse the current downward trend in the value of Groupon, which has over 20 million users and sells more than CZK 44 billion worth of services and goods annually. “We know from Slevomat’s experience that EBITDA margins can be as high as 25%. Therefore, our goal is not only to grow sales but to increase the company’s overall profitability, where we see a lot of room”, adds Dušan Šenkypl. Slevomat.cz was established in 2010, inspired by Groupon’s daily deal business model. In 2015 Slevomat.cz and its Slovakian counterpart Zlavomat.sk started a successful transformation towards local services and experiences platform. In 2017 Slevomat Group was acquired by Secret Escapes.
Groupon seems pretty cheap from a first glance. The market cap is $221 million and the enterprise value is $301 million. Revenues are $674 million and TTM EBITDA is currently negative. If Pale Fire Capital can get 25% EBITDA margins, EBITDA would be closer to $170 million, making a $301 million enterprise value pretty cheap.
Another interesting insider buy is the 113,730 share purchase of Noodles & Co. (NDLS) by microcap activist fund Mill Road Capital. Mill Road Capital is a frequent investor in restaurant stocks and originally purchased a $31.5 million stake in Noodles and Co in 2017 when it bought the shares directly from the company. There is a good podcast that Thomas Lynch did in 2021 that highlights his strategy with activist investing. Noodles and Co is down 40% this year and has a market cap of $237 million with 448 locations. There is $266 million of net debt and $24 million of TTM EBITDA.
The largest CEO purchase of the week came from Mark Baum of Harrow Health (HROW), purchasing 25,000 shares for $334,750. This purchase was followed up by the CFO purchasing 2,500 shares, a director purchasing 25,000 shares and another director purchasing 1,860 shares. Harrow recently did a public offering for $25 million in stock at $10.52 per share and it looks like these officers were buying the stock above the offering. The market cap is $423 million and management is guiding to $50 million of EBITDA in 2023. The stock is up 50% this year and they own some non-controlling interests in other pharma companies. The CEO seems like an outsider and has a pretty interesting letter he recently wrote. This one might be worth digging into.
Another interesting buy this week was legendary investor Bill Ackman of Pershing Square Capital Management buying 51,452 shares of Howard Hughes Corporation (HHC), bringing Ackman’s position to 15,888,981 shares. Howard Hughes is a homebuilder and off 21% this year. Homebuilders are all trading at basement level valuations and could be a good space to spend some time on. Earlier in the year Ackman announced a cash tender offer to buy 6.3 million shares of Howard Hughes for a price not greater than $60 per share. The average price paid by Ackman was $74 per share, which shows his conviction in Howard Hughes is even greater.
We have chatted about Twin Vee Powercats (VEE) in the past. A director bought $2,426 worth of shares over the past week. This is the directors first buy into the stock and gives him a total of 1,363 shares. I am guessing this is a forced insider buy to as sometimes there are company rules that directors need to own stock. Hopefully this director continues to buy and we see him put some real skin in the game.
Those were the big insider buys that stood out to me this week. I’ll probably be spending most of my time on Harrow Health this week. If they can achieve those EBITDA projections the stock should have a pretty high multiple given the industry they play in. Howard Hughes is a bit big for me but I might take a deep dive into homebuilders nonetheless. Noodles and Co. is in the restaurant industry, a space I have usually avoided, but might make sense to dig a bit closer. Let me know if anyone sees any big insider buys I missed.
See you again next week.
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Happy New Year! Just want to say that it has been a real pleasure getting to know you and following your work this year. I’ve really learned so much I wish I had known 40 years ago. So thank you.
I’m betting 2023 will be more interesting and more volatile than 2022. The Telegram group has been a great addition. It’s just really beneficial to get so many viewpoints.
On a more personal note (and only ‘cause of your ties to MI) we did try and buy a property in Cady in September. 10 acres. Renovated farmhouse, originally built in 1911. Big barn. Chicken coup. Exactly what we wanted. Offer was accepted. But I discovered some issues with the title. They could be fixed, but it was going to take time and money. The sellers had to do it and they refused. The property was being sold by an estate and the kids could not agree. So we bailed out. In hindsight it was divine providence at work and we are now very happy the deal fell through.
We escaped to Myrtle Beach for the winter. Back on board in Bay City 4 April. Cheers. Eric
Thank you for sharing your work. Happy New Year and all the best!