Whole Earth Brands (NAS:FREE) — mrkt cap $99mm; Price $2.30; trailing P/E NA
STARTER POSITION INITIATED. FREE is a consumer food company that has faced significant challenges with its sweetener business, resulting in an ~80% drop in share prices. The sweeteners business is highly competitive and will likely see continued volatility, however, the cash cow of FREE is the licorice segment of which they have 70% market share (used in cigarettes, cosmetics, and pharmaceuticals as a moistening and flavor agent). Gross margins have expanded to 28% from 20% a year ago, with ample runway for volume and price increases. Given ongoing SKU rationalization of the sweetener segment and recent management changes led by activist Michael Franklin – who has an ownership stake of 22% – we believe FREE is a compelling risk-reward. We have initiated a small weighting.
Viad Corp (NYSE:VVI) — mrkt cap $372mm; Price $17.88; trailing P/E 34
PASS. Two wholly separate businesses under one roof. ‘Pursuit’ is a portfolio of hotels in attractive destinations where new supply is constrained (Banff Jasper Collection). ‘GES’ is a provider of exhibition experiences for corporate events. PE firm Crestview Partners has significant preferred share ownership (with control) in VVI, and we believe they are intent on incenting management to build up the GES business and spin it off to unlock value. VVI’s hotel business is capex intensive, and they will need to see the return of the long-haul traveler to reach potential. Valuations relative to cash flow are not yet compelling.
Koppers Holdings (NYSE:KOP) — mrkt cap $676mm; Price $32.45; trailing P/E 11
PASS. KOP has a leading market share in the railroad tie and utility pole industry. The industry is a duopoly, with Stella Jones, a Canadian-based company, being their main competitor. Both firms are increasing capacity to take advantage of the nationwide 5G rollout along with tailwinds from the infrastructure bill. Although this industry seems ripe for tacit collusion, given the stability of the industry and homogeneity of products, KOP and Stella’s gross margins have been stuck at an anemic 17%. Given the capacity additions and competitiveness between firms, we will remain out of this name.