Let’s begin.

Recap

Having bought my first shares of EVC at sub $2/sh, the rise to $13.5 (and $15, if you count the few after-hours minutes before Boelke opened his mouth) was a stunning move. Yes, in retrospect I probably should have trimmed my position (it was touching 60% at the peak), but I don’t believe anything in the underlying thesis has changed. If anything, recent data points suggest it’s actually strengthened.

But before all that, let’s contextualize what has happened over recent months and, more importantly, the stark contrast between EVC as an investment prior to the May run-up and what you get for around 1.5x the price today.

ATS - a better business at a quarter of the multiple

Entravision closed at $3.98/sh on May 5, 2026, minutes before the 1Q26 report. In the prior quarter, ATS had delivered record-quarter revenue of $88.6m, equivalent to Y/Y and sequential revenue growth of 123% and 16%, respectively. EBIT for the quarter was $12.4m, or $5.9m after corporate expenses. In other words, you were paying 21x EBIT run rate (after corporate expenses) for 123% Y/Y ATS growth and 19% concentration (the HK customer was a little less than 1/5 of group revenue at the time).

What do you get today? Well, the concentration step-up is real (around 2x the Q4 group figure at 40%), but you do get 230% Y/Y growth, 18% sequential growth, and a core book (i.e., ex. HK) growing 76% Y/Y and 10% sequentially. Despite the aforementioned, the valuation has come down to 5.2x EBIT run rate after corporate expenses…

Beyond the numbers, Smadex has co-hosted 7+ events with SSPs/publishers (PubMatic, NBCUniversal, Tubi) and measurement partners (Adjust, AppsFlyer, Singular) over the past few months, and was even name-dropped on PubMatic’s Q2 earnings call.

Smadex, a leading performance CTV advertising platform for apps and games, and a business unit of Entravision partnered with PubMatic to leverage our premium CTV inventory using our first-party audience targeting and cross-device measurement capabilities. As performance improved, Smadex increased spend on PubMatic over 10x year-over-year, with 75% of that incremental spend flowing into CTV. - Rajeev Goel, co-founder and CEO of PubMatic

Just a couple of weeks ago, Smadex also hired Luis de la Cámara as CMO. He brings valuable experience and contacts from the app ecosystem (i.e., Smadex’s customers), having spent years in marketing roles at gaming publishers like Rovio, 2K Games, King, Gameloft and Scopely. Layer in the recent board changes, with Brian Krzanich (former Intel CEO) and Gary Ferrera (20 years as a public company CFO) joining as directors and EVC explicitly describing the hirings as intended “to help us grow the company, and ATS in particular”, and it seems rather clear that the ad-tech arm is reaching a fundamental inflection point, meaning one that no longer depends on a single anonymous HK customer to sustain its rapid growth.

A last point that comes hot off the press is the recent 2026 AppsFlyer Performance Index. In this year’s edition, the power ranking’s quality measure was changed from retention to quarter-over-quarter change in ad spend, but even then, Smadex’s North America iOS gaming power ranking improved markedly from #15 in 2025 to #4 in 2026. More specifically, the #4 placement means that Smadex outranked Meta Ads, Moloco, TikTok and other heavy hitters on a blend of scale and spend momentum and was only surpassed by AppLovin, Mintegral and Unity Ads.

Smadex’s 2026 AppsFlyer power rankings

Even more, CRO Phil Gontier noted in Smadex’s announcement that CTV growth is “accelerating”. While this isn’t as strong as an actual print showing acceleration, it’s not the type of commentary you’d expect from a shrinking or decelerating business.

On ATS (or Smadex, really), it’s clear that a large portion of the leg up after the Q1 print was MOMO and FOMO investors without a clear grasp of Smadex piling in. The painful unwinding since is proof of just that. But more importantly, the fixation on sequential growth also misses the forest for the trees. Management has been explicit about targeting larger accounts, and earnestly highlights how this will naturally lead to more fluctuations in quarterly revenue.

What I find interesting is how Smadex is barely scratching the surface in terms of the large-scale customer pool. The VIC writeup from July made this point clear. In it, Christenson described the customer funnel as comprising 5k advertisers at the top, of which 1,200 are being actively targeted and 230 are current customers. Among the top 100 targets (i.e., whale-size), Smadex has only onboarded 20, including the HK whale. In other words, Smadex has only captured 20% of the “whale-customer pool”, and just one of the 20 large customers currently captured has truly scaled its budget allocation so far.

If Smadex were to successfully scale three additional advertisers to a similar level to the HK one in Q2, that works out to $1.1b of annual gross ad spend. At a 36% take-rate, that’s approximately $400m of annual net revenue and ~$200m of EBIT at a 50% margin… Yes, higher customer concentration introduces more ebb and flow in quarterly revenue, but these upside hypotheticals aren’t even partly priced in at this point. Not to mention the 50%+ drawdown effectively removing the value of the HK customer altogether despite there being no evidence of said customer pulling back meaningful spend.

I think it’s quite clear that we’ve reached a point in which there are no net new buyers until there’s undeniable proof that Smadex will keep growing. This means that an actual strong print and promising management commentary are the only functioning antidote, at least in the short term. Still, being able to resist the myopia and instead look out a few quarters reveals how, under quite reasonable assumptions, ATS (read Smadex, essentially) is worth meaningfully more than what EVC as a whole is currently valued at.

Taking management’s Q3 and Q4 “guide” of more than 100% Y/Y revenue growth at roughly face value (I’m assuming 100%) works out to $152m and $177m of Q3 and Q4 revenue, respectively. I’m assuming a slight contraction in the take-rate and continued growth in direct OpEx and SG&A throughout the year as Smadex adds to its headcount and invests more in tech. Doing so still translates into roughly $128m of FY26 EBIT. More telling is the fact that charging the entire sequential drop in revenue to the HK account means that the core book has to accelerate sequentially by Q4. So either the HK account holds, the core book (which is more diversified and consequently valued more highly by the market) reaccelerates, or both.

I’ve also taken the liberty of assuming the HK account stabilizes at the $52m quarterly gross ad spend level from Q3 onward, with the core book taking over the reins as the growth driver. Some might push back on the HK assumption, but ATS would still post $236m of FY28 EBIT fully excluding that account, provided the core book sustains 60% growth. And I don’t view that as unlikely given the two new accounts showing up in revenue concentration and receivables in Q2 and winning large accounts now being an explicit strategy.

So what’s this thing worth, anyway? Well, I’ve probably made the “relative undervaluation” point more times than I can count by now, but it’s quite striking how both relatively and absolutely cheap EVC is.

The above comp set is a curated list of the most applicable peers and while some are a combination of DSP and SSP and/or have a gaming platform arm attached (I’m looking at you, Unity), the chart highlights how detached the current valuation is from the apparent fundamentals. Not to mention that I’ve fully omitted the EBIT contribution from Media, which will likely prove substantial this year, in addition to quirks like capitalized software understating EVC’s true EBIT compared to certain peers.

Verve Group is the cheapest peer of the bunch but is heavily levered, with Liftoff and AppLovin’s ~12x EBIT seemingly being the more correct multiple to apply to EVC. One could argue that ATS’ superior growth should command a higher multiple, while APP and LFTO’s dual-platform offering and scale and ATS’ higher revenue concentration offset this.

There is no perfect way to split OpEx between the HK account and the core book. To keep things simple, I’ve assumed EBIT proportional to revenue contribution, resulting in HK and core FY26E EBIT after corporate expenses of $40m and $61m, respectively. Valuing the former at 5x EBIT due to churn risk and the latter at 12x (likely overly conservative), ATS as a whole is worth $930m on my FY26 numbers.

Media - political cash and M&A optionality

Moving on from ATS, media posted positive but uninspiring 4Q25 EBITDA of $2.2m. While several of the people on twitter covering EVC (me included) had mentioned an M&A wave within broadcasting potentially being upon us, there was nothing concrete at the time. Fast-forward to today, and the FCC voted 2-1 to overturn the national 39% ownership cap in August. While no broadcasting valuations seem to actually price in the ramifications of this, the move means that larger operators can begin acquiring smaller players without worrying about hitting a regulatory limit. This is especially useful for a stock like EVC, where the legacy media overhang is real, and a sale of its media assets could unlock substantial value with a capital-light, rapidly-growing ad-tech pureplay as the RemainCo.

Further, the US midterms are set to generate record political advertising spend as Democrats and Republicans fight ferociously for both the House and Senate. AdImpact is now projecting $11.6b of total political advertising spend, which is 30% higher than the 2022 midterms and 4% above the 2024 presidential election. With E.W. Scripps recently raising its full-year 2026 local media political revenue guide to about $275m from its prior $225-250m, it seems quite clear that this election cycle will be a blowout for broadcasters. Whether EVC captures a meaningful share of that remains to be seen, but I do believe EBITDA could come in close to the 3Q-4Q24 level.

But EVC’s media segment is a strange case to value, as it only generates cash every other year - a dynamic a strategic might look past to access the pristine station locations and/or the valuable spectrum tied to said stations. Prior to the recent amendment to its station affiliation agreement with TelevisaUnivision, station monetization was nothing but a pipedream as Televisa’s class U shares give it veto power over the sale of any affiliated stations. Consequently, I found the 3-month rolling agreement quite interesting as it unlocks M&A optionality while also potentially being driven by Televisa considering purchasing the affiliate stations itself. The market didn’t agree though, with the stock down 6% on the news. Are we really surprised at this point?

From EVC’s 8-K

Still, the new agreement does give EVC the flexibility to entertain other offers if they do come knocking.

If we are to value media and spectrum separately, underwriting $30m of FY26 EBITDA at a 4x multiple suggests the media segment is worth close to $120m. Some might claim this understates the true value, which is likely true in the event of individual station sales, while others may view $120m as too rich. I think this works as a base case.

Spectrum - value the market refuses to price in

EVC’s spectrum licenses were always the most option-like asset of the three, but a recent development has made their latent value clearer. While a new incentive auction could be years ahead, SpaceX’s recently reported $8b purchase of low-band spectrum from Grain Management suggests two things: (1) low-band spectrum has become more valuable since the 2017 auction (the implied $/MHz-pop was approximately $1.7, 83% higher than the 2017 average clearing price of $0.93) and (2) incumbent telecom operators will likely actively push for a new incentive auction to remain competitive.

Christenson has mentioned a blue sky scenario in which the spectrum assets fetch more than $1b, but since this is contingent on a new incentive auction, it’ll require an actual timeline before starting to get priced in. While a mid-band spectrum auction has been set for 2027, we have no info on a similar auction for low-band spectrum, making me inclined to anchor the spectrum value to the 2017 average clearing price and assume that a media buyer pays up for the associated spectrum. Pairing the media and spectrum value, I think these assets are worth around $400m in total, which means that you’re paying around $330m for the entire ATS segment. That figure is even lower if Christenson’s comment regarding EVC being in a net cash position by year-end is to be believed.

Putting it together

To me, the combination of the above illustrates how obscene the current valuation disconnect truly is, and few to none seem to have noticed the deliberate wording of Boelke on the Q2 call. When disclosing their expectation of a sequential revenue decline in the ATS segment in Q3, he said the following:

We do not expect to repeat this same level of performance over the next two quarters of 2026, and we currently expect a decrease in revenue sequentially from Q2 to Q3.

Put another way, management hedged their guide, likely in part because August 10 was before the back-to-school effect but also because this is a management team that clearly prefers to underpromise and overdeliver. Pair that with the only prior guidance reference point, i.e., 3Q25, in which management expected 4Q25 revenue and earnings to be comparable to 3Q25 and actual revenue and EBIT grew +16% and +26% sequentially, and there seems to be a real possibility of a beat.

In total, I believe EVC is worth $12.5/sh strictly based on the low-end of the guidance management provided on the Q2 call.

FVPS based on FY26 estimates

If you dare to look a few years out and believe in the 2023-24 re-architecture around deep neural networks and AI (and the model improvements this has unlocked), and that Smadex’s early start in CTV is beginning to bear fruit, the upside becomes even more substantial.

I do believe there’s additional upside on both the ATS and net cash assumptions here as I’ve valued ATS at 10x EBIT and capped net cash at $50m, but based on the above assumptions, the FY28 TP works out to an IRR of close to 100% from here.

Closing Words

With the Q3 report set to drop on November 5, I run the risk of looking like a complete idiot in just a few days if results disappoint. That said, you’re only paying 53% more than what you’d have paid prior to the Q1 print despite the ATS business inflecting strongly, media now being even better positioned to print meaningful cash in H2, the crystallization of media and spectrum value looking more likely than only a few months ago, two top-tier new board hires coming on board, Smadex posting a markedly stronger AppsFlyer ranking, and the new CMO bringing vast experience and useful contacts from the mobile app ecosystem.

This is not investment advice. I hold shares of Entravision Communications (EVC) at the time of writing, and my views may be biased. Please do your own research and consult a financial advisor before making any investment decisions.

I reserve the right to buy or sell any securities mentioned in this article at any time, without prior notice.

To quickly provide some context on the investment, EVC comprises three distinct assets: a broadcasting business targeting Hispanics, spectrum licenses, and a rapidly-growing ad-tech segment comprising Smadex and Adwake.

Since political advertising revenue is what flips the Media segment from being loss-making to earning a profit, this business is typically a drag on group performance in non-election years. As ATS has continued compounding at triple-digit rates, Media has taken a back seat in terms of valuation impact. The latent spectrum value, while potentially significant, is generally ignored or heavily discounted as most people either don’t know how to value it or because monetization seems to be too far out.

In regard to the valuation driver, the Q2 report and subsequent stock price drop made things clear - ATS constitutes pretty much the entire value of EVC today. And it’s no surprise as the segment grew revenue 230% Y/Y and 18% sequentially. EBIT is now ~$163m on a run rate basis, and that figure is somewhat suppressed as the company continues investing heavily into sales, technology and AI capabilities, and because EVC expenses, rather than capitalizes, all R&D. The EBITDA margin remained unchanged from Q1, at 22.3%, while the EBIT margin dropped 30 bps sequentially due to higher D&A.

2Q26 and 1H26 segment results - from EVC’s 2Q26 press release

The more impressive feat is that despite the HK customer adding $20m to ATS revenue, the take-rate (GP/revenue) actually rose 130 bps sequentially. That’s uncommon. As customer concentration grows, the customer’s bargaining power typically does so too, but with Smadex, they were actually able to eke out more profit for themselves despite the customer’s account scaling. This could be due to bargaining power over the HK customer or other customer accounts more than offsetting the declining take-rate.

HK customer’s quarterly revenue and ATS take-rate

Further, and this is what nuked the stock, management noted that they currently expect a sequential revenue decline in Q3 on the earnings call. Keep in mind that this was on August 10, i.e., pre-back-to-school.

From EVC’s 2Q26 earnings transcript

And it’s really no surprise as Smadex was already the second or third largest DSP of this customer before Q2, and now represents $364m of their gross ad spend on a run rate basis. While it’s difficult to pinpoint exactly how much more whitespace there is on this customer’s wallet, we know for certain the wallet share is already substantial.

Interestingly enough, had this customer’s revenue contribution remained flat in Q2, Q3 ATS revenue could have been 10% lower than the Q2 actual and still represented 1.2% sequential growth. In other words, the guided sequential decline and sell-off trigger would likely have been avoided if Smadex hadn’t won more business from this customer.

But enough with the Q2 print for now. Let’s address the main pushback I’ve seen on EVC/Smadex recently.

Is the Smadex Platform Any Good?

The most frequent and justified pushback I’ve seen on EVC is whether Smadex is any good or whether they’ve been lucky in winning some large customers. Put another way, is the hypergrowth we’ve seen in recent quarters simply a one-off or indicative of Smadex’s quality?

Before diving in, I’ll concede that there is no single metric that captures how Smadex stacks up against other ad-tech platforms. The best we can do is piece together several different data points, which should collectively give us a reasonable picture of where things stand. With that out of the way, let’s begin.

The HK customer and ad-tech flywheel

Firstly, programmatic advertising technology is a ruthless space. As you work your way up the advertising stack, customers become more sophisticated, with large marketing teams and complex technology systems to measure performance. That's exactly why I find it quite telling that the HK customer (whether it’s Century Games, Tencent, or someone else) has ramped up spend in every quarter since being onboarded in 2Q25.

Moreover, and this is a point that's often glossed over, if this customer were to fully end its relationship with Smadex overnight (very unlikely, as sophisticated advertising customers alter allocation gradually by month), they wouldn't go empty-handed. As spend from a customer relationship flows through the platform over time, it generates bidding and outcome data that helps calibrate the model for that customer's vertical and inventory mix. It also sharpens Smadex’s read on the supply itself: which inventory converts, which publishers are worth bidding on, and where the fraud sits. That’s the layer that makes reported ROAS hold up under a customer’s own measurement, and it improves for everyone as volume grows.

The above means that Smadex's algorithm improves for that customer over time and, to a lesser extent, for adjacent ones bidding into similar inventory. This creates, as noted on Twitter, a flywheel effect: better inputs improve the model → a better model improves ROAS → improved ROAS earns Smadex a larger share of that customer's ad budget → which in turn generates more inputs.

Transparency

But Smadex isn't AppLovin (APP), not yet at least. APP is a different beast with vertical integration - owning both the DSP and SSP layer, and until its 2025 divestiture to Tripledot, a stable of gaming studios that fed proprietary first-party data into its model. So how could Smadex possibly compete? Not being a black box and actually giving customers access to outcome data does a lot of the heavy lifting. APP is structured as a black box, which leaves customers dependent on APP's reported ROAS with limited ability to verify it independently.

Smadex, on the other hand, opens the hood. Customers get granular, campaign-level access (over 350 variables spanning ROAS, installs, and inventory quality), rather than a single black-box number to take at face value.

Recent rankings

Further, Smadex placed #2 in North America and #8–10 globally across several of AppsFlyer's 2025 non-gaming categories. That's a stronger result than it looks as AppsFlyer pools independent platforms like Smadex alongside walled gardens (e.g., Meta, Google, TikTok, and Snap), which dominate the top of every category.

Ranking top 10 globally against that field means outranking several independent ad-tech platforms, not just landing mid-pack. An important caveat here is that AppsFlyer discloses two rankings: Power, which weights retention, purchase conversion, and quality of the traffic delivered, and Volume, which weights sheer scale of attributed installs, without specifying which one these placements reflect.

Smadex’s 2025 AppsFlyer Non-Gaming iOS ranking - from Smadex

Since most competitors (e.g., both Mintegral and adjoe) specify their ranking axis, that's a soft tell suggesting Smadex's placement was in the less-flattering Volume ranking. But that also reveals something interesting: since the whale has been explicitly described as a gaming account, meaning it’s not captured in the non-gaming placements, whatever scale produced a #2 in North America and top 10 globally came from the rest of the book.

Smadex's gaming iOS rankings were less flattering, with all four being in the #13–15 range. That looks hard to square with a scaling gaming whale, but gaming UA is where nearly every scaled DSP concentrates. APP, Unity (U), Liftoff (LFTO) and Moloco all chase the same budgets, and several of them with owned SDK supply (their code runs inside publisher apps, giving them first look at inventory). Consequently, a given volume of installs likely buys a worse placement than the same volume in non-gaming. Moreover, the index only counts installs attributed through AppsFlyer, so clients running other MMPs are invisible to it, which could understate Smadex's true volume relative to other DSPs if the whale runs a different MMP.

Smadex’s 2025 AppsFlyer Gaming iOS ranking - from Smadex

Impressive client roster

Another largely neglected point relates to Smadex’s client roster, which currently comprises large-scale names like King, Voodoo, SoundCloud, talabat, and BIGO Live. These are sophisticated advertisers with large in-house UA teams and independent measurement, who won’t scale spend into a channel they can't verify.

Customer success stories - from Smadex

The BIGO Live success story, published in July, is a clear example of this. Monthly spend grew 2.5x in core markets and Day 1 ROAS grew 3x Q/Q, with retention holding as campaigns scaled. It also matches management’s communicated strategy of targeting larger accounts going forward.

Targeting restricted verticals too

A large share of the above roster also sits in categories the walled gardens restrict or ban, such as real-money gaming, CFD brokerage, and live streaming with virtual gifting. Those advertisers can't move budget to Meta or Google no matter how good those platforms get, which means Smadex is competing in a field the largest players have excluded themselves from. While Smadex still has to compete with other DSPs for budget, the competitive field is narrower than it looks on the surface.

Traffic quality

A last point before moving on from this materially longer-than-expected section relates to Smadex’s traffic quality. ROAS is the north star in ad-tech, but a ROAS figure is only as good as the traffic underneath it, as fraudulent or low-quality installs corrupt the measurement and the optimization that runs off it. Put another way, clean inventory is a prerequisite before performance can be measured at all. On that axis, Kochava ranked Smadex #2 for quality in the 2019 edition of its Traffic Index (dated, but still directionally informative), measuring fraud, signal clarity and click-to-install ratios rather than volume.

To summarize, the case for Smadex rests on several points. The HK customer's scaling pattern suggests it’s seeing sufficient ROAS, and the flywheel effect and model tuning should help Smadex retain that value over time. Transparency is a meaningful point of differentiation against larger DSPs, while strong non-gaming rankings and a long roster of customer success stories suggest it isn’t a one-trick pony limited to mobile gaming UA. Its exposure towards walled-garden-restricted verticals also means parts of the business operate in a narrower competitive field, while its traffic quality ranks near the top of the category.

“It was a sequential hypergrowth story”

This simply isn’t true and reveals how many bought their shares after the 1Q26 pop. It’s not that long ago that ATS surpassed the 50% Y/Y growth threshold, and we, the shareholders, were applauding the acceleration and operating leverage starting to show.

ATS - Y/Y and sequential revenue growth

If anything, the above chart highlights how choppy sequential growth can be - and the fluctuations in Q/Q growth were noticeable even before the HK customer was onboarded in 2Q25 (e.g., a 7% sequential decline in 4Q23 and “only” 9% sequential growth in 2Q25).

Mark Boelke on EVC’s Q2 earnings call

Management's strategy of targeting larger accounts will likely amplify the choppiness going forward. And programmatic revenue is heavily contingent on customers' spending patterns, which sit on top of predictable seasonality: industry-wide, ad demand tends to rank Q4 > Q2 > Q1 ≈ Q3, with a holiday-driven peak and a post-holiday slump. On top of that is customer-specific lumpiness, such as a mobile gaming client pushing a new release for 3-4 quarters before scaling back until the next one.

With fewer, larger accounts, that second layer is harder to diversify away. Y/Y comparisons can control for seasonality, but not for one large client's launch cycle, so any single period's growth rate (either Q/Q or Y/Y) can be misleading.

I’ll add that the overemphasis on the guided sequential decline also took away from Boelke’s comment of > 100% Y/Y growth in both Q3 and Q4. If Smadex posts “just” 107% Y/Y growth in Q4, that makes it the highest-revenue quarter of the year. More importantly, most people seem to have fully glossed over the fact that ATS “core” (i.e., ex. the HK customer) posted ~81% Y/Y growth and ~10% sequential growth in 2Q26.

This isn’t a growth story contingent on the HK customer continuing to ramp up spend to work, as the remaining book is also compounding at impressive levels.

1-2 New Whales Ramping

A very noticeable datapoint revealed in the 10-Q is that while headline concentration rose Q/Q, Smadex now has at least two and most likely three large customer accounts. I write most likely because the third customer is only showing up in receivables and management was unwilling to confirm whether my read on the third was correct.

From EVC’s August 2026 10-Q

The HK customer constituted 40% of consolidated revenue for the quarter, while the customer which represented 6% of trade receivables at the end of Q1, has now passed the 5% flagging threshold on revenue too. The last customer, while sub 5% of consolidated revenue, represented 5% of trade receivables at quarter-end. In other words, customer concentration grew in the quarter, but the book seems positioned to scale new whales over time.

Smadex Is Strictly a DSP

This is true. Unlike APP and LFTO which own both the DSP and SSP layer, Smadex relies entirely on third-party SSPs and exchanges to access inventory. Because Smadex doesn’t compete with the exchanges it buys through, they have little reason to deprioritize or throttle its bids, but the trade-off is that it has no SDK supply.

In addition to owning both DSPs and SSPs, APP and LFTO own SDK footprints. I’d argue that this is a more valuable point of differentiation as it gives a DSP direct, first-party access to thousands of apps. That brings three key advantages. First, buying through its own supply avoids paying a third-party SSP fee, so more of each dollar reaches the publisher or stays with the platform. Second, the SDK sees richer signals than a standard bid request, including engagement, in-app events and ad rendering. Lastly, owned supply often gets first look or preferred placement in the auction.

Smadex, on the other hand, sees only what the bid stream shows, pays an intermediary on every impression, and competes for inventory in the open auction. The question is how much this costs in practice. Some of the signal gap can be closed through partners rather than ownership, illustrated by PubMatic’s CEO describing Smadex using PubMatic’s first-party audience targeting and cross-device measurement. The fee drag is what’s harder to escape as a pure-play DSP, but this is a margin question rather than a performance one, provided ROAS clears the advertiser's bar.

Pushing Into New Verticals

This isn’t a critique I’ve seen, but rather an underappreciated strength. Mobile UA has been Smadex’s core since 2011, while CTV has become increasingly central in recent years. Smadex began testing CTV as a growth channel for apps in 2022, and its September 2026 rebrand positions it as one of the largest performance CTV players for the app economy, using TV ads to drive installs and in-app revenue on the viewer’s phone. The claim is self-reported, so take it with a grain of salt, but the case studies point to real traction. PubMatic explicitly mentioning Smadex on its 2Q26 call and highlighting how spend on its platform has grown 10x Y/Y (75% of that incremental spend flowing into CTV) also proves that there’s real substance to the claim.

Smadex’s rebrand

Further, CTV also partially answers the supply concern covered in the last section. Smadex sources CTV inventory through direct partnerships with OEMs and streaming platforms (WBD, Disney, etc) rather than relying solely on rival-owned SSPs. Paired with the LatAm launch in March this year, CTV looks poised to become central to the growth story and help diversify the revenue base.

More importantly, Smadex is largely insulated from the agentic commerce risk currently plaguing several industries as its ads run where consumers go for entertainment (i.e., CTV and mobile apps). While Meta’s Muse is taking North America by storm, I don’t think consumers will outsource entertainment to agents (not yet at least…).

A Management Team That Eats Its Own Cooking

Those of you who have followed EVC for some time know full well this is a management team with a “head-down and execute” mentality. They introduce each call by summarizing the performance of the media segment and never seem to victory-lap, even when performance justifies it.

Michael Christenson (CEO) and Mark Boelke (CFO) have seen their stakes balloon in light of EVC’s explosive price action this year, but have taken few to no chips off the table, despite the stock being down roughly 45% from the June peak with open windows to do so.

Moreover, Christenson has chosen to pay withholding taxes on vested shares out of pocket on TWO occasions this year. Put another way, the man who’s likely the world’s best-informed person on EVC’s trajectory and everything happening behind the scenes has gone out of his way to retain all the shares he can.

Running the Numbers

In the preceding sections, I’ve attempted to add some color on why Smadex isn’t simply a DSP that struck lucky once. There are several data points (non-gaming iOS ranking, traffic quality, HK-customer spending patterns) and areas of differentiation (transparency and restricted verticals) that in conjunction point to there being a real reason why Smadex continues to gain market share.

Looking at the numbers, 100% Y/Y growth for ATS in both Q3 and Q4 would translate into revenue of $153m and $177m, respectively. Boelke did say that they expected more than 100% revenue growth in each quarter, EVC has only guided once earlier (sandbagged 4Q25 results), and the guide itself was given in early August (i.e., before the back-to-school effect shows up in the numbers), but I’ll assume 100% in this valuation exercise.

Direct OpEx, which covers the cost of running and improving the platform, rose 31% Q/Q in 2Q26. Had this remained flat, ATS would have posted a 25.1% operating margin. Further, management is investing heavily into sales capabilities, and job listings at Smadex have become a frequent occurrence (SG&A was up 21% in the quarter). I’ve quite conservatively assumed a slight drop in take-rate for both Q3 and Q4, and direct OpEx and SG&A holding flat throughout the year.

Doing so results in EBIT margins for the back-half of the year being lower than both of the preceding quarters. Impressively, this still translates into $138m of FY26 EBIT, or $111m net of corporate expenses.

The next step is attempting to split the HK customer from the ATS core. We don’t get any other disclosures than revenue share, so I’ve, somewhat simplified, assumed that the EBIT contribution is proportional to revenue. This is a rough approximation in both directions. One large account requires less support than a fragmented portfolio of small ones, which argues the HK customer's true EBIT margin is above the ATS average. But a client of that size also negotiates a lower take-rate, which means less actual revenue per dollar of gross spend while volume-linked costs stay much the same.

In the above scenario, I’ve assumed that the HK customer’s gross ad spend reverts to the 1Q26 level of $71m and stays there throughout the year. To account for churn risk, I’ve valued the HK customer at 5x EBIT, while the core book (which is currently growing at an 81% clip) has been valued at 15x EBIT. If anything, 15x seems overly conservative when looking at the comp set. And that’s EBIT run rate, mind you.

But what about the remaining assets? Based on the price action since the Q2 print, it seems quite clear that the market is assigning ZERO value to the media and spectrum assets. While the spectrum value is latent and contingent on a monetization-event à la 2017’s incentive auction, Media is poised for a meaningful cash flow uplift in H2 due to the US midterms. AdImpact projects $11.6b of total political advertising spend for the 2026 cycle, which is $400m higher than 2024 and $2.7b higher than 2022.

Assuming Media matches 2H24, the segment could deliver around $36m of EBITDA in the second half of the year, and ~$34m in FY26 when accounting for the H1 drag.

Peers trade at ~6x FY26e EBITDA, but one could argue that an acquirer would require a discount for EVC’s media assets due to its Hispanic focus. Call it 4x EBITDA - equivalent to $135m of value.

EVC’s spectrum licenses are typically the most contested part of the puzzle. Christenson has hinted at a potential value north of $1b in an earlier interview, while others anchor to the RabbitEars population coverage approach. To contextualize said value a bit more, EVC fetched $264m for four TV stations during the 2017 incentive auction. The current media portfolio comprises 47 television stations (and 44 radio stations). While the sold stations were likely among its most pristine media assets, EVC still owns stations in key markets including California, Washington and Florida.

To remain conservative, I’ll apply the average 2017 clearing price of $0.93/MHz-pop to its current population coverage figure of 49.5m, implying roughly $276m of spectrum value.

I also believe cash generation in H2 will remain strong and allow EVC to cut NIBD to $20m by year-end. Tying all of the above together, I believe EVC, under what I view as largely achievable assumptions, is worth close to $15/sh (+96% upside)

An alternative way to frame the current valuation is to back out the media and spectrum value and year-end estimated NIBD. Doing so reveals that EVC’s current valuation is equivalent to 2.7x EBIT run rate (less corporate expenses), and 3.3x FY26e EBIT. Yes, there’s material customer concentration, yes ad-tech is a ruthless space, yes the spectrum monetization timeline is unknown, but at some point you have to ask yourself, “so what?” At 3x FY26e EBIT, all of the above seems to be more than baked into the price.

I’ll leave the valuation section with this. TTD had similar levels of concentration in 2025, with two holding companies representing 30% of gross billings. Spend began to revert, not because ROAS was unsatisfactory or because "this just happens in ad-tech". It started with transparency, as agencies said they couldn't tell clients what they were actually paying, and escalated when Publicis commissioned an audit it says found improper fee practices, then advised clients against using TTD as a DSP.

While we don’t have perfect insight into the Smadex platform, we do know that transparency is a key pillar, customers are satisfied (illustrated by the HK customer’s spending pattern), CTV is growing like a weed, LatAm has barely scratched the surface, 1-2 new whales are ramping, and PubMatic explicitly mentioned Smadex as a customer on its earnings call.

If TTD can trade at 10x EBIT run rate with close to zero growth, a holding company advising clients to steer clear of the platform, and meaningful exposure to verticals currently turning sour (e.g., autos), I struggle to see 15x FY26e EBIT as demanding for an asset growing 230% Y/Y in its most recent quarter, with untapped operating leverage and a CEO with a significant portion of his NW tied to the name.

At 15x FY26e ATS EBIT, this is close to a 3x from current levels.

Risk Factors

1. HK customer pulling back spend

This risk has already been priced in (strongly). I personally expected the wallet share to reach a ceiling in Q2, so the fact that Smadex was able to add $20m struck me as quite impressive.

I view a sudden and significant pullback of spend as quite unlikely, largely because larger marketing teams generally alter spend month by month, in addition to gaming studios typically having a steady cadence of new games to replace maturing ones. Still, if Smadex is unable to scale new accounts to offset the potential pullback of this customer, revenue will fall and margins will contract as fixed costs are spread over a smaller base.

2. No owned supply

As mentioned earlier, Smadex pays intermediaries on every impression and competes in the open auction. That’s tolerable while ROAS clears the bar, but makes Smadex prone to SSP take-rates rising or SDK-owning competitors using their first-look advantage to bid more aggressively for the best inventory.

3. Execution risk related to the large-account strategy

While management’s shift toward bigger accounts seems like a sensible strategy, it could increase concentration, make revenue more lumpy (tied to a handful of launch cycles) and compress the consolidated take-rate as sophisticated customers negotiate it down. The Q2 take-rate expansion was an encouraging sign, but should be monitored over time.

4. A spectrum monetization event might never happen

While FCC chair Brendan Carr has been vocal about the need to free up spectrum, the 2027 auction is strictly mid-band. For EVC to monetize its latent spectrum value, a low-band auction will have to take place, and said value will likely not be reflected in the stock price until there’s clarity around the timeline.

Catalysts

1. Q3 beating the sequential decline guide

This likely won’t come as any surprise, but since the sequential decline guide triggered the initial sell-off, ATS delivering flat or growing revenue in Q3 would likely serve as a powerful catalyst. A raised Q4 guide would likely have a similar effect.

2. New whales ramping

While we’re only starting to see new customers passing the 5% flagging threshold, a meaningful leg up in revenue contribution in Q3 or Q4 would both lower revenue concentration tied to the HK customer and be proof of a large-scale account ramping.

3. Transaction comps

Walmart announcing the acquisition of ad-tech platform Vibe.co for $1.4b in June was interpreted as a strong read-through for Smadex, and triggered a jump in the stock price. With public ad-tech valuations having come down and M&A activity within the space increasing, a new strong comp acquired at an attractive valuation could potentially trigger a rerate.

4. M&A

With the FCC recently lifting the US station cap (though subject to expected legal challenges), an M&A wave within broadcasting could be upon us. EVC selling off its media business and/or enough stations to move the needle would both generate proceeds to accelerate the balance sheet deleveraging and make the RemainCo more of an ad-tech pure-play, likely triggering a rerate. Alternatively, the spinoff or complete sale of ATS/Smadex would help crystallize value that is currently unaccounted for.

Closing Words

Quite a lot has changed since my last update on EVC. At the time, the stock was trading at $3/sh despite an impressive Q4 print, largely due to the HK concentration weighing on the stock. Concentration has only risen since, but so has the stock - peaking at a little south of $14/sh. While I’d obviously prefer a more balanced book, Smadex has only continued to gain wallet share from this customer and the core book continues to compound nicely.

Layer in the hard media and spectrum assets cushioning the downside, the recent LatAm launch, new whales ramping, and Christenson owning ~$40m worth of stock and actively paying out of pocket to maintain his exposure, and the setup looks strong.

While the stock has proven that it can ebb and flow in tandem with sequential revenue changes, you're paying 6x ATS EBIT run rate, before backing out a cent of media or spectrum value, for an ad-tech business growing triple-digits, an inflecting CTV vertical, a best-in-class management team and strong alignment.

That’s a bet I’m willing to make.

This is not investment advice. I hold shares of Entravision Communications (EVC) at the time of writing, and my views may be biased. Please do your own research and consult a financial advisor before making any investment decisions.

I reserve the right to buy or sell any securities mentioned in this article at any time, without prior notice.

With the stock trading at sub 5x my FY28e unlevered FCF estimate, there's a clear path to SEK 80/share within a bit more than two years, and SEK 100/sh+ if the stock fully rerates in line with peers. Several factors could actually make my FCF estimate overly conservative in retrospect too. These include continued margin expansion through operational streamlining, a stronger-than-expected shift toward higher-margin contracts, indexed agreements (notably in Finland), and operating leverage kicking in further as the business continues to scale.

Peers trade at 10-15x LTM FCFF with comparable margins, suggesting that continued execution and proving the margin expansion story to the market are what will likely close the implicit discount over time. Oh, and did I mention that they’re targeting a payout ratio of at least 50%?

How Does TERNOR Make Money?

Terranor Group AB (TERNOR) is a Nordic road O&M company that traces back to the 2018 carve-out of NCC's road and maintenance operations. It became Terranor when the German PE fund, Mutares, acquired the Swedish and Finnish operations in 2020, followed by the Danish operations in 2021.

Company timeline - from TERNOR’s May 2026 CMD

Although road O&M constitutes the bulk of its business, TERNOR also offers light construction, temporary road safety services, and green construction and maintenance. Put another way, TERNOR does everything from snow plowing and asphalt repairs to drainage, temporary traffic management and the building of new green spaces. As of 1Q26, the revenue mix was as follows:

Revenue mix by category, 1Q26

Despite TERNOR currently pushing SEK 4b of revenue on an LTM basis, its operations are limited to Sweden, Denmark and Finland at the time of this writing. Sweden constitutes the lion’s share of its business (64% LTM), while Finland and Denmark account for 17% and 20%, respectively.

Although these markets are all located in the Nordics, they have wildly different characteristics - at least from TERNOR’s perspective.

Sweden

Sweden serves as TERNOR’s largest and most profitable market by a wide margin. With 23 active state contracts and a record contract backlog, management expects continued growth and margin expansion. What sets TERNOR apart from competitors in Sweden is its disciplined contract tendering. While the participation is broad, TERNOR remains true to its strict risk-adjusted pricing and targets state and municipal clusters.

The latter is especially useful as it allows the company to spread fixed local costs across more contracts in the same area, realize high utilization with crew and machinery shifting between adjacent state and municipal jobs, and leverage existing supplier and subcontractor relationships for better terms and faster mobilization.

From TERNOR’s May 2026 CMD presentation

As seen above, TERNOR applies a thorough tendering process comprising three stages before submitting tenders. Information gathering, cost calculations and tactical analysis are the most time-consuming, while pricing and internal reviews ensure that the company remains selective about contracts. Although we don’t actually get a clear disclosure on the share of contracts TERNOR walks away from, we can (a bit speculatively) infer this from the 100% participation rate and 31% near-miss tender (i.e., TERNOR being the runner-up).

In TSEK

The fact that TERNOR actually posted 4.5% adjusted EBITA margins on the group level in FY22 makes the road to (no pun intended) 5% margins much more believable. As mentioned in the intro, they also have several levers at their disposal to transition from the growth phase that’s defined the company over the last few years to more of a harvest phase where they start generating real cash.

Finland

Finland is the clearest case of TERNOR pulling back on purpose. Revenue has been essentially flat over the last two years, and the adjusted EBITA margin stood at just 0.2% in FY25 (down from 4.1% in FY22).

In TSEK

Management calls this development "selective profitability" - shorthand for cutting the low-quality contracts that fueled Finland's earlier growth. There are also unresolved contract claims tied to legacy contracts, with the outcome still pending. This comes on the back of ceiling-price constraints that pressured margins as input costs rose amid the Ukraine war.

The state-heavy customer mix (84% LTM) should offer more pricing stability once the back book is cleared, but until the claims resolve and the weaker contracts roll off, Finland is the market where the "risk-adjusted pricing" discipline isn’t really seen.

Denmark

Denmark accounted for ~20% of group revenue on an LTM basis and is entering a new state contract cycle, having secured 80% of state summer contracts alongside an expanding municipal footprint. The segment’s history is choppier than Sweden’s, with adjusted EBITA margins declining roughly 140 bps y/y, from FY24 to FY25.

In TSEK

The newer contracts are priced better, but the margin base still reflects a mix of older, less disciplined vintages working their way out of the portfolio. Customer mix is the most balanced of the three markets (49% state, 29% municipal, and ~23% private LTM), though that's arguably more a function of a smaller state-tender pool rather than a deliberate strategy.

Denmark also differs from Sweden and Finland in terms of seasonal contracts. Winter services represent roughly 3/4 of Denmark’s contract mix, close to the inverse of Finland, where summer work dominates instead, while Sweden is evenly split between the two.

From TERNOR’s IPO prospectus

One thing all the above markets have in common is the operational cyclicality of their economics. While a steady flow of contracts are awarded during the spring and summer, Q4 is materially more profitable than the prior quarters.

From TERNOR’s May 2026 CMD

This is mainly due to Q4 having a higher concentration of higher-margin extra work and contract swellings - things like sudden pothole repairs, drainage fixes, or more plow runs than originally contracted for. This work falls outside the base contract scope, so instead of being locked into the thin, competitively-tendered base pricing, TERNOR prices it separately and in real time, which is closer to cost-plus than to tender economics.

The seasonal fluctuations are made clear by the below chart, which is exactly why simply extrapolating Q1 EBITA or revenue is wildly misleading.

To address the seasonal differences head on, its average Q4 revenue and EBITA margin are actually 1.5x and 2.7x higher than those of Q1, illustrating how Q4 is the defining quarter of the year.

The contract duration mix has also changed over the last year. Although sub one year contracts now constitute 30% of the project portfolio, contracts running two or more years now represent more than 50% of TERNOR’s contract portfolio.

To summarize, you get a high-margin Swedish business poised for further growth, currently underperforming Finnish operations that should see margins recover as non-indexed and low-margin contracts roll off, and a Danish business that has shown an ability to deliver meaningfully higher margins in the past (re: its 6-7% adjusted EBITA margins in 3Q-4Q24). The latter is a function of the contract terms, which should improve in the coming years.

Part of a Growing Market

A strong margin recovery beginning to take shape isn’t enough in isolation though. We need to understand whether TERNOR is part of a growing market or will have to fight tooth and nail to gain market share. A proven way to do just this in a commoditized market is to lower prices - but that has the opposite effect of what my thesis assumes.

This risk is somewhat softened by incumbency as operators with hands-on knowledge of a contract area can price more accurately than an outsider guessing blindly. This is also likely why Swedish contracts often get retained across multiple generations by the same operator rather than churned on price alone. The fact that most of TERNOR’s focus areas are expected to grow in the coming years helps too, albeit at varying rates.

From TERNOR’s IPO prospectus

Taking it a step further, this expected growth is underpinned by three concrete, government-funded infrastructure plans rather than vague policy tailwinds. Sweden's national transport plan allocates SEK 1,171b from 2026-2037, including a 48% increase in road O&M funding to address the maintenance deficit, Denmark has committed over SEK 232b through 2035, and Finland's Transport 12 Plan earmarks more than SEK 217b for basic infrastructure management over the same 2026-2037 window.

From TERNOR’s May 2026 CMD

In other words, all of TERNOR’s key markets are expected to ramp up spend meaningfully over the coming years. And while the revenue concentration is obscene at first glance, there are few, if any, better counterparties than Nordic governments.

TERNOR’s three largest customers

Overall, the market backdrop supports rather than undercuts the margin recovery thesis. TERNOR isn't fighting for share in a shrinking or strictly price-driven market. Sweden and Denmark are still expected to grow at a healthy clip (6.9% and 2.2%, respectively), government funding is set through 2035-2037 rather than dependent on any single budget cycle, and the customer base is about as durable as counterparties get.

Finland is the one market where the growth story is weaker. Road O&M growth is expected to slow to a ~3% CAGR, partly because temporary debt-financed city maintenance budgets are propped up only through 2026, with continued financing beyond 2027 still undecided. With light construction being forecast to shrink ~4% annually through 2029, Finland's TAM is left close to flat over the forecast period. I’m not going to sugarcoat this and claim that Finland’s growth prospects are attractive in their current form, but it’s important to note that Finland becoming accretive to the group’s margins is more contingent on a contract mix shift and indexation than meaningful revenue growth.

Alignment and Managerial Quality

While there have been some insider purchases over recent months, total insider ownership remains insignificant at 2.6% of outstanding shares. Further, the synthetic option plan announced after the May AGM doesn’t strike me as a Buffett-esque compensation structure.

Shareholder overview

Vesting is contingent on insiders staying at the company through June 30, 2028, but the payout itself is based on the 90-day VWAP heading into that date against a disappointingly low SEK 25/sh hurdle. That figure isn’t fully arbitrary, but rather SEK 20/sh compounded at a 7% annual hurdle rate, so management has to beat a low, but real return bar before collecting anything.

With the stock at SEK 36/sh today, the shares are already comfortably ITM. I initially thought of this as management being incentivized to maximize the spread and pocket an “unlimited” amount of proceeds, but that thought was quickly shut down after realizing the payout is capped at a SEK 90 VWAP (SEK 65/sh max spread based on the SEK 25 hurdle at vesting), equivalent to a total payout of roughly SEK 46m.

It's not quite a guaranteed cash bonus as the stock could crater before mid-2028, but with ~2 years to vest and a healthy price cushion already built in, it reads more like a very likely cash payout. Still, the CEO pocketing more than SEK 16m if TERNOR does reach the SEK 90/sh ceiling price gives him a strong incentive to do things right.

TERNOR’s short time as a publicly listed company does make it difficult to back-test guidance against actual execution. The revenue and adjusted EBITA margin trajectory outlined during the May CMD does seem reasonable, but the only yardstick we have at our disposal to assess execution against past guidance is that TERNOR has consistently beaten the >8% annual revenue growth target - so far, that is.

But enough with the compensation talk. Although I’m a sucker for incentives, managerial quality is equally important. Having been PE-backed since 2020, TERRANOR has seen some managerial churn, and the current executive management team has an average tenure of just two years.

TERNOR’s CEO, Michael Berglin, was appointed to his position in 2024. Prior to this, he was CEO of Serneke Group, a large Swedish construction and development company. Serneke was taken private in 2023 by Doxa AB at an 83% premium, with Berglin staying on as CEO. That seems like a great outcome and I wish the situation had ended here, but…

The process concluded in 2024 with Doxa selling Serneke’s contracting business (Serneke Sverige AB) to Mutares, the same PE fund that took TERNOR public. The deal closed in November 2024, and Serneke Sverige filed for bankruptcy six weeks later, owing creditors over SEK 2b. Notably, the bankruptcy trustee found the company had actually been insolvent since late 2023 - nearly a year before the Mutares deal closed - while it was still under Berglin’s watch.

Mutares and Ola Serneke are now in active litigation over the deal terms, so the full picture isn’t settled. The somewhat reassuring point is that Mutares evidently didn’t hold this against Berglin. They’d already appointed him as CEO of TERNOR before Serneke Sverige collapsed, and haven’t moved to replace him since. If they did believe he was involved in any way, I find it hard to square how he kept his role. Still, an insolvency finding dating to 2023, under his watch, is not great optics.

The Path to SEK 80/sh (or More)

TERNOR’s strong market position, industry tailwinds, and solid customer base make underwriting the current three-year revenue guidance quite defensible. The path to 5% EBITA margins doesn’t require mental gymnastics either, and the y/y margin expansion in 1Q26, despite continued Finland and Denmark drag, suggests this is already playing out.

With this in mind, and assuming the targets are in fact met, I can see TERNOR delivering unlevered free cash flow north of SEK 160m by FY28.

But FCF growth alone isn’t enough to reach the SEK 80 price target I’ve mentioned a couple of times already. We do need some multiple expansion to reach this, but nothing heroic.

Finding suitable publicly listed peers was not as straightforward as I initially anticipated. There just isn’t a plethora of publicly listed 1-1 comps. Still, I do believe Green Landscaping Group (GREEN) and NRC Group (NRC) are both very similar companies. As an added fact, TERNOR’s chairman, Anders Gustafsson, is actually the current CEO of NRC.

LTM EV/FCFF multiples

The above multiples are trailing numbers but still give us a rough idea of where Nordic road O&M and construction companies do trade. As TERNOR continues executing and its financials converge towards the guided targets, I think a rerate towards 10x FCF is within reach.

Importantly, the >8% annual revenue growth target is strictly organic. In other words, M&A isn’t included in this figure at all, which means that accretive M&A activity could significantly bolster both growth and profitability.

We also know that TERNOR is targeting a payout ratio of at least 50% over time. Using the FY28e EBIT computed earlier, we can solve for that fiscal year’s DPS. Assuming TERNOR does reach SEK 240m of FY28 EBIT, that works out to roughly SEK 183m of net income and SEK ~91m of dividends, assuming unchanged leverage. Deriving a fair dividend yield from the same comp set is difficult as RAIL (which isn’t really a great peer) is the only peer currently paying dividends.

I don’t think its current ~1.9% dividend yield is a fair proxy for TERNOR, but we don’t really need any rerate to win here. Below are three different DPS scenarios.

FY28E FVPS (x-axis = DPS) under different DPS and dividend yield assumptions

Assuming TERNOR pays out SEK 4.1-5.0 of dividends/sh in FY28 (a meaningful ramp-up from the SEK 1.5 dividend declared this year, but not unreasonable given the assumed margin expansion path), the FY28 FVPS could push past SEK 100.

Net-net, I believe TERNOR could be worth somewhere between SEK 57-125 by year-end 2028. Though the valuation range is wide, the low-end works out to an IRR of 21% from here, while the more optimistic targets could generate as much as 64% annualized - and that’s before accounting for interim cash flows or dividends, which would push the true IRR even higher.

Risk Factors

1. Finland and Denmark Execution Risk

Since the margin recovery hinges on the low-margin book clearing without sacrificing scale, a slow resolution or new contracts with worse-than-expected terms could push the margin story further out. Denmark similarly needs to replace old vintages with higher-margin contracts to recover to prior highs profitability-wise.

2. Re-Tendering Concentration

Sweden’s contracts come up for competitive re-tender on a recurring cycle. As the group’s flagship market, losing even a few high-margin state contracts to Svevia or Destia, for instance, could hit group EBITA disproportionately given Sweden’s significant revenue and profit share. I’ll add that management actually expects state contracts to be the fastest-growing segment within Sweden, but a healthy mix of continued growth and selective bidding still remains vital for the margin story to bear fruit.

3. Governance Overhang

Although there is nothing concrete to suggest management won’t act in the best interest of shareholders, the amalgamation of Berglin’s stint at Serneke and all that entailed, the subpar insider ownership, and the low-hurdle synthetic option plan do suggest alignment could be meaningfully stronger.

Catalysts

1. Finland Inflection

Legacy claims settling or a strong shift toward indexed pricing would convert what is currently a profitability drag to the group into a validation of the margin-recovery leg of the thesis. And TERNOR entering new contracts under better terms in Denmark should have a similar effect.

2. Sustained Sweden Tender Outperformance

Continued high win rates in the next re-tender cycle would reinforce the incumbency advantage and cluster-density economics underpinning Sweden's margin lead, bolstering both group margins and absolute profitability.

3. Accretive Bolt-On M&A

Since the >8% annual revenue growth target is entirely organic, any M&A is pure upside to both my growth and profitability estimates, provided Berglin and Co. only acquire targets where there are clear synergies and do so at accretive prices, of course.

4. Dividend Policy Re-Rating the Discount

Despite TERNOR already announcing a payout ratio of at least 50%, the proof is in the pudding. The market will have to see several sequential quarters of margin step-up and the company actually following through on its payout ratio target before a rerate occurs here. Provided my FY28 estimates are somewhat close, DPS of SEK 4+ is attainable, pushing the dividend yield to double digits before any rerate.

Closing Remarks

TERNOR isn’t a dramatic turnaround story in the making - it’s already a disciplined operator with a viable path to improved profitability while still sustaining reasonable growth. Having been PE-backed and clearly focused on scaling the business until now, TERNOR is entering a harvest phase, where profitability becomes the priority without sacrificing growth.

With Sweden leading the way, clear industry tailwinds should see the overall pie grow. TERNOR’s risk-adjusted pricing and data advantage let the company maintain 100% tender participation while still remaining selective on the contracts it actually wins. Finland and Denmark, while currently lagging Sweden, are both expected to become important drivers of the mid-term financial targets as old vintages and non-indexed contracts roll off and get replaced by newer ones on better terms.

Management is also strongly incentivized to steer the ship soundly, as they stand to pocket close to SEK 46m if all goes well.

With the stock trading at sub 5x my FY28e FCF estimate, there’s not a whole lot that needs to go right for this to work out. Continued tender discipline, low-double-digit organic growth over the next three years, follow-through on the dividend policy outlined earlier this year, and even a modest convergence toward peer valuations should be enough for this to become a meaningful source of alpha.

This is not investment advice. I hold shares of Terranor Group AB (TERNOR) at the time of writing, and my views may be biased. Please do your own research and consult a financial advisor before making any investment decisions.

I reserve the right to buy or sell any securities mentioned in this article at any time, without prior notice.

How GRVY Earns Money

Before delving further into the contents of the 6-K and how this alters the investment case, what does GRVY really do?

GRVY is a South Korean game company built on the Ragnarok Online franchise. While initially launched in 2002, that IP still drives most of the business and now stretches across a family of PC, console and mobile titles, including Ragnarok M, Origin, and a steady stream of regional spin-offs.

Although GRVY develops and publishes certain games itself, it operates a dual-revenue model comprising in-house titles and games built by third-party developers licensing the rights to the Ragnarok IP.

Notably, this doesn’t mean third parties pocket most of the money: even where a game is developed externally, GRVY (or one of its regional publishing subsidiaries) typically still operates the game and bills players directly, paying the developer a revenue share out of that revenue rather than collecting a smaller royalty check from an external operator. Per GRVY’s own FY25 20-F, 81.3% of online and mobile revenue came from games developed by third parties, but only about 11% of that same combined revenue was received as royalty income. The rest was billed directly by GRVY as microtransaction revenue.

The chart below shows the three-year split between microtransaction and royalty revenue, alongside Others and Other Online, the latter being the residual within the Online segment, comprising titles beyond Ragnarok Online itself.

Revenue source breakdown - from GRVY’s FY25 report and author’s calculations

Since most games are free to play, publishers earn money through in-game item purchases - a microtransaction model that works best where players have deep brand loyalty. Ragnarok has exactly that in Southeast Asia, which is why Taiwan, Thailand, the Philippines, and Indonesia serve as key markets.

Geographic mix - from GRVY’s 1Q26 IR presentation

Within these markets, GRVY splits its business into three segments: (1) Online, (2) Mobile and (3) Others. GRVY also publishes console titles (e.g., Steam, Nintendo Switch, Xbox, and PlayStation), a lineage stretching back to Ragnarok DS in 2008 and continuing through 2026 releases like Pororo Sport Day, though this revenue isn’t disclosed separately.

Revenue mix - from GRVY’s 1Q26 IR presentation

Online games cover PC-based titles like Ragnarok Online, and are monetized through a mix of subscriptions and in-game purchases. Ragnarok Online itself, GRVY's original in-house flagship game, represented 15.2% of group revenue in FY25 (up from 14.2% in FY24), while the remainder of the Online segment includes other in-house PC titles, like Ragnarok Online II and Dragonica.

Mobile games are smartphone titles built on the original Ragnarok IP, monetized through microtransactions, adjusted for Apple/Google platform cuts. GRVY develops some mobile games in-house, but its four largest titles, together representing roughly 59% of FY25 revenue, are all credited to outside co-developers. Importantly, that doesn't mean the developers pocket most of the money as GRVY still bills players directly and collects the revenue itself, paying its partners a revenue share, which is then treated as a cost in the P&L rather than a reduction from the top-line.

Key Title Overview (in KRWm)

Others encapsulates everything non-gameplay monetized, such as merchandise (e.g., toys and apparel), animation and licensing revenue that isn’t tied to a specific game. While an interesting initiative, it’s an immaterial part of GRVY’s total business, constituting sub 3% of FY25 revenue.

Despite GRVY’s loyal following, revenue has been trending lower since the peak in 2Q23, a quarter defined by the Southeast Asia launch of Ragnarok Origin, driving mobile revenues up more than 200% y/y before normalizing. The 1Q26 report served as a meaningful inflection point though, as revenue rose 18% y/y and 43% q/q, and EBIT margins expanded 100 bps y/y and 870 bps q/q, driven by a cluster of mobile launches. These were most notably Ragnarok: The New World in Taiwan/HK/Macau and Ragnarok Origin Classic across Southeast Asia and Taiwan.

Revenue categories (in KRWB) and EBIT margin

Looking past the headline numbers, Ragnarok Online’s peak concurrent users (PCU) and average concurrent users (ACU) are in a downturn, with all markets, except Korea and North America, down 15% or more since 2023. Note that these user figures are strictly related to Ragnarok Online, meaning third-party or co-developed games, which constitute the lion’s share of revenue, are not captured here.

PCU and ACU development (left to right) - from GRVY’s FY25 AR

This also underscores an important point. While GRVY captures most of the revenue from third-party-developed titles directly, its growth still depends on external developers' ability to keep producing new, successful games, as GRVY doesn't control that pipeline itself. That matters because user count on new titles tends to drop off sharply after the initial launch surge, which is likely why GRVY leans on such a relentless release pipeline (the current pipeline has 24% more launch events than the 2024 one). Each new title is there to refresh the user base as the last one fades - a pattern that looks like a feature, not a bug, of its business model.

Upcoming launch list - from GRVY’s 1Q26 presentation

One would think that the combination of an asset-light business model, proven and respected IP, and dual-revenue model would be enough to command a fair valuation. But because cash has been built up and left idle on the balance sheet for over two decades (GRVY has never paid a dividend or repurchased shares), the market assigns close to zero value to its cash position. Could this be changing soon, though?

The 6-K

On June 18, GRVY filed a 6-K announcing the issuance of an interim dividend. While the size of the dividend remains unknown, this is a clear pivot away for the cash hoarding which has defined GRVY in the past, and could be the turning point needed to remove the discount.

From GRVY’s 6-K

The dividend could be paid out as early as July and, depending on the size of the dividend, prove to be a material short-term catalyst.

Dividend yield under different payout assumptions (in TUSD)

And given the size of the cash position, GRVY could issue an extraordinary dividend yielding close to the current share price. But this is probably just wishful thinking on my end (or??).

Is the Dividend a One-Time Thing?

To understand why GRVY has remained hellbent on not distributing any cash to shareholders, we have to look at the company’s largest shareholder, GungHo Online Entertainment (TYO: 3765).

GungHo, originally Ragnarok Online’s Japanese licensee, converted that commercial relationship into outright control by acquiring a 52.4% stake in GRVY in 2008 (increased to 59.3% through two additional purchases that same year). This was a logical step at the time as Ragnarok was a core part of GungHo’s business, but this dependency has been heavily reduced over time as Puzzle & Dragons has become the company’s cash cow.

As of FY24, P&D constituted more than 90% of GungHo’s revenue, making Ragnarok a negligible part of its performance. The FY25 press release stated, even more bluntly, that GungHo is a single-segment company, making it reasonable to assume that P&D is pretty much its entire business today.

What makes the setup somewhat unusual is the managerial overlap between GRVY and GungHo. As of mid-2026, GRVY's board is deeply intertwined with GungHo's, as Yoshinori Kitamura serves as Co-CEO of GRVY and a director at GungHo, while GungHo's current CEO (Kazuya Sakai) and Chairman (Kazuki Morishita) both sit on GRVY's board as Executive Directors.

The current ~59% stake, paired with clear board representation, has given GungHo full control of capital allocation decisions and GRVY's strategic trajectory. With that said, sustained pressure from activist fund Strategic Capital, which spent 2025 publicly campaigning against GungHo's capital discipline and management, combined with a disappointing stock price performance, has forced a revamped capital allocation strategy at GungHo.

GungHo’s 5-year stock price performance - from Google Finance

Consequently, GungHo announced three capital allocation changes in its FY25 report: raising the dividend payout ratio floor from 30% to 50%+, introducing a new 4% Dividend-on-Equity target, and initiating a new share buyback program.

GungHo’s capital distributions (in ¥)

The FY25 total payout ratio exploded as profits declined 87% y/y, but with ¥130b of cash and deposits at hand as of year-end 2025, total capital distributions only equated to 6% of this balance. Put another way, GungHo’s balance sheet is also materially overcapitalized and could absorb larger cash distributions.

Cash and deposits and total cash distributions (in ¥m)

Notably, the headline cash figure on GungHo's balance sheet is misleading as it fully consolidates GRVY’s cash because of the ~59% stake. Netting out GRVY's cash lets us isolate GungHo's actual standalone cash and deposits.

Approximations based on year-end KRW/JPY exchange rate (in ¥m)

While still material, the balance sheet is not as capitalized as the unadjusted figures suggest, implying both a shorter cash runway and a higher distributions-to-cash-and-deposits ratio.

Do GungHo Executives Have a Vested Interest in Maintaining the Status Quo?

In addition to activist involvement driving a clear change in capital allocation, GungHo also overhauled its executive compensation structure in January this year. Base salary for the top roles was cut sharply, applying the new rules retroactively to 2024. Total comp for the top executive would have fallen from ¥288.4m to ¥107.7m, a ~63% cut, while the balance shifted from fixed pay to at-risk pay.

Cash bonuses are now tied to profit attributable to owners of the parent, while SBC is tied to the three-year total return of GungHo vis-à-vis the dividend-adjusted TOPIX, paying zero if GungHo fails to at least match the index. More specifically, the two compensation metrics require the following:

1. Profit attributable to owners of the parent: <¥5 billion, the cash bonus is zero. Above that, it scales in four tiers: 0.25% of profit for ¥5-10b, 0.50% for ¥10-15b, 0.75% for ¥15-20b, and 1.00% for profit > ¥20b, capped at an annual total of ¥400 million, or ~$2.5m.

2. TSR vs. TOPIX: management only receives shares if GungHo's three-year TSR growth rate meets or exceeds the three-year dividend-adjusted TOPIX growth rate. Below 100%, the payout is zero. From 100% to 150%, payout scales up to the ¥400m cap.

Unfortunately, GRVY does not have similar activist pressure or an equivalent compensation structure revamp. Its compensation disclosure is a single aggregate figure for all directors and officers as a group, without any performance conditions or TSR linkage.

The opportunity is mainly GungHo's capital distribution ramp-up leading the company to turn toward GRVY to tap its fortress balance sheet. With GungHo's own FY25 total payout ratio already exceeding 500% of profits, tapping its 59%-owned, overcapitalized subsidiary offers a cleaner lever. GungHo could materially raise its total capital distributions, trigger a stock price rerate, and cut executive cash pay further, all while preserving its own balance sheet.

The withholding tax, i.e., the tax Korea applies to dividends a Korean company pays to non-resident foreign shareholders, doesn't complicate this. It falls on GungHo as the recipient, not on GRVY or its other shareholders, so it doesn't shrink what GRVY pays out. If anything, it could potentially cut the other way as GungHo is incentivized to have GRVY's board declare a larger gross dividend to compensate for that leakage.

All Roads Lead to Rome

Valuing GRVY is tricky as a rerate is largely contingent on either a significant extraordinary dividend or dividends becoming a recurring theme.

But assuming one of the two above scenarios does transpire, GRVY could close the material valuation gap to peers like Webzen and Netmarble, both of which trade at double-digit EBIT run rate multiples.

GRVY has a market cap of roughly $439m at the time of this writing and net cash (cash and cash equivalents + short-term financial instruments - GIBD) of ~$401m. With minuscule minority interests of $345k and 1Q26 EBIT of ~$20m, that works out to an EV/EBIT run rate multiple of 0.5x - yes 0.5x…

Q1 was a strong quarter though, with LTM EBIT coming in at a more sober $56m - $25m less than the run rate approach. Since this still equates to only 0.7x LTM EBIT, GRVY is VERY cheap no matter how you slice it, provided a real and lasting change in capital allocation is on the table.

Assuming the dividend announcement is sufficient to trigger a rerate and GRVY’s multiple converges towards peers, the upside could prove significant.

An alternative but more speculative approach is to compare the Q1 print to the peak valuation back in 2020 as GRVY surpassed $200/sh on the back of Ragnarok Origin’s Korea launch (remained a top app-store grosser for three months). Doing so shows how GRVY was trading at 21x LTM EBIT and ~10x EBIT run rate at the time.

Solving for the scaling factor based on y/y revenue growth and EBIT margins results in a 2.7x difference. Dividing the aforementioned multiples by this factor results in current fair LTM and run rate EBIT multiples of ~8x and ~4x, respectively.

While the market euphoria in 2020 was unprecedented, GRVY did not consider dividends or any form of capital distributions at the time. Additionally, the balance sheet was not nearly as mountainous as it is today. Net cash stood at $172m in 2020 (12% of market cap) vs. $401m today (91% of market cap).

In other words, a real catalyst is now in play, yet the market still barely assigns any value to the cash position.

There are two additional valuation approaches worth considering. First, we could model out the yield in the event that management decides to distribute ALL cash and cash equivalents (yes, that’s infeasible, I know). Doing so reveals how the current cash position translates into a 93% yield. Importantly, the payout itself would have a dual effect: shareholders receive real cash, and this should trigger a rerate closer to peers. I’ve here assumed 12x EBIT run rate, which is still below the peer group median and average.

Lastly, we can estimate cumulative FCFF throughout 2028, illustrating the absurdity of no rerate over the next 2.5 years.

FCFF - FY23-FY28E (in TUSD)

Despite 2026 being off to a strong start, I've assumed only a modest year-over-year improvement in FCFF. I expect cash flows to trend upward throughout the forecast period, but the nominal growth is only ~13%. Assuming GRVY does achieve this cash flow path, that implies cumulative FCFF will total $151m (a little less when netting out 1Q26). Put another way, the EV, which is now low but positive at $38m, will be negative ~$120m by year-end 2028. Something has to give.

Although I can’t confidently pinpoint a price target, I do believe GRVY’s fair value sits somewhere between $90-200/sh, meaning the valuation floor alone implies over 40% upside from the current share price. That’s a compelling setup.

Risk Factors

1. Dividend Disappointment

The size and durability of dividends remain unknown. A small or one-off payout could fail to trigger a lasting rerate, especially given the 20+ years of prior cash hoarding.

2. GungHo Control

GungHo’s ~59% stake and board overlap mean capital allocation depends entirely on GungHo’s incentives, not GRVY’s. If activist pressure on GungHo fades or GungHo doesn’t see the need to tap GRVY’s balance sheet, the capital allocation inflection point could prove illusory.

3. Pipeline Dependency

GRVY’s growth relies on a steady cadence of new Ragnarok titles, mostly built by third parties GRVY doesn’t control. Since RO’s user metrics are already declining in most markets, pipeline underperformance could undercut my EBIT and FCFF assumptions.

4. The Discount May Persist

Even with a dividend, GRVY could stay cheap due to near-zero coverage, thin ADR liquidity, PFIC tax drag for U.S. holders, and foreign majority-owner governance overhang. GRVY's own 20-F states it has been a PFIC in recent years - a classification triggered by its outsized cash position, which taxes U.S. holders' gains and distributions at unfavorable rates.

Catalysts

1. The Dividend - Obviously

The catalysts are few and far between, but the obvious one is GRVY announcing a dividend of material size. An extraordinary dividend constituting a significant portion of its current cash position would immediately narrow the current discount.

While I view this as unlikely, the introduction of a quarterly, semi-annual or annual dividend of size would also serve as a powerful, though smaller, catalyst.

2. New Ragnarok Derivative Hits

With a massive pipeline throughout 2026 and 2027, 1 or 2 hits would have a material impact on GRVY's financials. The standout candidate is Ragnarok Online 3 - the first true sequel to the original 2002 PC game in over a decade, already generating strong nostalgia-driven hype ahead of its launch. A hit here could provide the momentum needed to trigger a rerate, though the China launch has slipped from 2026 to 1Q27.

3. Introduction of New Compensation Scheme à la GungHo’s

I almost salivated reading through GungHo’s updated compensation scheme - it covers most of the metrics you’d want to see as a shareholder. While GRVY has nothing similar to ensure clear alignment between management and shareholders, GungHo, its largest shareholder and holder of several board seats, did just that. This could be a precursor to something similar brewing at GRVY.

Wrapping Up

GRVY checks a lot of the boxes that typically command a premium valuation in financial markets: a beloved, two-decade-old IP with genuine staying power and an asset-light model that converts revenue to lots of cash. You also get a mountain of cash already sitting on top of the balance sheet for pennies on the dollar.

For years, this significant discount was correctly priced in as the controlling shareholder had zero interest in ever distributing that cash to shareholders. Today, that’s the piece that’s changed. GungHo doesn’t need Ragnarok anymore as Puzzle & Dragons does the heavy lifting, but it does need cash, and activist pressure has made that need explicit. The 6-K from June 18 reflects GungHo's own incentives shifting, not a newfound commitment to shareholder-friendly capital allocation at GRVY. Not yet, anyway.

Whether this proves to be a single distribution or the start of recurring dividends in size remains unknown. But the asymmetry is hard to ignore as you’re paying 0.5x EBIT run rate, with net cash almost covering the entire value of the operating business.

With that setup, GRVY doesn’t need a great outcome to work, it just needs a less bad one than the status quo. A dividend that's merely decent, a single derivative hit (the RO3 China launch?), or GungHo simply continuing the payout ramp-up its executives are already incentivized to pursue could each be enough to close a meaningful chunk of the gap to peers.

This is not investment advice. I hold shares of Gravity Co. (GRVY) at the time of writing, and my views may be biased. Please do your own research and consult a financial advisor before making any investment decisions.

I reserve the right to buy or sell any securities mentioned in this article at any time, without prior notice.

2026 has been a different story, with the stock up ~170%, driven by a solid Q4 print and, more recently, acquisition speculation as HAV hired SB1 Markets to conduct a strategic review.

With the stock at sub 6x my FY26e EBIT, ~200 MNOK of net cash on the balance sheet, and a 1.1 BNOK+ order backlog, the setup seems very compelling despite the recent run-up.

HAV’s Business

HAV Group (HAV) is a Norwegian maritime technology company specializing in zero-emission vessel design, electric propulsion systems, and ballast water treatment. Founded in 2021 as a spin-off from Havyard Group (rebranded to EQVA following the merger of Havyard and HG Group), the separate listing was conducted to create a pureplay company capitalizing on the maritime decarbonization opportunity.

Today, HAV operates through four segments: HAV design (ship design), Norwegian Electric Systems (electric propulsion and automation), Norwegian Greentech (ballast and process water systems), and HAV Hydrogen (hydrogen energy systems). To give some more color on what these segments entail, I’ll go through each in turn.

HAV Design

As mentioned briefly in the prior paragraph, HAV Design is HAV’s ship design business. It develops vessel concepts primarily for the offshore, aquaculture, and ferry segments, with more than 100 ship designs completed, and integrates low-emission technology from the design stage rather than retrofitting later.

The world’s first environmentally friendly salmon transporter - from HAV’s 2021 press release

This positioning also creates natural cross-selling opportunities as an owner who adopts a HAV design concept is already inclined to secure propulsion and energy systems - which is where NES comes in.

Norwegian Electric Systems (NES)

NES is the heart of HAV’s operations. It encapsulates the delivery of diesel electric, hybrid electric and completely electric propulsion systems, power management, and vessel automation for the global marine market. Put another way, NES makes sure the lights stay on, the engines run, and the ship goes where it's supposed to, using as little fuel as possible.

NES’ FerryCHARGER units - from HAV’s 2024 press release

Importantly, this isn’t a niche offering. The electrification of ferry fleets is accelerating across Norway and broader Europe, driven by increasingly stringent emissions regulation, and NES has the installed reference base to prove it can deliver at scale. In a market where a shipowner isn’t going to risk a multi-million dollar vessel on an unproven supplier, this track record serves as a genuine moat.

NES is also where HAV's cross-segment logic becomes more apparent. A vessel designed by HAV Design is a natural candidate for a NES energy system as the two subsidiaries speak the same technical language from the outset, reducing integration risk and requiring only one counterparty from the drawing board to delivery.

Norwegian Greentech

Norwegian Greentech produces ballast water treatment and process water systems for vessels, a market that mainly exists because international regulations mandated it.

Ships take on seawater as ballast to stay stable when sailing without cargo, then discharge it at the destination port. The issue is that this water carries marine organisms and invasive species that can devastate local ecosystems in the process. As such, Norwegian Greentech's treatment systems clean the water before discharge, neutralizing the biological content before it causes harm.

Greentech’s BWMS - from HAV’s company website

An important caveat is that the initial retrofit wave was driven by the IMO Ballast Water Management Convention, the international treaty that came into force in 2017 and required all commercial vessels to install approved treatment systems by 2024. Since this has largely run its course, Greentech increasingly relies on newbuild installations and its aquaculture water treatment business to drive revenue.

HAV Hydrogen

HAV Hydrogen was a long-term bet on green hydrogen becoming commercially viable in shipping - an effort that hasn’t paid off yet. By mid-2025, HAV folded, the segment was wound down and its technology was transferred to HAV Design.

The revenue chart above tells the story plainly. Investors shouldn’t really assign any near-term value to it. But one should also note that the technology transfer to HAV Design enables HAV to reintroduce its hydrogen offering relatively quickly should market conditions turn more favorable, meaning the optionality is still there.

Regulations Driving Structural Demand

What makes HAV even more compelling than its low-single-digit headline multiple and ample cash on hand is the growing demand for maritime electrification. Since governments globally are all pushing for meaningful emission cuts, fleet owners are required to retrofit existing ships and integrate low-emission tech into newbuilds, both of which overlap with HAV’s current offering.

To contextualize the market opportunity, ferry electrification alone is forecast to grow at a 15% clip through 2030, reaching a little south of 50 BNOK in value. And Norway leads the line in electrification efforts, with more than 50% of all the country’s ferries being electrified as of 2025.

Ferry electrification market (in MNOK) - from Research And Markets

If we instead look at the global Electric Ship market, the market opportunity grows more than threefold, to 150 BNOK by 2030.

Electric ship market (in MNOK) - from The Business Research Company

With the International Maritime Organization (IMO) approving a landmark Net-Zero Framework last year, which aims for net-zero GHG emissions from global shipping by 2050, regulatory pressures are mounting, positioning propulsion technology providers like NES, to capture significant demand in the coming years.

And current electrification penetration is miniscule. Out of the ~143k ships in the world fleet, only ~2% of these can or are operating on alternative fuels (e.g., LNG or battery-hybrids).

Put another way, there are roughly 140k ships in need of electrification or transitioning to alternative fuels over the coming years/decades, and that’s without accounting for the tens of thousands of newbuilds entering the market over time. Safe to say there’s significant whitespace and contracts coming HAV’s way.

The Strategic Review Serves as a Powerful Catalyst

Although NES inflecting and regulatory tailwinds are attractive, that’s not the main reason behind my interest in HAV.

Only a few weeks ago, the company published a press release informing shareholders of the initiation of a strategic review. While we can’t know for sure what this entails, my guess would be that something is getting sold. Whether that’s the whole company, the sale or partial spinoff of NES, or the sale of the more non-core assets (i.e., HAV Design and Greentech) remains to be seen.

But I think SEAM, a close peer of NES, getting sold for ~2 BNOK (or ~36x FY24 EBIT) late last year could have motivated management to see whether there is enough interest to realize a similar transaction multiple. And the fact that HAV hired SB1 Markets for the strategic review, which is the same investment bank that advised SEAM in its sale to Hanwha, seems like more than a coincidence.

The SEAM process likely surfaced several strategic buyers seeking the same maritime electrification exposure. The parties that lost out are already educated on and interested in the space but remain empty-handed, and SB1 Markets knowing exactly who they are is a detail that should materially shorten the time from mandate to a signed deal.

Between the two companies, NES’ financials have been more lumpy since 2021, with revenue moving between -18% and +62% and the EBIT margin bottoming out at -11% in FY23 before reaching +10% in FY25. Importantly, NES’ revenue is also approaching SEAM levels, while its FY25 EBIT margin surpassed SEAM's from FY24.

The computational exercises are reserved for the valuation section, but you can already tell that there’s a material discount to fair value if HAV is able to sell NES at a multiple even remotely close to what SEAM was acquired for…

A Family-Owned Business with Strong Alignment

To understand the current ownership structure, we have to go back to Per Sævik, a Sunnmøre-born entrepreneur who built one of Norway's most prominent maritime dynasties across five decades, spanning offshore supply vessels, ship design, coastal cruising, and green maritime technology. Havyard Group, which is the direct predecessor to HAV Group, was established in 2000 when Havila Holding AS, the Sævik family's holding vehicle, acquired the Kværner Leirvik shipyard.

In early 2021, HAV Group was carved out of Havyard and listed on Euronext Growth Oslo. The family’s stake was further reinforced in 2022, when Havyard distributed 10m additional HAV shares as an in-kind dividend to its own shareholders in connection with the HG Group merger.

Today, the Sævik family owns roughly 41% of HAV (other insiders own ~2%) through its holding company and the personal holdings of Vegard Sævik and Hege Sævik Rabben. More interestingly, they are still under water compared to the initial 18 NOK placement price. In other words, the founding family, which owns a material portion of the company, seems strongly motivated to turn the ship around (no pun intended) - and selling NES strikes me as the obvious path to do so.

Valuation - A Material Disconnect That Should Close Quickly

Valuing HAV will lead to wide fair value dispersions depending on the EV/EBIT multiple applied and whether you use trailing EBIT figures or a FY26 estimate. While the headline transaction multiple on the SEAM sale is significant, going back a few years makes it clear that Hanwha believes the implied transaction multiple will compress materially in hindsight if they’re able to turn things around.

Adjusting the ~2 BNOK purchase price for SEAM’s 111 MNOK of net cash at year-end 2024, Hanwha paid an EV of roughly 1.9 BNOK. While FY23 and FY24 EBIT were unimpressive at 19-53 MNOK, FY22 EBIT came in at 100 MNOK - equivalent to a much-less-demanding EV/EBIT multiple of 19x.

Overall, the implied valuation range is 19-36x EBIT, fully contingent on what normalized EBIT Hanwha assumed in the transaction. The FY25E and FY26E are based on a very simplified forecast, where I’ve assumed that revenue will grow at the 2-year average and that SEAM will deliver EBIT margins of 9% and 11%, respectively.

Assuming NES is able to deliver 81 MNOK of EBIT in FY26, which is strictly derived from its current-year backlog and unchanged EBIT margin, and that an acquirer is willing to pay 20x EBIT, HAV is worth 49 NOK/sh, or 50 NOK/sh when adjusting for the significant net cash position and corporate expenses. Even more impressively, this is without assigning any value to HAV Design or Greentech, the former of which has shown an ability to deliver meaningful EBIT in prior years. Greentech, while generally unprofitable, also has value. And both segments could begin posting profits as revenue recovers.

An alternative way to value HAV (or at least most of it), is to lay out certain assumptions regarding the fleet transition. According to the Norwegian Shipowner’s Association, only about 17% of its member fleet has alternative fuel capabilities. This means that approximately 1200 of these ships (46/year by 2050) will require electrification or transitioning to alternative fuels by 2050. Assuming HAV captures 1/4 of these and realizes an average combined (HAV Design + NES) contract size of 100 MNOK, that’s 1.2 BNOK of annual revenue. At an 8% blended EBIT margin, this translates into 96 MNOK of annual EBIT, implying an EV/EBIT multiple of less than 4x on a group level.

This is no blue sky scenario, but it serves to show how HAV has a viable path to success even without a NES bid, and management expecting revenue growth and margins improving in FY26 vis-à-vis FY25 is an indication of this.

A clear counter I’m expecting on this writeup is how little time and effort I’ve spent on HAV Design and Greentech - and I agree, I’ve simply applied a sub 1x revenue multiple to their 2026 backlogs. This is mainly because both segments are unprofitable, and because NES is the clear value driver and what could make HAV a multibagger from here.

In total, I believe 20x EBIT is a clear floor on what a motivated buyer would be willing to pay for NES, and the varying fair value estimates in the above scenarios are driven by EBIT multiple applied (15-27x range) and FY26e EBIT (81-100 MNOK).

Risk Factors

1. Competitive displacement by tier-1 incumbents

NES competes against ABB, Kongsberg, Wärtsilä, and Siemens, all of which have vastly greater R&D budgets and global sales networks. If any of these push aggressively into the small-to-mid vessel segment where NES has historically been protected, the reference base moat could erode faster than expected.

2. Project execution and revenue lumpiness

NES revenue has swung between -18% and +62% since 2021. A single delayed or cancelled contract can materially shift quarterly results, and any FY26 backlog conversion slip, from shipyard delays, client financing issues, or supply chain disruption, could adversely impact the earnings a NES valuation hinges on.

3. Strategic review yielding nothing

This risk factor is quite obvious, but if no buyer emerges at an acceptable price, or the Sævik family, as controlling shareholders, decides to keep the asset, HAV could rerate downward with force.

4. HAV Design and Greentech drag on a standalone basis

Greentech is generally unprofitable and faces tougher marine market competition according to CEO, Gunnar Larsen’s own commentary. HAV Design has a new MD, but the success of this appointment is still unproven. If NES remains part of the group, these two segments could structurally dilute margins and limit multiple expansion at the consolidated level if the status quo persists.

Catalysts

1. Strategic review leading to NES sale

A NES transaction at even a modest discount to the SEAM multiple would imply a share price several multiples of current levels, and there would still be additional value in the RemainCo.

2. Operational momentum de-risking forward earnings

Positive EBITDA in all four quarters of 2025, with a NOK 1.2b order backlog entering 2026 is exactly the direction and visibility the market wants. Each successive clean quarter with continued execution makes the FY26e NES EBIT more credible to a potential acquirer and reduces the uncertainty and discount demands embedded in the current valuation.

3. NES’ international expansion

The recent Tersan Shipyard contract wins, paired with Scandlines and Gearbulk contracts in prior years, signal a broadening of NES's customer base beyond the Norwegian market. Successful diversification reduces customer concentration and geographical risk, while materially expanding the TAM, both of which strengthen NES's acquisition appeal to a global industrial buyer.

4. HAV Design turnaround

Richard Schofield joined HAV Design as MD at the start of 2026 with a mandate to branch into new market segments and sharpen sales execution. The segment has demonstrated an ability to deliver meaningful EBIT in prior years, and a return to profitability would add meaningful value that the current SOTP essentially ignores - independently of any NES outcome.

Closing Words

HAV isn’t a complicated setup. It’s a deeply discounted maritime technology conglomerate with a controlling family still underwater on its investment, a mandated investment bank that advised the acquisition of a peer only a few months ago, and a direct comparable transaction conducted at a multiple several times over HAV’s current valuation.

The bear case is that the strategic review yields nothing and you’re left holding a conglomerate with two underperforming segments dragging an otherwise solid NES business. That’s a real risk, but I view this outcome as unlikely, and I also believe HAV is worth meaningfully more than the current share price if NES continues to execute.

And the setup is asymmetric. At current prices, you’re getting NES for a fraction of what Hanwha paid for a directly comparable asset less than a year ago, with HAV Design, Greentech, and the green Hydrogen option effectively thrown in for free. The founding family has every incentive to act and push for a sale, SB1 Markets has a template and target list to work from, and the maritime electrification backdrop continues to strengthen the demand case for anyone considering acquiring NES.

You’re paying less than 6x FY26e EBIT (assumes continued drag from HAV Design and Greentech) for a potential multibagger, the acquisition timeline should be pulled forward as SB1 Markets isn’t starting from square one, and the balance sheet is de-risked with 200 MNOK of net cash. That’s a bet I’m willing to size heavily.

This is not investment advice. I hold shares of HAV Group (HAV) at the time of writing, and my views may be biased. Please do your own research and consult a financial advisor before making any investment decisions.

I reserve the right to buy or sell any securities mentioned in this article at any time, without prior notice.

What’s Changed?

While the recent price action could just be the result of general market turmoil and EVC’s limited liquidity, many are viewing the below comment from the 10-K as the culprit.

From EVC’s FY25 10-K

From it, we learn that a recently-acquired customer located in Hong Kong now constitutes a material portion of both ATS and group revenue and serves as EVC’s largest single customer. But that alone is not too informative. If we instead read management’s comment on concentration risk, we get a fuller picture of the size of this customer.

From EVC’s FY25 10-K

But is ATS alone in having this level of customer concentration? Looking at APP and TTD, the answer is no. While APP has not disclosed a specific revenue share, the fact that their triggering threshold is 10%, compared to EVC's 5%, suggests they do have some concentration.

From APP’s 2025 10-K

TTD reports the share of individual gross billings, rather than actual revenue. Put simply, this means the ad budgets allocated to the company from advertisers, while the billings multiplied by take-rate would equate to the company’s actual revenue. Still, the difference is trivial, and with approximately 30% of gross billings sourced from only two customers, TTD’s customer concentration is also material.

From TTD’s 2025 10-K

Knowing that EVC’s HK customer constituted 9% of FY25 group revenue immediately raises two important questions: (i) When was this customer acquired? and (ii) How large is the company?

Timing of Customer Acquisition

The timing of onboarding is important because it tells us more about quarterly revenue contribution. If the customer was acquired in early Q4, that means a similar advertising budget applied to a full fiscal year would translate into roughly $161m, or 28% of group revenue. That’s significant.

Revenue contribution based on different onboarding assumptions

But we have a mention in the Q3 report of this same customer constituting 9% of group revenue in that quarter. I’ve also talked to EVC directly and have it confirmed that the customer was acquired in Q2, constituted less than 5% of group revenue that quarter, and has since increased its allocation in each sequential quarter.

From EVC’s Q3 10-Q

With this in mind, we can partly solve for the implied quarterly revenue contribution from this customer. We do not have the exact share of group revenue the customer represented in Q2, but knowing it was less than 5% and the Q3 contribution was roughly $11m, I have assumed 4.5% (equivalent to $4.5m).

Completely netting out the customer (which is not correct and strictly done to illustrate how ATS growth remains impressive) shows that ATS still grew 60% y/y. It also shows a slight deceleration in y/y growth and a small sequential revenue decline compared to Q3, but strengthening vis-à-vis Q2.

How Large is This Unknown Customer?

The second point, i.e., the size of the customer, is important because it tells us how much of a runway Smadex has in terms of ad budget allocation. If the customer’s total budget is $50m annually, then there’s barely any more revenue to capture. I have no crystal ball at hand to know for certain what customer it is, but assuming it is Tencent, a name I’ve seen thrown around a bit over the past few days, the story is quite attractive.

I had to make certain assumptions regarding the S&M split across segments, as Tencent does not currently disclose segment level expenses. Still, assuming Smadex only captures revenue from international gaming (IG), and that S&M is allocated proportionally to share of group revenue, the total revenue capture opportunity as of Q3 was $133m, or $532 on a run rate basis. If my earlier calculations regarding revenue contribution from the HK customer are correct, that means Smadex captured roughly 8% of the available budget in Q3 (19% in Q4 assuming identical S&M and a Q4 revenue contribution of $29.4m).

And yes, S&M typically also includes sales force costs and promotional expenses, so this isn’t a perfect estimate of the available revenue capture. But it does illustrate how there is further room to grow from this customer provided Smadex continues to deliver a satisfying ROAS.

Without any specifics around company size, we know that the HK customer is large and uses multiple DSPs.

We can't provide guidance, although this customer is a large, high-spending advertiser that spends significant amounts on multiple DSPs including Smadex.

This last point is quite interesting, as it illustrates how Smadex is gradually becoming one of the leading DSPs larger advertisers depend on. As mentioned by in his great writeup/interview summary from earlier this year, Smadex generally ranks third, with Moloco and Liftoff second, and AppLovin at the top of the DSP throne. As Smadex gains more recognition in tandem with further investments into engineering, AI capabilities and its sales force, this ranking could change.

Tencent’s AIM+

Tencent actually operates its own ad-tech stack, AIM+, which some might fear could theoretically disintermediate Smadex, assuming Tencent is in fact the undisclosed HK customer. But in practice, this risk is limited for two structural reasons. First, AIM+ is an internal platform designed to optimize ad placements within Tencent's own channels (e.g., WeChat and Tencent Video). It can’t buy inventory outside of Tencent's ecosystem, and is therefore unable to replace a programmatic DSP like Smadex that operates across the open web.

Second, and more fundamentally, the effectiveness of any ML-based ad tech is constrained by the quality and geographic breadth of its training data. Smadex’s accumulation of LatAm bidding and conversion data gives it a localized data advantage that Tencent, whose models are mainly trained on domestic Chinese behavior, can’t easily replicate.

It’s Not All Bad

A point that seems fully neglected by the EVC critics is that ad-tech is a competitive business, purely driven by performance. If ROAS disappoints, advertisers reallocate their budgets to other ad-tech platforms. The fact that this customer has ramped up its allocation to Smadex in each sequential quarter serves as a seal of approval that the technology is effective. And like has said, we’d rather have this revenue than not at all.

Moreover, once a DSP has accumulated sufficient conversion data on specific titles and target audiences, switching means restarting that learning curve and accepting temporarily degraded ROAS, creating switching costs and a natural retention dynamic on top of pure performance.

Cash Flows are Still Not Great

I saw an interesting tweet highlighting how operating cash flows before changes in WC have declined meaningfully since FY23. And I do agree as the headline figure has decreased from $38.6m to $1.5m. But what’s driving this?

Well, starting July 1 2024, EVC's EGP business was wound down after Meta Platforms decided to end its commercial partnership agreements. And this loss wasn't insignificant. Management disclosed that EGP represented roughly $586m of group revenue and $24m of group EBITDA in FY23.

To net out the effect of this in the two preceding years, I’ve had to reconcile the EGP OCF before working capital for each year. Doing so uncovers something quite interesting.

While OCF before WC changes has still been moving in the wrong direction, the 2-year decline is “only” roughly $9m, rather than the $37m headline move. And what is the second driving force behind this?

Broadcasting hasn’t exactly been a darling industry over the last few years, and the lack of political advertising dollars has made the y/y comp meaningfully worse. To put things into perspective, the Media segment generated roughly $5m of FY25 EBITDA, a 91% drop y/y.

If we, for the sake of illustration, were to assume the same Media EBITDA level in FY25, how would OCF before WC look?

$46m, or 1.3x and 4.4x the level of reported and adjusted OCF before WC in FY23, respectively. That’s a lot better, but is that EBITDA level achievable in FY26?

I’m not sure, but the spend on political advertisements for a midterm season is currently projected to reach a record $10.8b. That’s 20% higher than the 2022 midterm cycle, and only 4% below the $11.2b spent in the 2024 presidential election cycle. Heightened political polarization and an unusually competitive battle for congressional control might also push actual spend beyond current projections.

Updated SOTP

Why are you applying EBIT multiples derived from peers to ATS’s EBIT before corporate expenses? Well, the answer is simple. In a traditional SOTP, corporate expenses are valued as a perpetuity and deducted separately. That is what I, and I assume all others covering EVC, have done. Additionally, deducting corporate expenses proportionally based on revenue contribution would be incorrect, as the costs are centralized and not directly tied to either segment. And given the significant discount a 10-15x EBIT multiple represents relative to peers (e.g., Liftoff, TTD and AppLovin) when accounting for the differing growth profiles, the distinction is trivial at best.

But before valuing the crown jewel, ATS, I’d like to go through Media and the spectrum licenses.

Media

As touched upon earlier, Media should see a meaningful recovery in profitability as record midterm political ad dollars flow to the business. As seen below, EVC’s political ad revenue has seen a meaningful pick-up over the last few years, and the trend shows no sign of reversing.

From EVC’s 2023 Investor Presentation

Assuming EVC ‘s political ad revenue grows at the same projected rate as total political advertising dollars (20%), that implies roughly $39m of FY26 political ad revenue. I do think this is overly conservative given the increased polarization, ICE controversies, and Republicans’ consequential need to win over Hispanic voters. An underappreciated element is also the 2026 FIFA World Cup potentially serving as an additional tailwind as EVC broadcasts games on its radio stations this summer.

The next question is how the core Media business will progress this year. If we net out the estimated effect of political ad revenue in FY24, here treated as my $39m FY26 estimate, and $2m of FY25 political ad revenue, Media revenue decreased ~5% y/y. Assuming a similar change in FY26, total Media revenue could reach approximately $221m. But what about costs?

A bit surprisingly, most cost line items remained close to unchanged in FY25 despite a $45m drop in revenue. Assuming the political advertising revenue is incremental without any significant rise in costs, Media could print close to $50m of FY26 EBITDA before corporate expenses.

What’s a fair multiple for a broadcasting business that only generates meaningful cash in election years, and operates in a secularly declining industry? The answer depends heavily on what differentiates EVC from the broader peer group.

Unlike generic broadcasters, EVC's audience is almost exclusively Hispanic, the fastest-growing US demographic in terms of voting eligibility. According to Pew Research Center, 36.2 million US Latinos were eligible to vote in 2024, up 12% from 32.3 million in 2020, and accounting for 50% of total eligible voter growth over that period. At 14.7% of all eligible voters, Latinos have become a decisive demographic in competitive elections, and one that campaigns are increasingly willing to pay a premium to reach.

I do believe this differentiation, while a negative in non-election years, could command a premium relative to regular broadcasters for the right buyer.

As can be seen from the chart above, peers generally trade in the 5-7x FY26E EBITDA range. Whether Media rerates to a similar multiple depends on how political ad revenue delivers in the buildup to this year’s midterms. A second point relates to what EBITDA a potential buyer would apply in the valuation of EVC’s Media segment. Would they generously use election-year EBITDA? Doubtful. I do believe that an alternative way to incorporate this heightened seasonality is to simply use a lower multiple.

As such, I’ve applied the $49m EBITDA in all scenarios and assumed an EBITDA multiple of 3-5x. Doing so yields fair values covering 36-61% of EVC’s current EV.

A final point before moving on to the spectrum licenses is the TelevisaUnivision affiliation and proxy agreement, expiring at year-end 2026. Non-renewal would put approximately $25-30m (14-17% of FY25 Media revenue) in annual retransmission revenue at risk, inferred from $7m of quarterly proxy-related retransmission revenue disclosed all the way back in 3Q19, along with the network programming that underpins EVC's broadcast schedule. I view the probability of this outcome as quite low. EVC is TelevisaUnivision's largest affiliate group, the two companies have been partners for three decades, and TelevisaUnivision owns 10% of EVC through Class U shares, giving it every incentive to preserve the relationship. On the Q4 call, Christenson also stated that they expect renewal. The more realistic risk is worse terms rather than outright expiry without renewal.

Spectrum Licenses

I think more of EVC's spectrum licenses as embedded options, significant upside potential, but not something we can expect to monetize anytime soon. Christenson believes a new auction is unlikely within the next 1-2 years, and while the appointment of Brendan Carr as FCC chair has brought newfound optimism to the industry, it is telecom companies' structural need for more spectrum that will ultimately necessitate a new auction.

In David’s interview with Christenson this year, he mentioned how he believes the monetizable value of EVC’s spectrum licenses could be as much as $1.2b. I’m not sure whether this is spectrum and Media as a whole, but this is undoubtedly more of a best-case ceiling value, and not something to take at face value.

If we instead focus strictly on EVC’s full-power TV stations, compare $/MHz-pop realized in the 2017 auction in different markets, and apply the 2024 MSA population estimate, we can approximate total proceeds in the event of a new auction.

Doing so translates into $271m of potential proceeds, or 67% of the current EV.

The approach I’ve applied in earlier writeups is to simply use RabbitEars’ EVC population coverage estimate and the average 2017 auction price of $0.93/MHz-pop. The latter approach translates into $276m of spectrum value, aligning well with my personal estimate.

Adding up all the different estimates, we get a spectrum value range of $271m to $1.2b, or 67-297% of EVC’s current EV.

An important clarification relates to the monetization of spectrum licenses and its implication on EVC’s stations. While spectrum licenses are required to run stations, they are legally separable from the media business itself. A seller could relinquish the license in an FCC auction, receive cash proceeds, while continuing to air its programming under a channel-sharing agreement (CSA) with a neighboring host station, retaining must-carry rights and retransmission revenue throughout. In other words, the monetization of spectrum licenses does not come at the expense of media asset value.

ATS

Like I mentioned in the last EVC update, ATS has become the main driver of EVC’s value. With y/y revenue growth of 123% in Q4 and a 14% EBIT margin, the business is firing on all cylinders. Yes, part of that growth is attributed to only one customer, but it is a testament to the offering being valuable.

Valuing a hyper-growth ad-tech business with a short track record is inherently tricky, but the HK customer's trajectory supports using its current run rate as a baseline. They're allocating across multiple DSPs, potentially carry a $500m+ annual ad budget, and have grown their Smadex allocation every quarter since onboarding. Modeling ATS revenue ex-HK separately, and assuming ~60% y/y growth on that base (consistent with Q4, and supported by the US expansion and Christenson and Co's target of ~40% US revenue mix vs. ~20% today for Smadex), gives a reasonable path to FY26.

This might prove overly optimistic in hindsight, but if the above were to transpire, ATS could deliver $456m (60% y/y growth) of FY26 revenue. Assuming moderate margin expansion driven by operating leverage on cloud computing costs and SG&A not scaling with revenue, ATS could achieve a 15% EBIT margin in FY26, equivalent to $68m of EBIT before corporate expenses. That's close to a double compared to FY25, but I wouldn't put it past this management team.

A point of discussion is what multiple to apply to this figure. ATS is growing quicker than all ad-tech peers, but with a shorter operational history and lower margins, there are no 1-1 comps. TTD and APP are both publicly listed, and currently trade in the 17-25x FY26E EBIT range. Importantly, TTD is expected to grow revenues 18% this year, while APP is expected to deliver a much-more-impressive 46% growth rate.

I don’t think 25x forward EBIT is justifiable yet, but assuming a 17x multiple, ATS could be worth more than $1.1b.

In addition to TTD and APP, both Moloco and Liftoff are considering IPOs this year. The last reliable datapoint we have on Moloco is from its 2023 secondary offering with a post-money valuation of $2b. I’ve found varying revenue estimates for FY23, but assuming the $300m figure is correct, that translates into an implied valuation of 6.7x sales, with roughly 50% y/y growth. That was close to three years ago and I’m not comfortable smacking on an EV/S multiple for ATS, but an identical valuation approach would imply a fair value of $1.8b.

Okay, now we’re starting to play with very large numbers that may or may not come to fruition. Looking at Blackstone-backed Liftoff, the company signaled an IPO target valuation of $5.2b. With roughly $1.8b of NIBD, that means they’re targeting an EV of close to $6.2b, including IPO proceeds of $762m. From the S-1 filing, management expected close to $685m and $228m of FY25 revenue and EBIT, respectively, equivalent to post-IPO EV/S and EV/EBIT multiples of 9x and 27x. Note that this is FY25, making them less than ideal to value ATS based on FY26 estimates.

I’ve thrown around a bunch of numbers here, but below you can see the valuation range when using the peer-based multiples.

Overall, the peer-derived approach suggests ATS could be worth anywhere from $650m to $1.8b. I can’t give an exact estimate, but I do believe it’s worth meaningfully more than what is currently priced in.

For the three scenarios, I’ve ultimately assumed a bear case estimate of 10x EBIT run rate, a base case of 15x EBIT run rate, and a bull case estimate of 15x FY26E EBIT.

SOTP

Tying all the ramblings above together, there is one last element we need to account for: corporate expenses. While Christenson has done an excellent job eliminating redundancies and lowering corporate expenses, the figure still totaled $27m in FY25. He believes this can ultimately be brought down to about $20m annually, but there’s no guarantee. For the bear case, I’ve assumed corporate expenses equivalent to the FY25 reported figure, and treated this as a zero-growth perpetuity capitalized at 10%. The base case annualizes the lowest-quarter figure from 2025, while the bull case assumes convergence with the $20m target.

SOTP - Base Case

In a base case scenario, I believe EVC could be worth $8.5/sh, equivalent to roughly a 3x from here.

And while there is a wide dispersion in outcomes, I view $5.4/sh as a reasonable floor.

What’s Going to Trigger a Rerate?

A new spectrum auction or a bid for EVC’s media assets could definitely serve as catalysts for a rerate, but a point worth highlighting, as raised by in his writeup published yesterday, relates to PSUs. Christenson and other insiders currently hold a significant amount of PSUs, with hurdle prices in the ~$6-14 and ~$5-9 range. I’ve been told that management continuously evaluates all options to “unlock and maximize shareholder value”, and the expiry dates on their PSUs are quite telling for the timing of a potential ATS spinoff.

If EVC’s stock price reaches $13.8 by July 1, 2028 (4.5x from here), Christenson will take home $9.4m, or close to 10x his 2024 base salary. Mark Boelke (CFO) and Jeffrey Liberman (former COO), while not as much, could both earn roughly $700k from their PSUs if EVC reaches $8.9/sh by January 2029.

In other words, insiders are heavily incentivized to push for a value-unlock, and an ATS spinoff seems like the obvious path for this. While currently 2-3 years out, letting ATS continue to execute and compound will likely drive up its value significantly by then.

Final Words

Not much has changed regarding my stance on EVC since the last update. If anything, my conviction has strengthened. Yes, there is some concentration risk, but ATS fully excluding this customer is still trucking along well. Additionally, customer concentration seems to be a feature, not a bug, within ad-tech, with growing allocations being a sign of the tech delivering satisfactory ROAS.

Illiquidity is a double-edged sword, as it provides us with heavily mispriced opportunities like EVC (in my opinion, of course), but this can also lead to strong price reactions on both the up- and downside when unforeseen news hits the timeline.

I think midterms this year will drive a meaningful recovery in the Media segment, while continued execution from ATS, balance sheet deleveraging, and any updates regarding the spectrum auction timeline should trigger a forceful rerate in the stock.

This is not investment advice. I hold shares of Entravision Communications (EVC) at the time of writing, and my views may be biased. Please do your own research and consult a financial advisor before making any investment decisions.

I reserve the right to buy or sell any securities mentioned in this article at any time, without prior notice.

Cedergrenska (CEDER) runs a disciplined roll-up playbook in a fragmented, government-funded market. Political headwinds and an uncertain operating environment has compressed the valuation to an undemanding 5x EBITA, creating what I believe is an attractive entry point for a business with aligned and involved founders, growing returns on capital, and a long runway for accretive M&A. But is the political risk as existential as the current valuation implies?

CEDER in Short

Cedergrenska is an independent operator of preschools, compulsory schools (primary and lower secondary schools), gymnasiums (high schools), and adult education in Sweden. With revenue generated through per-student government funding (skolpeng) rather than market-based pricing, with some variation depending on municipality, money is only earned by operating a tight and efficient ship.

Students by segment - from CEDER’s 1Q26 Report

Close to 20% of Swedish students, or roughly 420k pupils, attend these independent schools. With approximately 10.5k students as of 2Q26, CEDER holds around 0.5% of the total market and 2.5% of the independent school segment, leaving significant room for further growth.

Share of students in independent schools - from Skolverket, 2024

While private owners like CEDER and AcadeMedia exist, most independent school owners are tiny, with around 80% of private owners running only one school. As regulations are tightened (more on this later) and the operating environment becomes more challenging, scale will become currency: only the largest operators will be able to absorb increased operating expenses and potentially lower government funding, positioning the industry for further consolidation. And CEDER targets 10-15% annual revenue growth doing just this.

Financial targets- from CEDER’s 1Q26 Report

Since 2011, the company has acquired 30 independent schools, spanning preschools to gymnasiums, at highly accretive prices. As an example, CEDER paid SEK 78.1m for Aprendere Skolor, an independent school operator with 18 units, in late 2024. Total considerations translated into a purchase price of 8.3x EBITDA based on TTM EBITDA of SEK 11m at the time, as mentioned by in his great writeup on the company, which does not seem too impressive at first glance, but only because synergies were not fully in play yet. For instance, CEDER expects Aprendere to generate at least SEK 20m of EBITA (yes EBITA, not EBITDA) in FY27 at the latest, almost halving the transaction multiple to 4.6x EBITA. That’s what I call good business!

For its acquisitions, CEDER generally targets synergies from the roll-up playbook:

1. HQ/Staff consolidation: merge back-office (HR, IT, finance, etc) and cut redundant full-time equivalents (FTEs)

2. Office/insurance optimization: renegotiate rent and policies

3. Scale advantages: shared digital infrastructure and teacher training

And as the business continues to scale, margin expansion seems to directionally hold true.

This is also reflected in the company’s ROCE, which has grown from 23% on a TTM basis in 4Q23, to 42% in 2Q26.

But does the lucrative roll-up model come at the expense of educational quality? The data says no, as CEDER consistently outperforms competitors and Sweden as a whole when benchmarked on teacher qualifications, school completion, average grades, and knowledge requirements. With most quality and financial metrics moving up and to the right, this underscores how CEDER is currently nailing quality and profit harmonization.

Founders Remain Involved and Aligned

As a preface, CEDER traces its roots to Tibble Gymnasium in Täby, acquired in 2011 by Håkan Söderström, a career educator, and Niklas Pålsson, a former stockbroker turned history teacher. Together they built Tibble into the north of Stockholm's most sought-after gymnasium by putting teachers first, a philosophy that remains central to the group today. After adding a second school in 2012, serious expansion began in 2018, culminating in a 2021 IPO. Both founders remain major shareholders and actively involved, with Söderström (14%) serving as chairman and Pålsson (17%) serving as a working board member after stepping down as CEO in 2022.

In total, insiders own close to 1/3 of the company, with CEO, Lotta Smith, owning ~2% of outstanding shares, currently worth approximately SEK 10m. That’s notable skin in the game for a hired executive. The acquisition of Aprendere also added a notable alteration to the shareholder structure as Carl Tunberg, co-founder of Aprendere, became the third largest individual shareholder. It would be misleading to treat him as an insider, but with no lock-up obligation mentioned in the acquisition prospectus, I interpret his retention of an 8% stake in CEDER as a genuine signal of continued confidence in the company.

The Crux of the Political Climate

CEDER is undoubtedly cheap, and this paired with a proven playbook and aligned insiders make it an attractive bet. But there are meaningful political risks that could disrupt or at least worsen operating conditions.

This January, the Tidö government announced several regulatory proposals targeting Sweden's independent schools. While some measures, like profit bans and expansion curbs, appear rather extreme at first, their core motivation is reasonable: to ensure clear alignment and accountability among school operators to drastically boost educational quality and prevent quality breaches. I’ll break them down below.

1. Profit Distribution Bans

The proposed 5-year profit distribution ban specifically targets newly established independent schools or those undergoing ownership transfers, like CEDER acquiring a school or group, while additional bans apply if quality issues arise. The latter strikes me as positive as it forces school operators to uphold quality standards, but the former regulation deserves a paragraph of its own.

While not to be implemented before 2028, the restriction would mean that cash is locked inside new schools for five years. This slows cash back to HQ, lowers flexibility related to dividends and buybacks, and also means that CEDER will have to increasingly depend on debt financing and cash generation from already-owned schools to fund new acquisitions. I do not view this as a thesis breaker at all, but the reversal of this proposal would be greatly welcomed.

2. Expansion Bans and Quality Penalties

Principals with significant shortcomings can be banned from expanding and starting new schools, while municipalities must give formal opinions on the local impact of proposed friskolor, potentially blocking approvals if their concerns are deemed compelling enough. The government also wants to get more power to close underperforming schools, which again reinforces the need to operate with utmost quality - a plus in my book.

3. Funding and Voucher Reforms

This proposal would block friskolor that pay out dividends or have quality breaches from quality-enhancing state grants, which constitute anywhere from 3-10% of revenue. While this would prove quite material to CEDER, the proposal is not to be implemented before 2028 and would not affect newly-acquired schools as they already face a 5-year profit ban under the same proposed package.

4. Transparency Requirements

In January, the Swedish government also announced a bill to extend Sweden’s principle of openness, requiring independent schools to disclose information such as salary lists, student/teacher statistics, and grant usage reports, with rollout expected in 2027. While low-impact overall, the new public disclosure requirements will ultimately drive up G&A, potentially impacting margins by up to 1%.

Overall, the proposals dent profitability and cap value extraction from CEDER’s serial acquirer model, but are not thesis breakers in their current form. The upcoming 2026 election, on the other hand, could prove detrimental to the for-profit model should S return to power and follow through on its profit ban rhetoric. So, how likely is this, and what happens to shareholders in the event of a full-blown ban?

Is This Time That Different?

Socialdemokraterne (S) were in power from 2014 to 2022, deploying much the same rhetoric as they are now, but produced little actual results to point to. The lackluster follow-through occurred for several reasons, and interestingly, the setup is quite similar this time. Without a clear majority, plus game theory dynamics, the most likely outcome is a compromise.

Today's Tidö coalition, comprising Moderates, KD, Liberals, and SD, broadly remains opposed to a for-profit ban, though the Liberals have hardened their stance and begun pushing for an aktiebolag phaseout. While S campaigns on the issue from opposition, politics is ultimately a game of compromise, and defense spending, crime, migration, and the cost of living consistently rank higher on the party's own priority list than a complete educational system revamp.

And for a well-run operator like CEDER, I view it as much more difficult to justify and reconcile a complete profit ban, with the more likely outcome being stricter regulations. Importantly, these stricter regulations shouldn't be blindly imposed on independent operators, but rather tied to and contingent on quality issues, as a blanket ban that makes no distinction between operators based on quality outcomes would be difficult to defend politically and, consequently, likely face significant resistance.

Before I move over to the potential financial implications and worst-case scenarios, I'd like to attack the rhetoric head on. S, V, and MP are all claiming that independent operators are profiting off of innocent students, while educational quality deteriorates. If you would please consult the graphs below, what profits exactly? Even the best-in-class operator CEDER is barely able to eke out high single-digit EBITA margins, while TELLUS has been losing money in four out of the last five years.

It's also important to remember that the proposed alternative is to fully pivot to public education, which is operated less efficiently while also delivering lower-quality education on average. Perhaps these arguments fall on deaf ears, but my view is that the hard rhetoric is ultimately a vote-maximizing strategy, signaling the breadth of changes a future left-wing government claims they would pursue.

Will Shareholders be Zeroed if the Left Follows Through?

What makes the independent school situation so interesting is the limited dataset and few points of reference to estimate exactly how shareholders would be impacted. The most recent for-profit ban within the educational system, while not a perfect 1-1 comp, was China’s 2021 “Double Reduction” Policy, in which for-profit after-school tutoring companies were required to convert to non-profit status or shut down entirely. And with the vague wording, as seen below, it is difficult to infer exactly how shareholders were paid.

From WilmerHale

What we do know is that the CCP, while a literal communist state, did pay shareholders something. The real question is how the compensation was computed. If they applied double digit discount rates (effectively incorporating the heightened political risk in anticipation of government involvement and the for-profit ban) and much lower terminal values due to the worsened operating conditions and a weakened growth outlook, then the fair market value (FMV) would be only a fraction of what it was prior to any ban discussions. Additionally, with the policy itself only guaranteeing “reasonable compensation” rather than full FMV, the CCP likely only paid out a portion of that already-depressed figure, meaning there are essentially two steps of discounts that lower the total compensation value…

Still, Sweden is not China. Any forced wind-down would have to happen within a democratic framework that binds the government’s hands: EU property rights protections, legal challenges that well-funded operators would definitely pursue, and politicians who actually have to answer for what they do with public money.

Everyone has the right to own, use, dispose of and bequeath his or her lawfully acquired possessions. No one may be deprived of his or her possessions, except in the public interest and in the cases and under the conditions provided for by law, subject to fair compensation being paid in good time for their loss. The use of property may be regulated by law in so far as is necessary for the general interest - EU Charter of Fundamental Rights, Article 17

The language leaves little room for maneuver. Should the Swedish government pursue a ban, operators like CEDER wouldn’t simply fold, the schools don't disappear, and the 400k+ pupils and teachers inside them still show up to school on Monday morning. A government that lets operators wind down would be leaving hundreds of thousands of students without schools, which is its own political catastrophe. So they would be forced to seize the assets to keep schools running, at which point Article 17 kicks in and fair compensation becomes a legal obligation. The only way to avoid paying shareholders is to not seize the assets. The only way to not seize the assets is to let the schools collapse. Pick your poison.

And here’s where it gets interesting. The same legal framework that prevents a CCP-style expropriation also creates a real fiscal problem for any government that tries to force well-run operators out. Compensation payments would be funded by Swedish taxpayers, the same voters who backed the ban in the first place. Good luck explaining to them why their tax money is being handed to the shareholders they spent years being told were profiteering off their kids. The optics are a trap in both directions, and that double bind is ultimately what I believe protects superior operators like CEDER.

I will admit that a gradual phaseout, halting new admissions and letting existing cohorts age out, could theoretically sidestep Article 17. But Swedish compulsory school runs nine years, and gymnasium another three, meaning full implementation takes the better part of a decade. That requires a left-wing coalition holding power long enough to see it through, weathering sustained legal challenges from operators that would argue the economic effect is equivalent to expropriation, and resisting the inevitable political pressure to reverse course. Sweden's track record suggests that's a tall order.

Wide Dispersion in Potential Outcomes

I’ve already written a lot - much more than I’d like to. But the CEDER setup differs quite significantly from the companies I usually invest in given the political overhang, and consequently deserves a detailed breakdown and assessment. I think the financial setup speaks for itself: a proven and consistently applied roll-up playbook, strongly incentivized insiders, and double digit earnings and free cash flow yields. The political risks are clearly what explain the depressed valuation and I’ve therefore tried to cover my thinking on these subjects in the preceding section.

When it comes to valuing CEDER, I think the most sensible approach is to compute the fair value under three different scenarios: (1) complete wind-down of for-profit model, (2) the implementation of currently proposed regulatory changes, and (3) CEDER being able to soldier through and meet its long-term financial targets. Let’s go through each one in turn.

Complete For-Profit Wind-Down

The implementation of a complete for-profit ban would be detrimental to CEDER - there’s no way to sugar-coat it. But I don’t believe shareholders would go empty-handed due to the EU property rights and optics as outlined in the previous section. What I can say for certain is that we have no way of estimating any exact compensation figure, so this approach is speculative at best.

Assuming a ban and wind-down is implemented, I believe shareholders will be compensated based on fair market value prior to these implementations being fully reflected into the price. I.e., the compensation would have to be computed as if CEDER were to operate under “normal” conditions. Assuming CEDER is allowed to operate through FY27 before the ban is imposed and achieves the midpoint of its EBITA margin target (7%), that equates to roughly SEK 114m of EBITA. But what multiple should we apply to that?

Both ACAD and TELLUS trade at roughly 11x FY26e EBIT (not EBITA as they both adhere to IFRS, not K3).

Applying a 10x EBITA multiple, since we value CEDER one year out, would translate into a fair compensation value of roughly SEK 1.1b or SEK 90/sh. That’s more than double the current share price - a bit far-fetched maybe? If we instead apply its current EV/TTM EBITA multiple of 5x (note that TTM EBITA exceeds the F27 estimate based on 7% EBITA margins), the compensation value is more than halved to SEK 535m or SEK 42/sh.

Again, these are all hypotheticals, but it goes to show we’re currently at trough levels. Taking it a step further, the Swedish Expropriationslagen (Expropriation Act 1972:719, Chapter 4 Section 1) outlines how owners forcibly deprived of property should receive market value plus a 25% premium. Adjusting the compensation value for this premium gives us four potential outcomes, all close to or meaningfully above the current share price.

I’ll be clear. an absolute worst-case scenario would be a gradual phase-out, which would essentially render the shares worthless. But I view this as a very unlikely outcome as it would require a left-wing coalition to remain in power throughout the multi-year implementation process to reinforce it, in addition to legal pressures from operators, EU property rights, and domestic and global optics all working against this. ​

Implementation of Current Regulatory Proposals

As mentioned earlier in the writeup, the regulatory proposals presented in January include a 5-year profit ban on new schools and schools undergoing ownership transfers, increased transparency and record-keeping driving up G&A, and the loss of quality grants for friskolor. The timelines on these proposed changes are January 2027-January 2028, meaning CEDER has roughly 1-2 years before they come into effect, if approved.

To incorporate these changes, I’ve assumed that additional G&A related to transparency requirements will equate to 1% of revenue each year, while exclusion from quality grants reduces revenue by 4.5% per annum. Simultaneously, I’m assuming FY26 EBITA will equal the TTM average, and that EBITA margins before adjusting for additional G&A will expand by 10 bps annually.

Doing so yields a FY30 fair EV of SEK 992m and, depending on NIBD assumptions, a FVPS of SEK 48-78 (0-2x NIBD/EBITDA). This works out to an IRR of 3-13%, assuming only modest multiple expansion and revenue growth below the 10-15% target. If we instead discount the future cash flows back at a 15% cost of capital, the fair value works out to around SEK 760m, or SEK 60/sh.

All Financial Targets Being Met

CEDER continuing under current operating conditions would look something like this: 15% annual revenue growth achieved through accretive and controlled M&A, where suitable schools and groups are acquired at low single-digit EBITA multiples. The acquisitions are funded through cash on hand, debt, stock, or a combination of the three, and the synergies from the roll-up playbook come into full effect 2-3 years post-acquisition. Not only do target margins expand meaningfully, but CEDER’s serial acquirer model is well received by the market, with added EBITA being rerated at low double-digit multiples.

Such a scenario assumes EBITA margins of 8.3% in FY26 (again equivalent to the reported TTM figure) are maintained throughout the forecast period. The predictable and proven playbook could ultimately make the market willing to pay up, especially if the regulatory outcome ends up better than what is currently priced in, and by FY30 CEDER rerates to 12x FCF. If this were to occur, the fair EV could reach SEK 2b - more than a 3x from current levels. Assuming unchanged leverage, this scenario implies a FY30 FVPS of SEK 152, translating into a 29% IRR.

The above scenario could prove overly optimistic, but overall I believe CEDER could be worth anywhere from SEK 43 to more than SEK 100 per share. The success of the investment is ultimately contingent on clarity around regulatory changes and ongoing political discussions, but continued execution and accretive add-ons will likely drive the stock price higher in the meantime. The Tidö Coalition winning the 2026 election, or reversals or lighter revisions of current proposals is what could trigger a significant rerate as double digit EBITA and FCF multiples are suddenly within reach.

It’s a game of sentiment

Risk Factors

1. Complete for-profit ban

A future left-wing coalition could outlaw friskolor, severely disrupting CEDER’s business model.

2. Significantly stricter regulations

Tighter rules beyond current proposals could compress margins further and limit the value of the serial acquirer model.

3. Deviating from proven roll-up playbook

I view this as highly unlikely, but poor acquisitions or a shift in strategy could impair the value-creation engine.

Why This Opportunity Exists

1. Regulatory/political overhang

The market is currently pricing in worst-case policy outcomes that might never materialize, with stricter but manageable changes being the most likely outcome.

2. Misleading headline numbers

I don’t think this is a core reason anymore, but CEDER’s K3 accounting requires straight-line amortization of goodwill post-acquisition, thereby distorting earnings figures.

Catalysts

1. The right-wing coalition remaining in power

A Tidö election win this year would remove the for-profit ban threat and likely trigger a significant multiple rerate.

2. Additional accretive acquisitions

Continued accretive M&A at low single-digit EBITA multiples, with synergies kicking in 2-3 years post-deal, will continue compounding earnings. Ultimately, we might not need a significant multiple rerate for CEDER to be a winner.

3. Less strict or reversal of proposed regulatory changes

Any softening of the January proposals would provide margin upside and restore market confidence in the roll-up model.

4. Share buybacks

During the period May-October 2025, CEDER conducted a synthetic buyback, repurchasing and retiring 10% of outstanding shares. With leverage currently at 0.6x NIBD/EBITDA compared to its 2x threshold, there is ample room for additional buybacks going forward.

Closing Words

CEDER strikes me as a low risk, high uncertainty case. Taking the time to go through the second-order effects of a complete ban, or regulatory proposals so strict they amount to expropriation masked as legislation, makes it highly unlikely that the current rhetoric will be followed through, even in the event of a left-wing coalition. Pair that with the spillover effects on foreign investor interest and the judicial and fiscal nightmare that compensating shareholders would present, and the downside looks limited.

The business itself doesn’t need much defending. CEDER runs a sensible, proven roll-up playbook with founders still involved, more than 40% ROCE, and less than 3% penetration of the independent school market. Increased scale should drive up margins, quality metrics are best-in-class, and the pipeline of single-digit acquisition targets with real synergies isn’t going anywhere. If anything, a tightened operating environment could prove a net positive for CEDER as scale becomes currency, and smaller operators unable to absorb rising G&A and lower funding become natural acquisition targets.

Everyone will have to weigh the facts and make up their own mind. But at sub 5x EBITA with strongly aligned insiders and a long growth runway, the investment case looks largely derisked in my opinion.

This is not investment advice. I hold shares of Cedergrenska (CEDER) at the time of writing, and my views may be biased. Please do your own research and consult a financial advisor before making any investment decisions.

From TKA’s Stock Price Chart Page

While not a perfect 1-1 comparison, I believe the setup of Salzgitter AG (SZG) is quite similar. The company trades at a ~40% discount to TBV, has several upcoming catalysts, and owns several hidden or underappreciated assets. In addition to all of these attractive elements, SZG owns approximately 30% of the copper recycler Aurubis, currently translating into a stub value of ~€650m. While P&L profits vary significantly from quarter to quarter, that sounds absurdly cheap for a company generating close to €10b of annual revenue, poised for significant earnings recovery, and with several accessible levers to unlock substantial shareholder value.

Salzgitter in Short

Salzgitter (SZG) is a steel-focused industrial company founded in 1858. With more than 24k employees and ~€10b in FY24 revenue, it is one of Europe’s largest steel producers and the second largest in Germany. Its size and long history has made it synonymous with innovative steel manufacturing for more than a century, and its operations are currently comprised of five main business segments: Steel Production, Steel Processing, Trading, Technology, and Industrial Participation.

Steel Production

Steel Production encapsulates the production of primary steel products, forming the base material for downstream processing and external customers. Put simply, it is where raw materials are melted and turned into basic steel.

Steel Production - From SZG’s December 2025 Investor Presentation

Importantly, the segment's profitability hinges on European steel prices being higher than the cost of raw materials and energy. A growing emphasis on greener materials from customers has also led to a shift towards low-carbon steel, a transition that has proved costly. SALCOS, SZG's carbon reduction program, carries a ~€2.3bn total investment for Phase 1, of which only €1bn is covered by public subsidies and the remaining €1.3bn is internally funded. Notably, the investment decisions on Phase 2 and 3 have been pushed back to 2028/2029, meaning near-term CapEx pressure should see a notable reduction once Phase 1 construction winds down.

Steel Processing

Steel Processing is the downstream conversion of physical steel into customer-specific products, such as tubes and processed steel solutions, positioned closer to end-use requirements than primary steelmaking.

Steel Processing - From SZG’s December 2025 Investor Presentation

The segment is comprised of several groups, including the Mannesmann Precision Tubes Group and Ilsenburger Grobblech, covering everything from automotive parts to heavy steel plates for industrial machinery and offshore energy platforms. Put another way, Steel Processing refines the steel produced by Steel Production through cutting, shaping, coating and preparation, to meet customer requirements.

Product Illustration - From SZG’s December 2025 Investor Presentation

Trading

As implied by the name, Trading is SZG’s sales and distribution arm. The division handles the buying and selling of steel products and related material on global markets through the company’s own distribution network and warehousing sites across Europe.

Trading - From SZG’s December 2025 Investor Presentation

Since a significant portion of steel demand stems from small and medium-sized customers unable to meet the minimum order quantities for direct purchases, SZG also acts as an intermediary, buying in bulk from steel mills and then selling smaller quantities to individual customers.

Technology.

The Technology unit specializes in advanced machinery and engineering solutions beyond the core steel business. Its primary focus is beverage filling and packaging machinery, led by the KHS Group, which constitutes approximately 90% of the division's sales. KHS is one of the world's three leading companies within this space, developing and manufacturing complete filling and packaging systems for beverages and liquid food products across production facilities in Germany, the U.S., Mexico, Brazil, India, and China.

Technology - From SZG’s December 2025 Investor Presentation

Industrial Participation

Industrial Participation is SZG’s portfolio of non-core business holdings. Most notable is its ~30% stake in the large European copper producer and recycler Aurubis (NDA), which currently covers approximately 75% of SZG’s market cap.

Other holdings include a majority stake in HANSAPORT Hafenbetriebsgesellschaft mbH, Germany’s largest seaport terminal for bulk goods (e.g., iron ore and coking coal), and Verkehrsbetriebe Peine‑Salzgitter GmbH, one of Germany’s largest freight railways.

HANSAPORT Hafenbetriebsgesellschaft mbH - From portofhamburg.com

Segment Financials

Effective April 1, 2022, SZG altered its corporate structure, with the former Strip Steel, Plate/Section Steel and Mannesmann business units being assigned to Steel Production and Steel Processing. Since this was done in accordance with perceived value creation and customer requirements, we cannot fully infer the exact split of the legacy segments prior to 2022. Still, assuming Strip Steel and Plate/Section Steel were fully part of Steel Production, and Mannesmann is equivalent to the current Steel Processing segment, we can approximately reconcile them backwards.

Below are the segment-level revenue figures, showing how Trading and Production clearly lead the line.

Segment Revenue

Most segments have struggled from an EBITDA perspective, but the significant ramp-up in Production EBITDA, which coincided with European HRC hitting a record-high of €1412/t in March 2022, illustrates how Production has immense embedded operating leverage when steel-prices spike.

Segment EBITDA

A Structural Inflection Point for European Steel Producers?

The European steel market stands at a potentially transformative juncture. The region consumes approximately 135mT of steel annually, of which 107mT are produced locally and 27mT are imported. Salzgitter currently produces roughly 6mT, with 7mT of annual installed capacity.

Real EU Steel Consumption - From EUROFER

Beginning in July 2026, the regulatory landscape will shift dramatically. Tariff-free imports are set be capped at 18.3mT, which could nearly halve imports from 34.5mT to 18.3mT.

Domestic vs Imports - From EUROFER

This supply constraint arrives alongside the January 2026 implementation of the Carbon Border Adjustment Mechanism (CBAM), which levels the playing field between domestic and imported steel. Until now, EU producers have borne the cost of CO₂ quotas while imports have circumvented these charges. Under CBAM, imported steel will face carbon costs of approximately €70-100 per tonne of CO₂, representing a price increase of roughly 10-20%. Combined with the impact of reduced import quotas, total price increases for imported steel could range from 20-40%, if not more.

EU CBAM Illustration - From Asuene

The policy trajectory could become even more favorable. Should the EU follow the U.S. example and implement more comprehensive import restrictions, supply constraints would intensify further, potentially justifying significant multiple rerates for European steel producers. The incremental cost impact on end products also appears manageable, e.g., adding €100-€500 to the price of a car, a trivial amount in the context of total vehicle costs (sub 2% of total vehicle price). This suggests the automotive industry and other steel consumers could absorb higher steel prices without significant demand destruction.

Beyond supply-side dynamics, demand fundamentals also appear to be improving. Declining interest rates and energy costs create a more favorable macroeconomic backdrop, while the potential for peace in Ukraine could unlock substantial infrastructure rebuilding demand. Germany’s approved €500b infrastructure fund also represents an additional tailwind, offering Salzgitter a steady and growing demand stream for the foreseeable future.

From Germany’s Federal Ministry of Finance

Are Insiders Aligned?

Well, sort of. SZG’s current executive board is comprised of Gunnar Groebler (CEO), Birgit Potrafki (CFO), and Birgit Dietze (CHRO). While their tenures range from only 1-5 years, the current compensation scheme attempts to ensure alignment.

Short-Term Variable Pay

The short-term variable pay equals 10 monthly salaries (~€1.1m for Groebler) with 70% weighted to EBT versus prior year and 30% to qualitative goals (e.g., workplace safety and succession planning). EBT mechanics are simple: flat y/y = 100%, +50% = 150% (max), -50% = 50% (min), negative = 0%. The twist is that only 50% pays in cash immediately, while the other 50% converts to virtual shares locked for three years, valued at the 30-day average price upon payout, and capped at 150% of the deferred amount.

ST Bonus System - From SZG’s 2024 Remuneration Report

Long-Term Variable Pay

Each year, executives also earn into a separate four-year award that pays out when the cycle ends. Think of it as a forward-looking incentive structure that keeps resetting. Targets are ~€440k for the CEO as the base, paid entirely in cash, and with a 200% cap. 70% is tied to ROCE targets over four years, while 30% is contingent on sustainability milestones (e.g., accelerating SALCOS).

This strikes me as a plain-vanilla compensation scheme, and I am no fan of management being paid even in years where EBT declines y/y (despite remaining positive). Replacing or reallocating a portion of the variable components tied to qualitative targets or sustainability milestones with specific share price hurdles seems like a low-hanging fruit to instill true alignment. But you can’t have everything, can you?

Connecting the Dots

To value SZG, there are several moving parts we need to account for. Steel Production is likely to be the core value driver going forward, and I have anchored the valuation to normalized utilization rates under different steel price scenarios. Since SZG's Steel Production segment includes value-added services, such as cutting and processing through its service centers, a simple price x volume approach would understate actual revenue.

I consequently based the valuation on EBITDA/t rather than raw steel pricing alone, which better captures Production’s actual profitability. SZG printed €155 of EBITDA/t in FY22, which coincided with the historical HRC price peak of €1412/t (note that this was world export prices and not European domestic ones). While this level of profitability stands in stark contrast to other years, tighter supply and a more level playing field could push both steel prices and profitability to similar levels.

Since 2015, SZG's utilization rate averaged 93%. Despite dropping in FY22-23, it recovered to 91% in FY24. To remain conservative, I am assuming 87% utilization across steel prices, which is equivalent to 6.1mT of annual crude steel output against the 7mT of current installed capacity.

Pairing this with EBITDA/t in the €51-151 range suggests Steel Production alone could generate between €300m and €900m of annual EBITDA.

Most peers (while not perfect comparisons) trade at 5-6x forward EBITDA, and applying the lower-end of this range, as the peer group is mainly comprised of industrial conglomerates rather than pureplay steel manufacturers, suggests Steel Production could be worth anywhere between €1.6b and €4.6b. I have assumed the midpoint of this range, i.e., €3.1b, for the SOTP.

Steel Processing, while closely tied to Steel Production, is significantly more volatile EBITDA-wise and even turned negative in FY24. Management pointed to a weak order book and historically low steel prices as the main drivers behind this underperformance. Still, a normalized EBITDA level could be around €86m (4.7% EBITDA margin on approximately €1.9b of revenue). Peers trade at a little north of 6x forward EBITDA, but I will again apply 5x to account for the historical operating turbulence. Doing so yields a fair value of €432m.

Trading is a high-volume low margin business. A reignition in demand would prove highly beneficial, and the segment could produce close to €100m in annual EBITDA if margins revert back to the 10-year average of 2.6%. Compared to production and processing, steel-related trading companies actually trade at a premium. Applying an 8.5x EBITDA multiple suggests Trading could be worth approximately €800m, or more than 50% of the current EV.

Technology is Salzgitter's highest-quality business segment. KHS Group is one of the world's leading beverage filling and packaging equipment manufacturers, competing alongside Krones and Tetra Pak/Sidel in an oligopolistic market. With over 5,000 employees, a global manufacturing footprint (Germany, USA, Brazil, India, China, Mexico), and over 150 years of heritage, it is deserving of a higher multiple. Applying an 11x forward EBITDA multiple to similar revenue and EBITDA margin levels translates into a fair value north of €1.1b for Technology.

Industrial Participation serves as a catch-all for unrelated businesses and strategic stakes. Verkehrsbetriebe Peine-Salzgitter and its 51% stake in Hansaport are definitely valuable, but without clear financial disclosures I have, somewhat simplified, applied an EV/S multiple to the segment. This is mainly because SZG accounts for NDA using the equity method, which distorts EBITDA. If we were to back out the NDA participating investment, EBITDA would actually turn negative YTD. If we instead apply a 1x EV/S multiple to the 9m annualized revenue figure, this implies a fair value of €181m, excluding NDA.

In October last year, SZG issued €500m worth of bonds exchangeable for NDA shares. With an exchange price of €145.8/sh, the conversion is currently in the money and should be treated as such. Adjusting SZG’s holding for the roughly 3.4m shares transferable when exercised and lowering NIBD by €500m implies a mark-to-market NDA stake value and NIBD position of ~€1.7b and €472m, respectively.

As Ulf Huse pointed to in his great thread on the company, SZG also holds valuable CO₂ certificates valued years ago at much lower prices. These certificates are carried on the balance sheet as intangible assets at their original cost, and SZG has lent out a portion of these certificates on a short-term basis, creating financial liabilities of approximately €1b on the balance sheet. On the Q3 call, CFO Birgit Potrafki confirmed that the value of the certificates would be close to the liability. In other words, SZG could sell these certificates and fetch close to €1b in today’s market, if not more since not all of the certificates are held with corresponding liabilities.

The last adjustment that needs to be made relates to the rediscounting of SZG’s pension liabilities. Rediscounting the approximately €1.5b of pension liabilities at 10% rather than the 4% applied means the PV of these liabilities declines to €746m from the €1.5b carried on the books.

Adding up all the parts suggests SZG could be worth around €7b (~€130/sh), implying a 60% NAV discount at current prices. Whether all this value is fully crystallized depends on future execution, a favorable macro backdrop facilitating a rebound in European steel prices, and sensible capital allocation when cash begins to build on the balance sheet. But any way you look at it, the current valuation spread and real upcoming catalysts makes SZG an attractive bet.

Even more interesting is the fact that SZG’s net gain YTD (netting out the pro rata increase attributed to NDA) is only €239m. Put another way, the market has only assigned approximately 30% of SZG’s YTD return to its operating business, while the NDA stake appreciation accounts for the remaining 70%.

Main Risk Factors

1. Steel Price Volatility

SZG’s profitability is highly sensitive to and contingent on European steel prices, which remain cyclical and vulnerable to global oversupply, both domestically and indirectly through China. A sustained downturn in steel prices would compress margins as costs roll off at a slower pace than revenue.

2. Execution Risk on SALCOS

Phase 1 of the SALCOS decarbonization program carries a ~€2.3b price tag where €1.3b is internally funded. Any delays, cost overruns or technical issues could strain the balance sheet and P&L further, and management’s decision to push the investment decisions related to Phase 2 and 3 to 2028/2029 already signals heightened caution.

3. Regulatory and Political Risk

The improving regulatory environment (e.g., CBAM and reduced import quotas) depends on continued political commitment to protect domestic steel producers. Any shift in trade policy or delays in enforcement would adversely impact SZG’s operations and weaken the investment thesis.

4. Governance Constraints

The State of Lower Saxony holds a 27.9% stake in SZG and has publicly stated it will not sell its shares and consistently prioritizes employment protection over shareholder value maximization. This blocking minority constrains management’s strategic flexibility as the state has veto power over major corporate decisions including mergers, asset sales, spinoffs, and charter amendments. While I do not believe the blocking of accretive transactions is likely to occur, massive layoffs and other cost-cutting measures are less likely to be implemented.

Why This Opportunity Exists

1. Complexity and Opacity

The five-segment structure, equity-method accounting for NDA and understated balance sheet asset values create increased complexity that deters generalist investors. Disappointing headline figures and persistent operating turbulence lead most investors to dismiss SZG as yet another struggling German industrial company trading at a steep discount to TBV.

2. Cyclical Pessimism

European steel has been in a multi-year downturn with weak sentiment and margin compression. Investors anchoring on recent negative earnings miss the embedded operating leverage when steel prices normalize.

3. Conglomerate Discount

SZG trades with a conglomerate discount, evidenced by the market assigning minimal value to its operating businesses beyond the NDA stake YTD. Full value crystallization will likely require accretive portfolio actions, such as asset sales, spinoffs, or strategic transactions.

Upcoming Catalysts

1. CBAM Implementation and Import Quota Reductions

The January 2026 CBAM rollout imposed €70-100/t carbon costs on imported steel, while July 2026 import quotas are set to drop to 18.3mT. The combined 50% above-quota tariff and CBAM costs make most above-quota imports economically unviable, potentially reducing supply by ~11%. And this structural shift should drive European steel prices higher and materially improve profitability over the next 1-2 years.

2. SALCOS Phase 1 Completion

SALCOS Phase 1 is set to be completed in 2027, ending the €1.3bn internal funding commitment. Combined with recovering European steel prices from CBAM and reduced import quotas, SZG should start generating positive free cash flow post-completion.

3. Further Assets Monetization

Management has demonstrated a willingness to monetize non-core assets through the 2024 Mannesmann Stainless Tubes sale and NDA exchangeable bond offering last fall. Further portfolio optimization, such as monetizing the Hansaport stake, selling CO₂ certificates (~€1bn of unrealized value that management confirmed they don't need for the time being), or other strategic transactions, could unlock significant additional value and close the current NAV discount.

4. Reignited Takeover Interest

This remains speculative currently, but SZG did receive a takeover bid from a consortium comprising its second-largest shareholder, GP Günter Papenburg and TSR Recycling, in 4Q24 of around €18.5/sh. SZG rejected the bid and, in retrospect, was completely right in doing so. Still, GP remains the second-largest shareholder at 16% and if the operating performance continues to improve, a second bid from either GP, other suitors, or a combination, could come to fruition.

Final Words

Salzgitter strikes me as a misunderstood and underappreciated company. The current setup offers a significant discount to NAV and with multiple paths to value crystallization. CBAM implementation and halved import quotas create structural tailwinds for European steel prices, while the undervalued and hidden assets limit the downside.

The market seems to treat SZG as a troubled legacy industrial, assigning only minimal additional value to the core operations YTD despite a turnaround beginning to form. And this myopia and anchoring is exactly what creates opportunity. When European steel prices normalize and the SALCOS Phase 1 investment is finalized, SZG’s embedded operating leverage should translate into significant free cash flow generation.

Execution risks, such as timely SALCOS completion, a sustained steel price recovery, and management’s capital allocation decisions do remain, and will determine whether the full SOTP value is ultimately crystallized. But with a 60% NAV discount, real upcoming catalysts, and a precedent for value-unlocking transactions, the margin of safety appears sufficient. I will take that bet.

This is not investment advice. I hold shares of Salzgitter (SZG) at the time of writing, and my views may be biased. Please do your own research and consult a financial advisor before making any investment decisions.

2025 has been a satisfactory year from both a relative and absolute return perspective, with my portfolio up 62.2% in NOK despite significant FX drag throughout the year.

USD/NOK and CAD/NOK YTD - From Google Finance

The 2025 return has also pushed my 4-year CAGR past 30% since inception (January 1, 2022), versus low double-digits per annum for my benchmarks, while my cumulative return is closing in on 200%.

Winners and Laggards in 2025

The main contributors of 2025 were Otello Corporation (OTEC), thyssenkrupp AG (TKA), Entravision Communications (EVC), and Tenaz Energy (TNZ), with the four contributing ~8-14% each.

On a more sour note, Dedicare AB (DEDI), Regis Corporation (RGS), and Starz Entertainment (STRZ) all had a drag of 2% or more on the portfolio. I’ve sold both DEDI and RGS, but still hold STRZ. A stronger content slate this year, paired with further deleveraging, higher content ownership, and potential value-accretive M&A should support a recovery in both subscriber count and OIBDA, and gradually justify a multiple rerate. Insiders buying shares and an undemanding valuation of sub 5x forward unlevered FCF are also promising, while the leveraged balance sheet provides meaningful equity torque.

Selling RGS prior to its ~60% run-up felt like a bit of a gut-punch at the time. However, Matthew Doctor’s abrupt departure, combined with RGS’ razor-thin ICR made me inclined to sell. And I don’t think I would have done anything differently if the same risks were to present themselves in any of my other investments.

Key Learnings From the Year

Despite being invested in 14 different names throughout 2025, I earned money on 11 of those, which is equivalent to a 79% batting average. I don’t view this as sustainable but as George Soros has famously said: It’s not whether you’re right or wrong, but how much money you make when you’re right and how much you lose when you’re wrong. Accordingly, I’ve become much more aware of portfolio management: how can I size my highest-conviction bets to ensure I earn meaningful returns when I’m right while simultaneously avoiding large losses when I’m wrong?

This is no easy feat, but I’ve generally come to prefer sizing new positions 10% or more when I believe there’s an ample margin of safety, largely through significant NAV or SOTP discounts or large net cash positions. This isn’t foolproof but it has served me well this year. I also cut losses rather quickly when the thesis isn’t playing out or when I need cash for more attractive bets, although the former has proved difficult as it’s hard to know exactly how long you should give a company before drawing that conclusion. Trimming lower-conviction bets to fund new positions or funnel additional cash into higher-conviction, existing holdings is also something I’ve done more frequently this year.

Another alteration I’ve made relates to avoiding price anchoring bias. I’ve averaged up on three out of the four stocks I made the most money on this year, something I would’ve viewed as blasphemy in prior years.

Provided I still see a significant discount to fair value, I’ve become accustomed to buying more despite prices rising. I’d even go as far as to say that I’m almost more comfortable buying additional shares when the stock price is going up and to the right rather than down as this is often an indication of the market validating my thesis. But this isn’t always the case.

Lastly, and a point that is closely tied to the averaging up approach, is that I employ Joel Greenblatt’s position sizing strategy:

Usually, when I size positions, my largest positions are not the ones I think I’m going to make the most money from. My largest positions are the ones I don’t think I’m going to lose money in. This way, I can buy a lot of that without taking much risk. And if there’s some optionality, meaning it could go up, that’s even better. - from his Wharton interview with Howard Marks

Portfolio Management in Practice

This line of thinking is what led me to size OTEC more heavily in early 2025 as the board was replaced, Bemobi (BMOB3) started to run, both companies bought back meaningful numbers of shares, and the NAV discount expanded. The introduction of an employee and board option program this fall, designed to directly incentivize insiders to maximize the NAV/sh, strengthened my conviction further and I again added more shares.

Current NAV/Share - OTEC

Alico (ALCO) is another example. The company announced a complete pivot away from citrus production earlier this year to focus on the monetization of its valuable real estate portfolio. While the timeframe of this remains uncertain, management has, based on input from local real estate experts and appraisers, estimated the present value of this portfolio in the $650-750m range (or more than 2x the current EV). This, paired with John Kiernan being clearly incentivized to push for additional property sales and project development, and ALCO’s $50m buyback program, is why it’s currently my second-largest position at 14.5%.

ALCO - Sensitivity Table

So what’s my largest position as of year-end 2025? EVC - by a mile. I started accumulating shares back in April 2025 as I wanted exposure to U.S. broadcasters given Brendan Carr and the FCC’s clear intentions to deregulate the industry. Compared to other broadcasters, EVC had more manageable leverage but, more importantly, it wasn’t a pure-play broadcaster.

The company owns three assets: (i) Media (its TV and radio stations), (ii) spectrum licenses (related to media but could be separately monetized with stations entering CSAs), and (iii) ATS (programmatic and digital advertising comprised of Smadex and Adwake). Without going too much into detail, as I’ve already made two writeups on the company, you don’t have to do any mental gymnastics to see that the media and spectrum assets could cover EVC’s EV, even after the recent run-up, while ATS could justify a 2-3x, if not more.

The Q3 print revealed that the ATS segment grew revenues more than 100% y/y, while EBIT grew close to 400%. A much slower-growing peer was taken out at close to 15x EBIT, which suggests ATS could be worth at least $600m on a run-rate basis, while continued execution and a better comp-set (e.g., Moloco) could justify a meaningfully higher valuation. Consequently, I made it a 25% position buying hand-over-fist after the excellent Q3 numbers. Alignment is there with core insiders having their cash bonuses removed and base salaries cut in exchange for additional RSUs and PSUs, the latter of which are tied to specific stock price thresholds 60-360% above the current share price.

This comment is somewhat speculative, but I have it on good authority management plans to sell or spin off ATS - a move that should prove a significant value unlock. A new spectrum auction à la 2017 and midterm elections in 2026 should also lead to meaningful value uplift for the remaining assets.

Portfolio Entering 2026

Entering the new year, my portfolio is comprised of eight stocks with individual weightings of 2-24% after selling OTEC and TKA in December.

Portfolio as of Year-End 2025

The geographical exposure is quite concentrated with all holdings being domiciled in either the U.S. or Europe, while the sector exposure is heavily skewed toward communications services.

Importantly, close to 50% of the portfolio fitting into the same sector does not imply that all the companies have overlapping business models. North Media (NORTHM), for instance, is a legacy conglomerate operating within both physical and digital advertising distribution and marketplaces, with a large equity portfolio attached, while Starz Entertainment (STRZ) is an OTT streaming platform and premium cable network. Two vastly different businesses despite the two being grouped within the same sector.

As I’ve stated before, I remain both size- and sector-agnostic. I apply a bottom-up approach and invest if the discount to fair value is significant enough. But there are certain exceptions (or close to it). For instance, I was hesitant to buy TNZ as I felt E&P was too far out of the scope of my circle of competence, but the cheap valuation, impressive track record, and strongly aligned management team made it too irresistible (luckily enough).

While I try to remain honest about the edge of my competence, I continually attempt to expand my circle of competence too. Being able to identify the 2-3 most important value drivers, take the time to understand a company’s business model, and articulate an investment thesis in simple terms makes this easier. Buffett has always emphasized the importance of remaining true to your circle of competence, but he too has stepped into “unknown” territory. A circle of competence isn’t static, especially not if you’re inherently curious and have a long runway.

Psychological Longs/Errors of Omission

As Howard Marks often notes, the most durable lessons in investing tend to come from mistakes rather than success. With that in mind, one of the key lessons I learned in 2025 relates to how errors of omission can be as costly as errors of commission. In the first half of 2025, I started making writeups on both FTC Solar (FTCI) and Bumble (BMBL), but I neither bought nor completed the writeups. The former rose around 400% from its bottom in April, while BMBL rose close to 150% at its peak before erasing all of its gains. I think, perhaps a bit illusorily, that I would have sold closer to the top, or at least in the green, and avoided the complete reversal. And that’s not me patting myself on the back; selling too early is one of my greatest faults. Selling Meta Platforms (META) at $260 in mid-2023 comes to mind…

Still, while errors of omission prevent you from acting on ideas that would have otherwise shown up as red ink in the P&L, they can also prevent significant gains. I’ve already mentioned how I’ve become more proactive in my thinking and portfolio management, buying positions whenever the setup is attractive and the margin of safety sufficient, but large potential winners have still been able to escape my portfolio this year as well. Going forward, acting more decisively whenever the setup is attractive enough and being prepared to instead correct mistakes when price action and/or company news reveal that this is the right move is something I’ll attempt to implement more forcefully in the coming year.

I can add that Salzgitter (SZG) is the newest addition to this list of errors of omission as it was up more than 10% on the first day of trading in 2026 and more than 30% since I started looking at it. Yours truly has not bought a single share as of yet.

Closing Words

I’ll stop rambling for now, but I want to take the time to thank each and every one of you, both free and paying subs, for seeing value in my writeups. Building connections, swapping ideas and getting feedback from skilled investors across the globe has undoubtedly elevated my investing prowess, and I look forward to a new year with the scoreboard reset. Wishing you and yours a happy new year.

Yours sincerely,

This article is not investment advice. I may hold positions in one or more of the companies discussed, and my views may therefore be biased. Please do your own research and consult a financial advisor before making any investment decisions.

TalkPool AG (TALK) is a small, niche telecom services company that few investors pay attention to. It’s founder-led, insiders remain strongly aligned with shareholders, and after years of turbulent operations and varying M&A success, management has quietly cleaned up the business. Today, TALK is well-positioned to benefit from ongoing telecom infrastructure build-outs and capitalize on a potentially meaningful U.S. expansion, yet it trades at a substantial discount to a conservative SOTP valuation that does not account for much of the embedded optionality. With a robust balance sheet, reaccelerating revenue, a clear path toward margin expansion, a valuation of ~4.5x EBITDA run rate, and several upcoming catalysts, the setup looks compelling.

Business Model

TalkPool AG, founded in Switzerland in 2000, is a telecom maintenance and network-service provider with operations across Europe, the Middle East, and the Americas. It serves a broad array of large-scale network operators and equipment vendors, including Deutsche Telekom, Telenor, Ericsson and Huawei, and divides its operations into three core segments: Field Services, Remote Services and Technology Services.

Customer Overview - From TALK’s 2025 Investor Presentation

Field Services (FS)

FS relates to traditional telecom infrastructure. It remains the foundation of TALK’s business, representing approximately 2/3 of revenue, and encapsulates network roll-outs (both fixed and mobile), engineering, installation, repairs, and on-site maintenance and optimization. Put another way, FS is the physical work done on telecom sites.

Lower growth and margins, and less recurring revenue, as it is mainly contract-based, makes it the least attractive segment of the three. Still, TALK’s long-standing and well-established relationships with Deutsche Telekom and Ericsson also position it as a reliable and recurring source of contract work. Germany’s Gigabit Strategy 2030, aimed at delivering nationwide fiber-optic coverage by 2030 (50% household coverage by year-end 2025), combined with the German dark-fiber network market being projected to grow at a 14% CAGR through 2032, should also provide a sustainable pipeline of network deployment, maintenance, and optimization contracts.

Remote Services (RS)

RS, on the other hand, is a scalable business combining contractual and recurring revenue. It is the core of TALK’s strategic pivot and covers remote network monitoring, maintenance, such as off-site troubleshooting, and outsourced engineering services from centralized hubs. The latter makes it a lucrative business as TALK outsources work to cheaper-labor countries such as Pakistan, unlocking higher margins and operating leverage as revenue scales.

More specifically, the Pakistani engineering team consists of more than 1300 technicians and, as pointed out in his great writeups on the company, their wages are less than 1/10th the level of their Western counterparts. While this team of technicians has generally been limited to serving Pakistani clients, TALK is expanding the model globally, providing the company with an inherent cost advantage when taking on incumbents with more expensive labor teams.

Technology Services (TS)

The last segment, TS, is the successor to TALK’s former IoT business, and includes software platforms for networking optimization, AI-driven analytics and automation, and smart buildings and sensor-based solutions integrated into service offerings. It boasts the highest expected gross margins of the three segments but is negligible in size.

TALK’s Vision AI, its proprietary, AI-driven computer vision solution is also part of this segment. Put simply, it is a practical application of ML technology to automate physical inspection tasks. It uses cameras to capture images and applies existing computer-vision models to analyze those images, identifying errors, mismatches, or quality issues that would otherwise require manual inspection. While strategically important, TS remains small and experimental relative to FS and RS.

Notably, the offering is steadily gaining traction with TALK having secured contracts with both Tetra Pak Pakistan and Forward Sport in Pakistan. The latter is the worlds largest football manufacturer and is currently producing the WC 2030 football. More importantly, customers are experiencing tangible productivity gains, such as rapidly growing production line output and widening site maintenance coverage.

The gradual shift in revenue mix should ultimately drive up profitability, and management now targets a 14% EBITDA margin by 2030. Surprisingly, the margin target is only 20 bps above the 3Q25 reported EBITDA margin of 13.8%, suggesting only modest margin expansion expectations. This seems overly conservative as the meaningful growth in the higher-margin RS and TS segments, if achieved, should bolster margins over time.

2030 Segment Targets (in EURt) - From TALK’s 3Q25 Report

The below map gives a sense of TALK’s main geographical exposure, with Germany Pakistan, and Haiti collectively accounting for close to 100% of group revenue in FY24. While currently small in size, management’s commentary on the Q3 call gives strong indication that they have high expectations for the U.S. going forward. With FY24 revenues of €21k, its recent MasTec contract worth $1m in its first year is material relative to both its U.S. operations and group revenue. Management also noted that the demand they are currently experiencing in the U.S. outstrips capacity - a very bullish statement if true.

Geographical Exposure - From TALK’s 2025 Investor Presentation

Additionally, management provided a quick pitch on why investors should choose TALK in its investor presentation earlier this year.

Key Business Characteristics - From TALK’s 2025 investor presentation

Assessing each point from a sober lens, I can say the following. TALK’s revenue is largely stable due to the recurring nature of maintenance and managed-services work, supported by secular tailwinds as telecom operators continue to invest in current-generation and next-generation infrastructure in a highly competitive and homogeneous market. Revenue remains geographically concentrated, primarily in Germany, Pakistan, and Haiti, although management’s efforts to expand in the U.S. and re-enter Sweden will gradually diversify the revenue mix.

Revenue by Country (in EURt) - From TALK’s FY24, FY22, and FY20 ARs

The market tailwinds are real, driven by fiber rollout, 5G densification, and ongoing network modernization, but these dynamics primarily support steady demand rather than outsized growth or pricing power. With the 5G infrastructure market being projected to grow at a 16% CAGR through 2033, TALK does not need to gain meaningful market share to achieve its 2030 revenue target. However, its growth assumptions do rely on the successful scaling of the TS segment.

5G Infrastructure Market Projection (in USDb) - From Grand View Research

The assertion of large recurring clients holds true at a structural level. TALK’s customers are typically large telecom operators or OEMs that rely on external service partners for ongoing network operations and maintenance. But the recurrence is volume-driven rather than contractual in a subscription sense, as revenues depend on call-offs under framework agreements and project activity levels. Nevertheless, these long-standing relationships have proven valuable, as TALK continues to be awarded a steady flow of work and is also securing contracts in newly entered markets, such as the U.S., from existing partners (e.g., Nokia).

The stickiness of its offering is moderate. TALK benefits from deep integration into customers’ day-to-day operations, certifications, and local workforce presence, all of which create switching friction for customers. But the stickiness is operational rather than technological as there is limited proprietary IP (although TALK is attempting to expand this capability through its TS segment), and customers retain the ability to re-tender contracts if pricing, service quality, or strategic priorities change.

Finally, the sustainable focus is directionally accurate but secondary. Energy efficiency, network optimization, and reduced site power consumption are increasingly important considerations in telecom tenders, and TALK’s services align with these objectives. Nonetheless, sustainability functions more as a qualifying or supportive factor in winning contracts rather than a standalone driver.

The Americas

TALK is expanding its presence in the Americas, supported by new contracts and purchase orders, with management highlighting the region as higher-margin than parts of Europe. While a detailed U.S. expansion plan has not been disclosed, recent commentary suggests the initial focus will be on core telecom services, spanning both FS (site build, integration, and maintenance) and RS (centralized monitoring, optimization, and engineering support). Market entry will likely follow TALK’s capital-light model, with a small local footprint, subcontracted field resources, and centralized remote delivery. As such, the market is expected to be margin-accretive with EBITDA margins exceeding the 2030 target of 14%.

From TALK’s September 29, 2025, Press Release

TALK has already been awarded contracts from Nokia and MasTec in the U.S., with smaller contracts, such as distribution of communication and smart power solutions, in the Caribbean. An important caveat is that TALK generally pays three months in advance of being paid by clients in the Americas, which pressures cash flow and liquidity. Since management has signaled cash flow management as a priority, projects will be rejected if they come at the expense of financial strength. Its 2030 leverage target of 0x NIBD/EBITDA also suggests that M&A and expansion efforts will mainly be internally funded rather than debt-financed.

Additionally, the U.S. telecom market is estimated to exceed $700b by 2030.

U.S. Telecom Services Market Projection (in USDb) - From GVH

Telecom operator spend typically represents 10–20% of revenue and, given TALK’s focus on network rollout, maintenance, and managed services, its serviceable addressable market (SAM) represents only a portion of that spend. Assuming 10–30% of network-related spend falls within TALK’s service scope implies a U.S. SAM of approximately $7–42bn, meaning that carving out only a fraction of this opportunity would be highly significant for TALK’s topline.

No Stranger to M&A and Divestments…

TALK acquired 100% of the shares in LCC Pakistan in 2017, creating the foundation of its largest delivery hub and RS strategy. The deal carried a headline consideration of $5.2m, structured with $4m paid upfront and $1.2m in deferred payments. In September 2023, a final settlement was reached under which it agreed to pay $220k in lieu of the originally agreed deferred amount of $1.2m, bringing total considerations to $4.22m or a purchase price of ~0.6x FY18 sales.

In 2022, TALK signed an agreement to sell this Pakistani business to ZT Group for $3.7m. Despite regulatory approval, the sale failed as ZT Group never made any payments under the agreed terms. Surprisingly, TALK decided to avoid legal action as management viewed it as both costly and time-consuming.

Other notable and more recent transactions include the acquisition of Nordic Proptec for SEK 26.4m in 2021 (0.98x sales), and the sale of Nordic IoT Networks to Netmore Group for SEK 7.5m in 2020. The former was consolidated with Home Solutions in late 2021, forming a single Swedish IoT company named Nordic Propeye, and TALK has trimmed its stake down to 6.6%.

Its corporate structure has been significantly reshaped in recent years, exiting several emerging markets, including Tanzania and Uganda, through a combination of divestments and business closures, while also divesting non-core business areas. Going forward, TALK is focused on scaling its three core business segments and capitalizing on the U.S. market opportunity through a combination of organic growth and selective, accretive M&A. Given management’s mixed execution record in past transactions, I would personally prefer a strictly organic growth strategy. However, the fruition of the Vision 2030 framework appears to be predicated on a dual-track approach.

Management and Compensation Structure

Magnus Sparrholm founded TALK in the Swiss Alps in 2000 and has remained a central figure in the company since inception. After a period in which he continued as Chairman but was less involved in day-to-day operations, he returned to an executive role, was formally appointed CEO in late 2024, and has been at the helm since. Erik Strömstedt, while not a co-founder, has been involved with TALK since 2002 and currently serves as COO. Collectively, they own roughly 28% of outstanding shares following Sparrholm’s recent partial sale to free up shares for the employee share incentive program.

Insider Ownership

Sparrholm and the remaining members of the group executive board receive annual base salaries of CHF 192-224k and a variable pay component. The latter is performance-based, linked to company, business unit and individual performance, and is strictly cash based. Disappointingly, neither specific KPIs, bonus cap as a percentage of base pay or weighting between company and individual performance are disclosed - we just have to take their word for it. But given Sparrholm’s meaningful holding and both CEO and chairman position, I’m not too worried.

The employee share incentive program avoids dilution by using existing shares rather than issuing new equity. To fund the program, Magnus Sparrholm sells shares to third-party vehicles that hold the shares backing employee call options, an unusual but somewhat understanding approach. His sale of 444k shares at SEK 12/sh (the strike equals his selling price) relates to the settlement of obligations from Sub-Program 1, meaning that approximately 1.56m of the 2m share cap remains.

Employee Share Incentive Program - From TALK’s December 1, 2025, Press Release

Overall, there is clear alignment between insiders and shareholders, and I applaud Sparrholm and Co’s emphasis on correctly incentivizing and aligning other key personnel too. More transparency regarding share incentive award criteria and variable pay requirements (for members of the group executive board) would have been useful, but the high-level setup looks good.

TALK is Cheap

A business segment-based SOTP is difficult given the limited financial disclosures, but there are several interesting data points to map out TALK’s fair value.

Earlier this year, BDO completed an appraisal of TALK’s German operations. With a fair value range of €17.3-€23.8m, and final valuation of €20.5m, this business alone could cover more than twice the current EV (1.7-2.3x). The appraisal range combined DCFs under varying WACC and perpetual growth rate assumptions (although detailed figures remain undisclosed) and forward EBITDA multiples, the latter of which was derived from comparable executed M&A deals, signed in the 6-7x EBITDA range.

Haiti remains TALK’s largest segment by revenue, but not all revenue is equal. Management commentary indicates that activity in Haiti is primarily service delivery–driven, consistent with O&M work, which typically operates on lower margins and cost-plus or fixed-markup economics rather than scalability. With Haiti plagued by geopolitical tension, fraud risk, and general instability, a buyer would likely demand a significant discount to compensate for these risks. Since EBITDA is not disclosed, applying a 0.1x sales (I’m sorry if this isn’t conservative enough) multiple implies a fair value of roughly €0.7m - hardly a needle-mover, but still something.

As mentioned earlier, TALK had signed an agreement to sell its Pakistani business to ZT Group for $3.7m in 2022, but the deal ultimately fell through as the buyer did not fulfill its obligations. Since then, revenue has declined due to the resulting underperformance and business downsizing in that region, though recent developments, including a set of new orders totaling approximately €4.5m from multiple clients in Pakistan in 2025 and the award of new framework agreements for maintenance, RF planning, and optimization work, suggest that a topline recovery is underway. Consequently, I’ve applied the same implied EV/S multiple of 0.62x from the transaction to the now-lower revenue figure, which suggests TALK could fetch a little north of €2m in a sale.

Saudi-Arabia is currently negligible - largely due to management strategically avoiding new business due to the heavy upfront costs (e.g., visas, accommodation, and travel costs) associated with deploying engineers for on-ground work. Despite signing a $5 million contract with Ericsson Saudi Arabia back in 2018, revenue only amounted to €119k in FY24. Interestingly, TALK entered an agreement with a local Saudi investor conglomerate in September this year, allegedly involving an initial investment of $150k in new share capital paired with a multimillion portfolio of project funding. The agreement will likely turn out material economically speaking but TALK only retains a 19% stake. As such, I view it more as a free option that comes in addition to the other parts, but I’m not valuing it explicitly except for the pro rata share of the $150k worth of new share capital.

As covered earlier, the U.S. presents a significant market opportunity. Having already ironed out agreements with both MasTec and Nokia, management is seeing significant demand for TALK’s services. It is again difficult to value this business as TALK has not provided concrete financial targets or margins. What we do know is that the Americas in general is expected to be margin-accretive vis-à-vis the 14% target. Assuming they deliver a 16% EBITDA margin, the simplified value of the U.S. (not accounting for additional clients or larger contracts) can be derived from the first-year contract with MasTec of $1 million and a 6x EBITDA multiple. Accordingly, I’m currently valuing the U.S. at €814k, knowing full-well that its value is likely heavily understated, but I will adjust this value dynamically as we get more visibility into future contracts and recurrence.

TALK also holds a 6.6% stake in Nordic Propeye after divesting the remainder of its holding through a series of transactions, including debt-for-equity settlements with creditors. As of year-end 2024, the carrying value of this stake was €486k. While the accuracy of the carrying value is up for debate, management commentary indicates a clear intention to fully exit the investment:

An investment banker was assigned to repurchase the shares in the Swedish business, but this initiative failed. Talkpool wasn’t in position to execute its buy-back option that matured on the 1st of August 2023. As part of its new “reduce to the MAX” strategy, Talkpool wishes to sell its remaining ownership. - From TALK’s 2024 AR

Adding up all the parts and adjusting for TALK’s NIBD and minority interests of €711k and €135k, respectively, I believe its FVPS could be close to €34, implying more than 150% upside from here.

SOTP

Lastly, management has laid out concrete long-term targets. While impressive at first sight, TS scaling from €100k to €10m in 5 years seems rather far-fetched. At the same time, a 14% EBITDA margin seems quite conservative as the guidance assumes the revenue mix will be significantly shifted towards higher margin segments, and the U.S. (and Americas), which management has explicitly stated they expect to be margin-accretive, continues to grow. The conservative margin assumptions might not perfectly balance out the optimistic revenue growth targets, but they do at least partly even out the assumptions.

Taking the 2030 targets at face value, TALK could generate approximately €6m in FY30 EBITDA. Assuming partial multiple expansion as the balance sheet is deleveraged and net debt reaches zero, and TALK unlocks more operating leverage and economies of scale as it grows, the 2030 FVPS could reach SEK 49 at 6x EBITDA, equivalent to a 28% CAGR from here.

2030 Financial Target Valuation

An important caveat is that identifying a truly comparable peer group is difficult given TALK’s small size and its vertical integration across multiple layers of the telecom maintenance value chain. Accordingly, I’ve constructed an adjacent peer group comprising publicly listed companies of varying scale that operate at different points within the broader telecom infrastructure and services stack. While imperfect, this triangulation provides a useful valuation reference point, and both the average and median forward EV/EBITDA multiples remain meaningfully above the 6x multiple assumed for TALK.

NTM EV/EBITDA of Adjacent Peer Group - From Refinitiv Workspace

Overall, I believe TALK’s FVPS is in the €30-36 range, with an absolute floor of SEK 23/sh (the low-end of the BDO appraisal), while strong execution in the U.S., a full recovery in Pakistan and better-than-expected results in the Saudi Arabian partnership further add to the upside.

Main Risk Factors

1. Lack of True Recurring Revenue

While TALK benefits from long-standing customer relationships and framework agreements, revenue remains mainly volume-driven rather than contractually committed. Call-offs depend on customer CapEx and OpEx priorities, not TALK’s service quality alone, limiting visibility and increasing earnings volatility.

2. Scaling Risk

The 2030 targets rely on the successful globalization of TALK’s Pakistani delivery model and meaningful expansion of TS from its current negligible base. This assumes TALK can replicate cost advantages across markets, manage cross-border delivery risk, and win incremental higher-value contracts, none of which are guaranteed. Failure to scale RS/TS would leave TALK closer to a low-growth field-service contractor, warranting a lower valuation multiple.

3. Working-Capital Intensity and Cash-Flow Timing

Certain regions, particularly the Americas, require TALK to prepay costs months in advance of customer payment, increasing working-capital strain. While leverage is currently not excessive, poor cash conversion during periods of growth could constrain expansion, tempt management to backtrack on its deleveraging policy, delay investments, or force the rejection of otherwise attractive projects.

4. Value-Destructive M&A

My reading is that the 2030 revenue target partly relies on M&A. If true, and in light of TALK’s mixed historical execution record, forced acquisitions to accelerate growth could prove non-accretive and costly as both returns and strategic focus are diluted.

5. Geographic Concentration and Political Risk

Despite diversification efforts, revenue remains highly concentrated in Germany, Pakistan, and Haiti. While none are existential in isolation, exposure to emerging markets introduces FX, regulatory, and operational risks that can impair profitability and mask the value of TALK’s stronger markets.

Why Does This Opportunity Exist?

1. Size and Liquidity

With a market cap of roughly €10m, TALK sits below the threshold for most institutional mandates. Limited liquidity and the lack of sell-side coverage further reduce investor awareness, contributing to a persistent small-cap discount and inefficient price discovery.

2. Revenue Quality is Misinterpreted

The market tends to treat TALK’s revenue as low-quality project work, overlooking the structural recurrence embedded in maintenance, managed services, and long-standing framework relationships. While not subscription-based per se, its revenue base is more stable than headline project exposure suggests.

3. The Strategic Pivot is Unconvincing

The investor focus remains anchored to TALK’s legacy FS business, despite a gradual shift toward the RS and TS segments. The market appears unconvinced that this shift in revenue mix will materialize, despite management incentives and capital allocation being increasingly aligned with that outcome.

Catalysts

1. Evidence of RS/TS Scaling

Quarterly prints showing RS and TS growing faster than FS, either in absolute terms or as a share of group revenue, would validate the strategic pivot and support multiple expansion.

2. Portfolio Simplification/Further Divestments

The sale of remaining non-core stakes (e.g., Nordic Propeye) or a divestment of the Haitian operations would reduce complexity, generate additional cash for deleveraging and/or expansion, simplify the equity story and remove part of the EM overhang.

3. Sustained U.S. Contract Flow

Additional U.S. contracts and a rising recurring contribution from OEMs or large integrators (e.g., Nokia) would demonstrate that TALK’s offering scales beyond legacy geographies and justify the reflection of the U.S. growth opportunity more strongly into the current valuation

4. Repayment of Covid Loans

While the Covid-era loans carry attractive, below-market interest rates (issued at 0% in 2021), the associated covenants restrict dividends and capital flexibility. Full repayment, either through early prepayment or upon completion of the amortization schedule in September 2027, would remove these restrictions and restore optionality for shareholder distributions through dividends and buybacks.

5. Tax Resolution

On the Q3 earnings call, management stated that a long-running tax dispute in Germany related to intra-group transfers to the Swiss parent has been resolved, with such transfers now tax-exempt and TALK potentially receiving reimbursements for prior overpayments. While Germany and Pakistan remain high-tax jurisdictions, the removal of this tax leakage should modestly reduce the effective tax rate and improve cash flow, representing a small but immediate catalyst.

Closing Words

TALK isn’t a darling compounder or headline growth story. It’s a small telecom services provider trading at a meaningful discount to both its underlying asset base and the optionality embedded in its strategic pivot. While skepticism is understandable given the group’s turbulent M&A track record and exposure to lower-quality markets, the current valuation implies a discount to the German operations, while you effectively get Pakistan, Haiti, the U.S., the Swedish re-entry, an option on its Saudi Arabian partnership, and the residual Nordic Propeye stake for free.

The investment case hinges on a stable, field-driven revenue base to fund a gradual mix shift toward the higher-margin RS and TS segments. Even modest execution on this front should improve earnings quality, support EBITDA growth, and justify a multiple rerate over time. Incremental progress, rather than flawless execution, appears sufficient to unlock value, while the U.S. expansion provides meaningful upside optionality.

This is not investment advice. I hold shares of TalkPool AG (TALK) at the time of writing, and my views may be biased. Please do your own research and consult a financial advisor before making any investment decisions.

When I last wrote about Entravision Communications (EVC) in April, the market was still treating it like a fading broadcaster. A lot’s changed since then. ATS, the company’s ad-tech segment, has broken out, posting triple-digit revenue growth and nearly 400% EBIT growth in Q3. What initially looked like a niche digital bet has become the core of EVC’s value. With strong alignment between insiders and shareholders, the media and spectrum assets providing a valuation floor, and several potential catalysts lining up, EVC’s setup heading into 2026 marks a clear step-up from just a few months ago.

EVC in Brief

To those of you that haven’t read my initial EVC writeup, I’ll quickly go through EVC’s business model here.

EVC, founded in 1996, is a media and advertising-technology company targeting Hispanic audiences in the U.S. Co-founded by Walter F. Ulloa, the company’s been led by CEO, Michael Christenson, since July 2023, following Ulloa’s sudden passing.

Its operations are divided into two main segments: Media (TV and radio) and ATS (Smadex and Adwake).

Media

EVC’s Media segment encapsulates its TV and Radio stations, in which EVC owns and operates media properties in 13 of the 20 highest-density U.S. Hispanic markets.

Revenue is mainly derived from local news, political advertising, retransmission content, and spectrum usage rights, with the company owning 49 and 45 TV and radio stations, respectively.

Media key financials (in US$m) - From EVC’s 2021 and 2024 10-Ks

Despite 2024 being an election year, neither revenue nor EBITDA BCE has recovered to FY22 levels, and the segment performance year-to-date doesn’t bode well for Q4.

Media key financials (in US$m) - From EVC’s 2025 10-Qs

Still, midterm elections next year could see EVC rake in substantial political ad revenue, and this paired with continued cost-cutting and efficiency gains should push EBITDA margins (BCE) well into the double digits.

Advertising Technology & Services (ATS)

As you’ve probably realized by now if you’ve followed more prominent Twitter accounts covering EVC, ATS is the uncut gem. With revenue growth accelerating, growing sequentially over the last four quarters and delivering 104% y/y growth in Q3, it’s an impressive growth engine, especially given its size. And here’s the kicker: Management believes there’s more operating leverage to come, a very material statement as EBIT grew close to 400% y/y this quarter.

In short, the ATS segment helps companies run online advertising and is composed of two subsidiaries: Smadex and Adwake.

Smadex is a demand-side platform (DSP) that lets advertisers buy digital ad space programmatically (meaning automatically) using data, algorithms, and real-time bidding. Entravision acquired it in 2018, and it focuses on mobile, in-app, and connected-TV (CTV) campaigns.

Smadex’s service offering - from Smadex

The platform reaches over 3 billion mobile devices and connects to 4,000+ CTV channels, driving around 2.5 million app downloads per month.

Advertisers set campaign goals, e.g., getting more app installs or boosting brand awareness, and Smadex’s ML models use 1P and partner data to run targeted, optimized ads. Its platform interface provides transparency and performance data, showing advertisers exactly how their campaigns are spending and converting, without the need for manual ad buying.

Adwake is the managed-service side of Entravision’s ad-tech business.
Unlike Smadex, which is a self-serve platform, Adwake offers full campaign support, covering strategy, media buying, optimization, and analytics.

It helps brands grow their apps by finding and engaging users across major channels like TikTok, Meta, and Google, and essentially functions as a performance-based media advertising agency. The focus is on results-driven marketing, meaning clients pay for tangible outcomes such as installs, clicks, or sales, not just ad impressions.

Adwake’s differentiation - from Adwake

Its platform processes over 30 million mobile ad deliveries each month, connecting 100+ clients to a network of 3k+ media partners across 40+ markets. With a team of more than 70 employees, Adwake blends human expertise and data-driven tools to maximize advertising performance.

While more sales associates will naturally be required as ATS scales, the segment’s already showing signs of meaningful operating leverage.

ATS key financials (in US$m) - from EVC’s 2024 10/K and 2025 10-Qs

ATS doesn’t need to meaningfully gain market share to sustain strong growth going forward either, as the ad-tech market’s projected to grow at an annualized clip of ~15% over the next seven years.

Ad-tech market CAGR projection - from Fortune Business Insights

Do Insiders Know Something We Don’t?

As touched upon in my previous writeup, Michael Christenson (CEO), Jeffery Liberman (COO), and Mark Boelke (CFO) all had their cash bonuses swapped and took base salary cuts of 25-47% in exchange for RSUs and PSUs. At first, there was speculation that the company’s hand was forced by liquidity concerns but with roughly $66m in cash on hand, manageable long-term debt maturities, and a strong ATS segment firing on all cylinders, that explanation looks increasingly unlikely.

Debt Maturity Schedule - from EVC’s 2024 10-K, adjusted for debt repayments

Insiders (board + management) collectively hold about 8% of EVC’s outstanding shares, with unvested RSUs and PSUs lifting their fully diluted ownership to roughly 17%. The RSUs are purely time-based, with 20% vesting after one year and the remaining 80% vesting semi-annually over the following four years. The PSUs, on the other hand, are performance-contingent, vesting only if specific share-price hurdles are achieved within the predefined performance period.

PSUs and price target thresholds - from EVC’s 2025 proxy statement

The above figures don’t include the additional PSUs granted this year but still illustrate how insiders could pocket substantial sums if the price targets are achieved. The current compensation structure clearly aligns management’s interests with shareholders by rewarding material stock price appreciation, an incentive that could accelerate efforts to unlock EVC’s SOTP value, whether through an ad-tech spinoff or a strategic Media sale.

Updated Valuation

In my initial writeup on EVC back in April, I heavily underestimated the fair value of ATS. While my updated estimate could still be meaningfully off from the true intrinsic value, I believe ATS alone could cover 150% of the current EV, if not more. But before that, let’s revisit the Media segment and spectrum licenses.

Media

As mentioned earlier, the Media segment remains in a slump. Revenue has continued to decline, and EBITDA BCE turned negative in Q3. To offset these adverse developments, management is leaning on workforce reductions (mainly back-office), lease exits, and a renewed focus on local news as levers to stabilize operations and reignite growth.

Most of these initiatives carry front-loaded costs but should ultimately position Media for margin recovery. FY23 and FY24 EBITDA BCE were both around $53m, and I’d expect a similar figure in FY25 as next year’s midterm election should lead to a significant recovery in advertising dollars.

Political net revenue - from EVC’s 2023 investor presentation

EVC has not disclosed specific advertising revenue for FY24 but stated that results reached record highs. Based on annualized 9M revenue of approximately $175m and an additional $30m in political ad revenue, Media could generate around $205m in FY26. If EBITDA margins BCE revert to 20%, which is still below historical levels, that translates to roughly $41m in annual EBITDA. EVC’s Hispanic-focused broadcasting footprint makes apples-to-apples comparisons difficult, but similarly-sized adjacent peers generally trade at 4–6x EBITDA.

Valuing the Media segment at the low end of the range, reflecting both earnings cyclicality and its Hispanic broadcasting focus, implies a value of ~$150m when discounting back at 10%, equivalent to 40% of EVC’s current EV.

Spectrum

In addition to the EBITDA generated from its stations, EVC also holds valuable spectrum licenses. In the event of a sale, this spectrum value would likely be reflected in the overall purchase price, as broadcasters are entirely dependent on spectrum to air content. Still, it makes sense to consider these licenses separately, as they represent a distinct and potentially monetizable asset. Through channel sharing agreements (CSAs), EVC could even monetize portions of its spectrum while keeping its stations on air, effectively realizing value without sacrificing distribution.

There hasn’t been a major spectrum auction since 2017, leaving broadcasters with limited options to realize value from their licenses. Under the new Trump administration, with Brendan Carr as FCC chair, another auction appears increasingly likely. In the 2017 auction, spectrum sold at an average price of roughly $0.93/MHz-pop, though pricing varied widely by market. For EVC, whose licenses are concentrated in mid-sized Hispanic markets rather than top-tier metros, spectrum holdings are likely valuable but not at the premium levels seen in large urban areas or in recent transactions.

Assuming EVC is able to sell its spectrum at an average price of $0.93/MHz-pop in a new FCC auction, and applying the RabbitEars population coverage estimate of roughly 49.5 million, its spectrum holdings could be worth close to $280m. I haven’t discounted the proceeds given the uncertainty around the timing of a new auction, but applying a 10% discount rate and adjusting for various timeline assumptions would be the most consistent approach.

Combining the estimated fair value of Media and EVC’s spectrum holdings implies that these assets cover roughly 115 % of the current EV, and that’s before factoring in the golden goose: ATS

ATS

It was ATS’ astronomical y/y growth that stirred all the excitement a few days ago. And the market reaction doesn’t seem exaggerated - far from it. While most of us were already aware of the solid growth prospects and steady margin expansion trending in its financials, more than 100% y/y revenue growth paired with nearly 400% growth in EBIT was a real surprise. While I’m no advertising technology savant, even I can see that there’s a clear disconnect between ATS’ intrinsic value and EVC’s current market cap. And no wonder; there’s a secularly declining Hispanic-serving broadcasting business attached that muddies ATS’ performance.

Management also gave us some interesting info on the Q3 earnings call:

With that said, we do not expect to repeat this level of quarterly sequential growth in fourth quarter, and we currently anticipate fourth quarter revenue and earnings to be comparable to third quarter. - Mark Boelke

In addition, our infrastructure costs, primarily cloud computing costs, continue to grow as our revenue grows. They’re currently growing at about the same pace as revenue, but as the business gets larger, we do expect to see some operating leverage, so we expect these costs will grow at a slower pace than revenue in the future. - Michael Christenson

Assuming the current EBIT run rate of ~$40m doesn’t seem unreasonable given the above comments. With that in mind, what’s a fair multiple for an ad-tech business growing > 100% and with further untapped operating leverage?

I used AdTheorent as a comp in my previous writeup, and while the two share similar business models, AdTheorent only grew ~3% y/y at the time - a far cry from ATS’ current trajectory. mentioned Moloco as an interesting alternative comp. In 2023, the company raised capital at an implied valuation of over $2b, up from its $1.5b Series C valuation in 2021, having delivered 2022 revenue of just over $200m and more than fivefold growth between 2020 and 2022, alongside 12 consecutive profitable quarters. While I’m not comfortable assuming that as a base case, a $1b valuation could prove reasonable for ATS if the growth and profitability trends continue.

The fair value of ATS using the AdTheorent transaction (15x EBITDA and 1.9x sales) translates to approximately $600m, or ~$550m when discounted back at 10%.

If we were to use the midpoint of this and 1/2 the Maloco raise in 2023, the fair value creeps closer to $800m, or more than twice the current EV.

Overall, I believe EVC could be worth anywhere from ~$7.5-10.0/sh, still multiples of the current stock price, while stronger-than-expected advertising demand next year, ATS sustaining its current growth rate (or close to it), or EVC fetching more than $0.93/MHz-pop in a new FCC auction add to the upside.

Risk Factors

1. Abrupt ATS Reversal

Since most of EVC’s value currently hinges on ATS, any abrupt reversal in growth or profitability could materially erode the upside potential. Advertising technology remains cyclical and highly competitive, so sustaining the current trajectory requires consistent execution. Still, the Media segment and spectrum holdings significantly limit the downside.

2. TelevisaUnivision’s Class U Shares

I view this purely as a hypothetical, but since TelevisaUnivision holds all of EVC’s Class U common stock, which grants consent rights over major corporate actions, it could block a takeover bid, merger, or sale of spectrum licenses involving the company. Importantly, these rights don’t extend to individual business segments, meaning ATS could be spun off or Media could merge with another suitor without requiring TelevisaUnivision’s approval.

3. Default Risk

Roughly $153m of EVC’s $173m in outstanding debt matures in 2028, giving the company ample time to repay or refinance its obligations. However, a weaker macro backdrop or undisciplined capital allocation, such as delaying deleveraging or taking on additional debt to fund low-synergy acquisitions, could elevate default risk over time.

Catalysts

1. Continued Performance From ATS

Given the strength of the Q3 report, continued execution from ATS could remain a consistent catalyst unless a significant rerate occurs in the near term. Sustained revenue momentum and margin expansion would further validate its scalability and highlight the disconnect between its intrinsic value and EVC’s current market cap.

2. ATS Spinoff/Bid or Media Sale/Merger

ATS was a hidden gem buried inside a slowly melting broadcasting company last time out too, and the Q3 print reinforces that perception. A separation of ATS and Media would allow the market to value ATS more accurately, either through a Smadex/Adwake spinoff or a full sale of the Media segment.

Recent developments, including EVC’s lease termination and HQ relocation, have sparked M&A speculation. Beyond a potential merger of Media with MDIA, whose largest shareholder, Soo Kim of Standard General, is infamous for media transactions, other ad-tech players such as AppLovin could also emerge as strategic bidders for ATS. A combination could create clear synergies: ATS’ programmatic and performance-marketing capabilities would complement AppLovin’s app-monetization, data infrastructure and scale.

Provided EVC is able to negotiate favorable terms for shareholders, a Media sale or merger could be a substantial value-unlock as the RemainCo would be a pureplay ad-tech business deserving of a higher multiple.

3. Shortened Spectrum Auction Timeline

While I believe ATS now represents the lion’s share of EVC’s value, a new FCC spectrum auction could still unlock close to $300m in proceeds, or more depending on pricing. A shortened auction timeline would, all else equal, accelerate when this latent value becomes reflected in the share price.

4. Increased M&A Activity Within U.S. Broadcasting

An industry-wide pickup in broadcasting M&A could provide a stronger set of comp transactions, with attractive sale multiples for similar assets likely driving a rerate in EVC’s Media segment.

Final Words

EVC remains a misunderstood story disguised as a small-cap broadcaster. Popping the hood reveals that alongside the legacy media operations lies a rapidly growing ad-tech business. The latest quarter made that distinction impossible to ignore; ATS is no longer a side bet but the primary value driver, and its performance suggests there’s still ample room for operating leverage and multiple expansion.

Meanwhile, the Media and spectrum assets, though less attractive, provide a firm valuation floor and upside optionality. Any communication regarding a separation of ATS and Media, a strategic bid, or further signs of a renewed spectrum auction could meaningfully accelerate value crystallization. Insiders remain heavily incentivized with substantial direct ownership and PSUs tied to lofty share price hurdles, and EVC looks positioned for a significant rerate if management continues to execute.

In other words, EVC’s no longer just a Hispanic broadcaster with an ad-tech arm; it’s an emerging ad-tech platform with legacy media assets attached. The market hasn’t caught up yet, but continued ATS executions would mean that something has to give.

This is not investment advice. I hold shares of Entravision Communications (EVC) at the time of writing, and my views may be biased. Please do your own research and consult a financial advisor before making any investment decisions.

Oma Savings Bank (OMASP) has several years of profitability and reasonable ROE under its belt. Still, due to a combination of softer borrowing activity and disappointing findings by the Finnish Financial Supervisory Authority (FIN-FSA), the stock fell ~70% from its 2024 ATH before bottoming out in April this year.

In response to these shortcomings, OMASP replaced its CEO, launched the corrective program, Noste, in 2H24, with costs totaling €11.6m, and recognized a €3m provision in 1Q25 to cover possible fines.

As a result, cost-to-income (C/I) has ballooned to 53% (compared to only ~41% in FY24), and profitability has taken a substantial hit. But with the stock still down ~50% from its ATH, does the current valuation provide a good entry point or is the price action warranted?

OMASP the Business

Oma Savings Bank (OMASP), established in 2009 through the merger of Töysän Säästöpankki and Kuortaneen Säästöpankki, is a growth-oriented Finnish retail and SME bank, with roots tracing back to 1875.

Its operations are composed of two main customer segments: Private and Corporate Customers, but also include distinct groups such as Housing Associations and Agricultural Customers.

Loan Portfolio by Customer Group

Both core segments, Private and Corporate Customers, are served through a comprehensive suite of financial services. These include daily banking (e.g., credit cards), loans and financing solutions, as well as savings and investment products offered in collaboration with partners such as Sp-Fund Management Company and Sp-Life Insurance. In addition to these core offerings, OMASP provides specialized services including loan insurance, legal advisory, and tailored solutions for specific customer groups. This broad and integrated service model enhances the bank’s value proposition, supports cross-selling opportunities, and strengthens long-term customer relationships and retention.

Revenue Composition by Income Type (in EURm)

Despite OMASP’s broad service offering, net interest income (NII) has grown steadily as a share of total operating income, rising from 61% in 2020 to 79% in 2024. This increase is mainly attributed to strong momentum in lending activity. However, sustained growth across other verticals remains essential to mitigate the risk of overreliance on interest income and to safeguard performance against potential downturns in lending.

Unlike purely digital challengers, like Alisa Bank, OMASP maintains a hybrid offering, with a strong regional branch network across Finland, currently spanning 48 branches, and digital channels through mobile banking and online onboarding. This dual presence has contributed to high customer satisfaction, with both private and corporate clients rating their assigned contact person an impressive 4.6. Still, the overall satisfaction score is slightly lower at 4.2, suggesting room for improvement in broader service touchpoints beyond individual relationships.

Customer Reviews - From OMASP’s 2024 Annual Report

Since 2010, OMASP has grown through a combination of complete acquisitions, business unit purchases, and strategic branch openings. Notable milestones include the 2017 acquisition of S-Pankki’s SME, Agriculture & Forestry business, which marked its entry into corporate and agricultural banking, and the 2024 acquisition of Handelsbanken’s Finnish SME business, significantly strengthening its position in the corporate segment.

Balance Sheet Size and Notable Corporate Events - From OMASP’s 2024 Annual Report

Lending volumes and NII have continued to trend upward in lockstep with portfolio acquisitions and new branch openings, that is, until 2025.

Lending Volumes and NII (in EURm)

And while book value per share has close to doubled since 2016, from EUR 9/sh to more than EUR 17/sh, both EPS and ROE are currently in a slump.

BV/sh, EPS, ROE, and average ROE (in EUR)

This is mainly due to two key factors: elevated C/I and softer NII.

While C/I had been trending lower since FY18, OMASP experienced a sharp uptick in FY22, mostly attributed to branch network openings and upgrades in Helsinki, Tampere, and Espoo, paired with increased IT spend and regulatory fees. The subsequent year, C/I reached its lowest level for the period, followed by a 400 bps increase in FY24, as OpEx grew ~23% y/y.

The pressure intensified in 1H25: OpEx surged on stepped-up spending for compliance, the Noste program (KYC, AML, risk management), and other control upgrades, while softer NII compounded the hit. As a result, C/I surged past 53% in both quarters, and profitability has taken a material hit.

C/I (Historical, Average and Management Target)

Importantly, much of this spending is front-loaded, which creates an appealing setup: as the costs taper off, the C/I ratio should normalize and profitability could recover, even without a material uplift in NII.

While elevated operating expenses has been the main driver of OMASP’s declining ROE and EPS, weaker NII is the second culprit. OMASP successfully rode the FY23 interest rate tailwind, fueled by rapid Euribor increases widening asset yields faster than deposit costs, leading to a surge in NII and record profits. By FY24 and 1H25, deposit competition intensified, customers could demand higher rates on savings, and funding costs rose. In other words, the combination of surging OpEx and weaker NII has served as a double whammy to profitability, but both seem to be nearing an end.

C/I - OMASP and Peers

Management is targeting a C/I ratio of 45%, and this is not an arbitrary or unsubstantiated number. In the 2020-2025 period, C/I was at or below this figure in 3/5 years, and both Sparebanken Møre and Sparebank 1 Nord-Norge prove that even lower levels are achievable.

CET1 Ratio - OMASP and Peers

OMASP’s CET1 ratio, the key measure of a bank’s core capital strength relative to the riskiness of its assets, has recovered strongly after bottoming out in 2022. The rebound to nearly 18% reflects a marked improvement in its capital position and overall risk profile, and places it second in its peer group as of 2Q25.

Although regulatory shortcomings and softer NII continue to weigh on the share price, the underlying credit quality and solvency position are trending in the right direction. OMASP’s capital buffer now sits firmly above its regulatory requirement of ~9.3%, giving it room to absorb potential shocks and maintain, or even expand, its dividend capacity.

The Non-Compliance Blunder in More Detail

In May 2024, the Finnish Financial Supervisory Authority (FIN-FSA) identified shortcomings in OMASP’s regulatory compliance during its regular supervisory review. On April 4, the bank received the final inspection report, which highlighted deficiencies primarily related to governance, compliance, and risk management. These included:

• AML procedures: deficiencies in the bank’s internal AML framework and oversight.

• Insufficient risk-based assessments of customer relationships: inadequate documentation and periodic reassessment of customer risk profiles.

• Inadequate KYC processes: weaknesses in collecting, verifying, and updating customer identification data.

• Lack of enhanced due diligence (EDD) on high-risk customers: insufficient scrutiny and monitoring of customers classified as high risk under AML regulations.

One would expect OMASP to receive a moderate regulatory sanction or fine, though the size and timing remain uncertain. While these issues appear procedural rather than criminal, they nonetheless exposed the bank to regulatory risk, and, by management’s own admission, affected approximately 4% of OMASP’s €6b credit portfolio. The bank has taken corrective action, including additional provisioning and a managerial shakeup (the appointment of a new CEO and CRO) but the broader concern relates to reputational fallout.

The situation loosely reminds me of the American Express “salad oil scandal” from the 1960s, after which Warren Buffett famously invested. OMASP, to be clear, has not, as far as anyone knows, accepted salad oil as collateral (knock on wood). The parallel lies in the erosion of trust. Banks thrive on reliability and prudence; customers choose them for competitive deposit rates, attractive lending terms, and a sense of security. If clients begin to suspect that a bank is cutting corners on compliance or risk management to fill its own pockets, that can do material and lasting damage, longer than any fine would linger.

I don’t believe this will become a structural issue for OMASP, but it reinforces a basic truth: sacrificing customer trust for marginal gains is never a good trade-off in retrospect.

Insider Ownership and Management Compensation

As of the most recent filing, insiders own roughly 0.4% of outstanding shares, equivalent to a total market value of ~€1.5m.

Insider Ownership (in Thousands)

While the negligible level of insider ownership is not excusable, it’s worth noting that OMASP’s ownership structure is shaped by its cooperative legacy, with approximately 40% of outstanding shares held by former regional savings banks through local foundations. This helps explain the dominance of institutional and foundation shareholders, though it doesn’t justify the lack of skin in the game from insiders.

Shareholder Composition

The management team’s compensation structure is comprised of three components: (i) base salary, (ii) variable short-term incentives, and (iii) long-term share-based incentives.

Base Salary

CEO base salary and benefits ranged from €600k to €1.3m over the 2020–2024 period, with variable pay in 2024 exceeding the base salary and accounting for approximately 60% of total remuneration.

This spike was largely driven by the departure of former CEO Pasi Sydänlammi, following an internal investigation that uncovered lending guideline violations by a former director. Without any clear explanation from the company, it remains uncertain whether Sydänlammi was directly implicated or simply held accountable by the board for oversight failures. In total, he received ~€1.4 million in share-based compensation for the portion of the year he served, which materially inflates the full-year CEO pay figure despite his mid-year exit.

CEO Compensation (in Thousands of Euros)

Variable Short-Term Incentives

The short-term variable incentives are tied to annual financial and non-financial performance metrics. While OMASP doesn’t disclose the specific targets used in its remuneration framework, it’s reasonable to infer (or at least hope) that they include key indicators such as operating income growth, ROE, C/I, loan and deposit volume growth, and credit quality.

A minimum of 40% of the variable pay is deferred over 3-4 years, and contains clawback provisions, subject to reduction or recovery in case of misconduct or restatement. Unlike most companies, the variable short-term incentives are almost purely settled with shares (with the small cash portion intended to cover taxes), and members of the management team must hold at least 50% of the net shares received until their holdings correspond to 1x base salary.

Long-Term Share-Based Incentives

OMASP offers a long-term share-based incentive plan to its CEO, deputy CEO, and key personnel, aimed at aligning key insiders with shareholders by tying their compensation to long-term strategic goals. Each plan covers a two-year performance period, mostly paid in shares and partly paid in cash, with at least 40% being deferred for 3-4 years.

Compensation hinges on the achievement of financial and non-financial criteria, including profitability, efficiency, and customer and employee satisfaction and does, like the short-term incentive plan, include clawback provisions and the retention of minimum 50% of net shares until the 1x base salary threshold has been reached.

While I applaud OMASP for largely settling variable pay in shares, the opacity of the structure, including specific metrics and compensation weights, makes the disclosures materially less valuable.

So Oracle, What’s This Thing Worth?

There are several ways to go about valuing OMASP, and I have chosen to rely on three in particular: (i) EPS, closely tied to the company’s operating income growth target and a reversion in C/I, (ii) dividend yield and dividends per share, which is an extension of the EPS approach, and (iii) tangible book value.

EPS

OMASP’s profitability peaked in FY23 as net income reached ~€110m, but the euphoria was short-lived as it cratered shortly after in the wake of higher funding costs and the emergence of a plethora of additional costs. Still, it’s important to remember that net income grew at a 36% CAGR between 2016 and 2023, and I believe the application of the same playbook, i.e., further strategic branch openings, accretive loan portfolio purchases, and C/I normalization, will fuel growth going forward.

Taking the FY25 operating income (extrapolating H1 numbers) as the base, and assuming OMASP is able to deliver on the low-end of its growth target throughout FY27, I believe operating income will reach ~€290m. Assuming C/I reverts back to 45%, and credit costs remain at the 5-year median of 6.9% (the average is distorted by extreme values in 2020 and 2024), OMASP could generate net income of ~€120m. To contextualize this figure, ~€120m translates to a growth CAGR of approximately 2% from 2023, which does not strike me as an unreasonable assumption by any stretch of the imagination.

Adjusting for taxes and valuing OMASP at 10x FY27e EPS, it could be worth a little south of €40/sh, equivalent to a ~70% annualized return from here.

Dividend Yield/DPS

Building on the numbers computed in the EPS method, we can value OMASP using dividend yield too.

OMASP has only maintained an uninterrupted dividend track record since 2020, but the 2019 suspension was largely out of its hands. In 2020, the ECB and FIN-FSA advised banks to withhold dividend payments to preserve capital during the COVID-19 crisis, leading OMASP to temporarily suspend its payout in line with regulatory guidance. The extraordinary dividend distributed the following year included the deferred dividend originally proposed on the basis of the 2019 fiscal-year results.

Notably, OMASP’s payout ratio has remained below 41% throughout 2018–2024, reflecting its prudent capital allocation approach and consistent earnings retention to support ongoing growth and expansion efforts. As growth eventually starts to taper off, shareholders are likely to enjoy a noticeable bump in their annual dividend checks.

Incorporating this fact into the numbers and assuming OMASP revises its current dividend policy from at least 20% to 30% of the preceding year’s profits, shareholders could receive FY27 dividends of €1.07/sh. Applying OMASP’s 5-year average dividend yield of 3.2% to the DPS estimate yields a fair value of ~€34/sh. This translates to a 3x from here and an annualized return that would make even the best investors salivate.

Tangible Book Value (TBV)

Banks are particularly interesting because of the direct relationship between ROE and CoE. Unlike most industries, this allows us to estimate a fair P/B multiple with reasonable accuracy. As noted earlier, ROE has declined sharply in recent periods, but the combination of front-loaded investments rolling off and a recovery in NII should support a rebound over time. Assuming OMASP eventually achieves its 16% ROE target and applying a 10% CoE, the implied fair P/B multiple would theoretically be around 1.6x (16%/10%).

There are plenty of ifs and buts here, for instance, why a 10% CoE? Admittedly, it’s somewhat arbitrary. The reason is simple: I’m not a fan of the CAPM. If we were to apply the model using the ECB’s current deposit facility rate of 2% as the risk-free rate, a market risk premium (MRP) of 5%, and OMASP’s 2-year beta of ~0.45, we’d arrive at a theoretical CoE of just 4.2%. In my view, and probably any view, that’s far too low. The main explanation lies in how bank stocks typically have low volatility, which suppresses their betas. This, however, understates the underlying credit and funding risks inherent in most banks. To better capture that reality, I’ve assumed OMASP’s beta equals 1 and added a 300 bps premium, bringing the CoE to approximately 10%. Alright, enough of my CAPM tangent…

On a five-year basis, OMASP’s profitability, capital strength, and cost discipline rank among the best in its peer group, yet its valuation remains deeply discounted compared to other banks. Despite ranking second or third across key metrics, the stock still trades roughly 45% below the cheapest peer, a gap that looks increasingly hard to justify.

Valuing OMASP at 1.6x current TBV, not regular book value, the FVPS is €27/sh.

A base case would be ROE based on the current net income run rate (around 10%) and a 10% CoE, bringing the fair P/B multiple to roughly 1x. Even this scenario, which assumes a 10% ROE and what might be an overly conservative 10% CoE, still point to around 50% upside from here. This rerate, unlike the 16% ROE assumption, is purely contingent on a change in sentiment rather than fundamentals.

Below is a sensitivity table that highlights how OMASP is currently undervalued (although with varying degrees of undervaluation) provided ROE exceeds 10% (already reached in Q2 on a run rate basis) or the CoE is below 11%. Both seem like very attainable targets.

Overall, I believe OMASP could be worth as much as €27–€36/sh over varying timeframes, but I view €17/sh (1x TBV) as the absolute floor.

Main Risk Factors

1. Further Internal Control and Risk Management Failures

OMASP’s reputation took a hit in early 2024 after the FIN-FSA identified deficiencies in its internal risk management and governance practices. While management has since taken corrective action, lingering regulatory scrutiny and the potential erosion of customer trust remain.

2. Loan Growth Stagnation

After years of double-digit loan and income growth driven by branch expansion and acquisitions, momentum has started to taper off. If OMASP is unable to turn the ship around, 0.6x TBV could prove a fair multiple in hindsight.

3. Net Interest Income Concentration

With NII constituting nearly 80% of total operating income, OMASP remains highly sensitive to shifts in market interest rates. A sharp decline in Euribor would compress net interest margins (NIM), as funding costs are already near the lower bound while loan yields adjust downward more rapidly. Further ECB rate cuts could therefore weigh on profitability in the near term.

4. Credit Quality Deterioration

While the current rate-cutting cycle should ease pressure on borrowers and support near-term credit performance, it doesn’t entirely remove the risk stemming from OMASP’s rapid lending expansion over the past few years. If underwriting standards were relaxed during that period, some latent credit issues may only become visible as the portfolio matures.

Why Does This Opportunity Exist?

1. Regulatory Overhang

The FIN-FSA’s public reprimand in early 2024 and the internal lending guideline breach has deteriorated investor confidence, despite corrective actions being taken.

2. Size, Illiquidity and Limited Coverage

OMASP’s modest market cap, thin trading volume, and limited analyst coverage keep it largely underfollowed and off the radar of most institutional investors.

3. Interest Rate Headwind

Rate cuts will likely pressure profitability in the short term before lending margins stabilize and non-interest income begins to recover, which might keep some investors on the sideline for now.

Potential Catalysts

1. NII and Operating Income Recovery

Stabilizing rates and improving loan demand could reignite NII growth and consequently drive a rebound in operating income.

2. Improved Credit Assessment or Rating Upgrade

In light of OMASP’s most recent S&P Global rating of BBB (long-term) and A-2 (short-term) with a negative outlook, any positive reassessment of the bank’s credit profile would help restore confidence in its risk management and funding resilience, and consequently bring back investor interest.

3. Dividend Growth and Capital Distributions

With a strong capital base and historically conservative payout ratio, OMASP can gradually raise its dividend or issue larger special distributions, provided management doesn’t find any accretive reinvestment opportunities that move the needle. Consistent dividend growth would strengthen the investment case, justify a premium over time, and attract more yield-focused investors.

Closing Words

There’s no hiding OMASP has had a rough stretch. Between the regulatory slap on the wrist, a costly clean-up program, and a weakened macro backdrop, it’s no surprise the stock has gotten crushed. But here’s the thing: none of this looks permanent. The bank’s core business is still solid, customers remain satisfied, the balance sheet’s strong, and most of the heavy lifting (and spending) around compliance is already done.

Short-term earnings are messy, and C/I is on the lofty side right now, but that’s what happens when you front-load costs. Once the dust settles, margins and returns should creep back up, and if management can hit even close to its 16% ROE target, the current 0.7x TBV valuation starts to look pretty absurd.

OMASP doesn’t need to reinvent itself, it just needs to prove it can run a tight ship again. If it does, I wouldn’t be shocked to see the market rerate it quickly and significantly. The setup’s there: cheap valuation, cleaned-up c-suite, strong capital base, untapped dividend capacity, and strong historical growth and profitability. I’ll take that bet.

This is not investment advice. I hold shares of Oma Savings Bank (OMASP) at the time of writing, and my views may be biased. Please do your own research and consult a financial advisor before making any investment decisions.

An amalgamation of softer consumer spending, tariff uncertainty, currency fluctuations, and geopolitical risks has seen FILA crater ~25% since May this year. Negative analyst revisions and an uncertain macro backdrop continues to weigh on the stock and operational performance, but the current valuation seems too cheap to ignore. I’ll get back to this later in the writeup, but FILA owns 26% of the Indian-listed company Doms Industries (DOMS), which is also down for the year. If we take management’s FY25 FCFE guidance at face value, the stub currently trades at 1x FCF, which means that you almost get a business that has thrown off €30m-€72m of annual levered free cash flow over the past five years for free.

FILA the Business

F.I.L.A. - Fabbrica Italiana Lapis ed Affini (FILA.MI), founded in 1920, is a vertically integrated manufacturer and distributor of stationery, art materials, and school and office supplies. Put simply, FILA supplies mundane but essential products like pencils, markers, paint, and paper, and its operations are split into three business segments: (1) School & Office, (2) Fine Art, and (3) Industrial. The latter is a catch-all segment for products that don’t fit into the main categories, mainly encapsulating industrial marking products (used in construction and carpentry), industrial glues, and modeling materials.

Latest available product mix breakdown - from FILA’s 2024 CMD

Its portfolio spans 25+ brands and distribution in more than 150 countries, and is comprised of global and well-known brands like Ticonderoga, Giotto, and Tratto, who all hold meaningful market share in their respective markets.

From FILA’s 2024 CMD

And while FILA is domiciled in Italia, its operations are well spread between different geographies, with North America constituting the lion’s share (49%) of sales in 1H25.

1H25 Revenue Mix - numbers retrieved from FILA’s H1 report

Unsurprisingly, its end markets are comprised of schools, offices, and hobby/art markets, and products are sold through retail distributors, school contracts, and e-commerce in increasing scale. By extension, there’s meaningful seasonality, with demand typically spiking in Q2-Q3 as customers place back-to-school bulk orders. Receivables build up in this period and are typically collected in the subsequent quarter(s), which explains why the majority of free cash flow is generated in Q4.

The chart below shows that, on average over the past five years, 133% of FCFE has been generated in Q4, indicating that cash flow is typically small or negative in the first nine months of the fiscal year and heavily concentrated in the final quarter.

FCFE - 9M vs Q4 split and Q4 in % of total

Revenue has grown steadily since 2014 (except for the period 2020-2021 due to Covid), but saw a sharp y/y decline in FY24, largely attributed to: (1) exchange rate losses, and (2) the deconsolidation of DOMS’ financials in 1Q24 in anticipation of its IPO. While unconsolidated revenue was down 21.4% y/y, the revenue figure including DOMS was down 4.1%, while revenue on a constant-currency-basis was down only 2.3%. The FY24 consolidated adjusted EBITDA figure was even more interesting, as it saw a 20% y/y increase (assumes ~€36.3m of DOMS EBITDA). In other words, the FY24 results were nowhere near as alarming as they might have seemed at first glance, and highlights how headline y/y comps led to unjustified punishment.

With tariff worries, adverse FX impacts, and weakened consumer demand looming large, H2 doesn’t seem that promising. And the apparent digitization trend within education and workplaces could prove a real issue for FILA long-term. Still, there are several factors pointing to the latter having largely reached a plateau:

• Office paper consumption/capita has been flattening in developed markets since 2020.

• Digital adoption in classrooms plateaued post-covid, with 80-85% of teachers in advanced economies reporting regular use of digital tools, but not increasing it further, according to OECD’s Education at a Glance 2023 report.

• In 2022, Gartner noted that paperless initiatives in enterprise workflows hit diminishing returns, implying that most firms digitized high-volume, repetitive processes (e.g., payroll, invoices, and documentation), with the remainder being low-volume or preference-driven cases reliant on paper/pen. The latter includes executives who prefer handwritten notes and physical signatures.

• The research paper Psychological Science (Mueller & Oppenheimer, 2014), found that students who take notes by hand retain and conceptualize information better than those who type. While this is a more speculative data point, it supports the idea that school supplies are not going away any time soon.

• Reduced government funding for schools in both the US and UK explain part of the demand slump.

Inorganic growth remains a core strategic pillar for FILA. This has resulted in a 10% revenue CAGR since 2014 and although margin expansion has been more modest over the same period, it remains reasonable given the headwinds its core market segments have been facing.

From FILA’s 2024 CMD

Acquisitions have accelerated its transformation into a global leader by: (1) building a diversified portfolio of iconic brands, including Arches and Pacon more recently, (2) increasing manufacturing efficiency, and consequently improving unit economics, (3) procurement and distribution scale, unlocking stronger bargaining power with suppliers, consolidating logistics networks and lowering per-unit freight, and (4) geographical expansion.

Despite this, ROE has remained volatile over the past decade, reflecting the cyclicality of earnings and subpar acquisitions to-date. While the median stands at only 8%, FILA managed to deliver an adjusted ROE of 15% in FY24, with the unadjusted FY23 figure even surging past 35% due to one-off gains.

Adjusted ROE: adding back tax-adjusted non-recurring items

Looking ahead, I expect ROE to stabilize at north of 10% as input costs normalize, demand recovers, and the benefits of the group’s streamlining initiatives (more on this later) materialize.

Growth Outlook and Streamlining

FILA’s core business segments are generally experiencing stable or modestly growing demand. While traditional writing products and school supplies face digitization headwinds (e.g., through increased use of tablets in classrooms), one could argue that this is largely reaching a plateau in developing markets, and being partly offset by expanding school enrollment and a growing e-commerce presence.

The global stationery products market is forecasted to grow ~5.3% annually over the period 2025-2032, according to Fortune Business Insights, which actually exceeds FILA’s 5-year revenue CAGR (including DOMS in FY24) by roughly 350 bps. Asia-Pacific is expected to be a core driver of this growth, while saturated Western markets will likely grow more modestly.

Global Stationery Products Market - from Fortune Business Insights

The global art supplies market is expected to lag the stationery products market over the same period, growing from ~$12.2b in 2024 to $20b in 2035 (4.2% CAGR), mainly driven by increased leisure crafting, adult coloring trends, and expanding art education.

Global Art Supplies Market - from Allied Market Research

While H1 numbers indicated a meaningful slump in demand y/y, both of FILA’s core markets position the company to grow organically over time. Pairing this with accretive M&A could accelerate revenue growth further, but lean and efficient cost and manufacturing structures should be more than enough to turn the subpar stock price performance around.

And the latter part is already well underway through FILA’s company-wide organizational streamlining project, aimed at supporting cost-cutting, operational improvements, and process optimization for the 2024-2026 period. This also includes FILA’s decision to downsize its US operations, including the shut-down of parts of the US business (laying off 130 employees at its Maryland locations) and a planned strategic inventory sell-off by the end of 2025.

The Not-So Hidden Gem: Doms Industries (DOMS)

FILA first entered into partnership with DOMS in 2012 through the purchase of an 18.5% stake, later increasing its holding to a controlling 51% in 2015. When DOMS went public in December 2023, FILA participated as a selling shareholder, trimming its position to around 30%. A further disposal in December last year lowered the stake to 26.01%. As of September 9, 2025, the stake is worth roughly €400m, surpassing FILA’s current market cap and constituting a material (more, apparently) portion of its fair value. With that in mind, what is DOMS?

From DOMS’ 1Q26 Investor Presentation

Doms Industries (DOMS) is a leading Indian stationery and art materials manufacturer, officially founded in 2005 but with roots tracing back to the early 1970s. It is based in Valsad, Gujarat, and has a broad product offering comprised of pencils, crayons, mathematical instruments, notebooks, and kits, among other things, under its flagship brand and sub-brands like C3 and Amariz.

1Q26 revenue mix - from DOMS’ 1Q26 investor presentation

It is a leading powerhouse domestically, holding 29-30% market share within pencils and mathematical instrument boxes. Its distribution network spans over 120,000 retail touchpoints across India, with presence in more than 45 countries. This massive distribution network, paired with complementary product offering and a way to enter an underpenetrated market with scale (i.e., India), was the main rationale behind FILA’s initial involvement with the company.

Over the past five years, DOMS has compounded revenue at an impressive clip of 48% annually, and the growth trajectory shows little sign of slowing. The company is currently constructing a new 600,000 sq. ft. manufacturing facility, scheduled for completion by March 2026. Dedicated primarily to its core stationery operations, the purpose of the expansion is to significantly boost capacity and support DOMS’ ambition to scale its retail reach to roughly 300,000 outlets (2.5x the current footprint).

DOMS’ Financials, 2021-2025 (in INRm)

Like FILA, acquisitions are a key pillar of DOMS’ growth strategy. Since 2023, the company has completed four majority acquisitions and one minority investment. Together with the planned expansion in production capacity, these initiatives provide both inorganic and organic levers to sustain growth going forward.

Corporate event timeline - from FILA’s 1Q26 investor presentation

FILA remains the largest single shareholder with a ~26% stake, while the founding promoter families, the Raveshia and Rajani groups, collectively own ~44% of outstanding shares. Leadership is largely family-driven, with Santosh Rasiklal Raveshia, grandson of co-founder Shri Rasiklal Raveshia, serving as CEO since 2006 and supported by four other family-linked executives. Alongside FILA’s strategic involvement and the newly introduced long-term stock option plan (vesting over 5–10 years), the structure ensures strong alignment with minority shareholders.

An important caveat is that FILA’s 26% stake grants statutory blocking rights on special resolutions, with the current statutory threshold set at 25%. Monetizing the stake further would originally mean giving up this protection but, as mentioned by Smoak Capital in his H1 fund letter, the new shareholder agreement (SHA) between FILA and DOMS, entered in 1Q25, lowered the requirement to 20%.

Last week, the Indian government announced a GST overhaul, with the goal being to streamline its indirect tax system and ease costs for everyday items. This entails reducing most GST rates to just 5% or 18%, and introducing a 40% slab for luxury/sin goods. The reform, effective from September 22, 2025, will see GST for items including pencils, crayons, erasers, and notebooks drop to 0%, while geometry and color boxes will see the rate being cut from 12% to 5%. This is material for DOMS as the aforementioned categories constitute 50-odd percent of its consolidated sales.

Indian GST reform - from Government of India, PIB

DOMS can choose to keep prices unchanged and immediately boost margins (an unwise choice as competitors might lower prices to reflect the lowered GST, and DOMS should focus on customer retention and conversion), or lower its prices to increase market share. Either way, the tax reform is very much beneficial to DOMS, and the market reacted positively to the news, pushing the stock up nearly 10% intraday.

Skin in the Game

Insider Ownership

While FILA was founded in 1920 by descendants of the Antinori and Gherardesca families, it was acquired by Renato Candela in 1956. His son, Alberto Candela assumed leadership in 1964 and steered the company for nearly three decades, before passing the reins to his son, Massimo, in 1992. Massimo has served as CEO ever since, and the Candela family currently owns ~27% of outstanding A shares through their holding company, Pencils S.p.A. Despite this material holding, FILA’s stock price performance since going public through a reverse merger in 2015 is nothing to write home about. And that might be a real understatement.

From Reuters - data before June 30, 2015, is the Space S.p.A SPAC’s performance

An important caveat is that the Candela family also holds all 8.1m Class B shares, which carry three times the voting rights of regular A shares while retaining full economic rights. In other words, they own 39% of FILA’s equity but have effective voting power of close to 55%. Importantly, I have not found any indication of them misusing this influence, and the current capital allocation strategy suggests that they aim to maximize shareholder value.

Management Compensation

FILA also discloses the total remuneration for Massimo Candela (CEO) and Luca Pelosin (executive director and general manager). The executive compensation is composed of annual fixed salaries of €1.3m and €440k for the CEO and executive director, respectively, and short-term (ST) bonus and long-term incentive (LTI) components.

The target level for ST bonus is 40% of annual fixed salary, with a cap of 60%, and is computed as follows:

• 70% weighting to consolidated EBITDA vs the FY target approved by the board

  • The consolidated EBITDA figure still includes DOMS despite its IPO as it remains classified as a subsidiary for consolidation purposes and, somewhat controversially, management reserves the right to neutralize non-recurring items if they believe they distort the KPIs.

• 30% weighting to the net financial position

• The minimum threshold is 90% of the target level, meaning executives receive no payout below this figure. At 100% of the target, the executives receive 40% of the fixed salary, and this scales linearly until 110% of the target is reached (60% of cap).

The LTI plan is a performance share plan (PSP), where executives are granted the right to receive FILA shares, provided performance conditions are met over a 3-year cycle.

• Grants are again sized according to annual fixed salaries, with target grant values of 30-40% of the fixed salary per cycle

• Payouts range from 0-200% of the target

• This translates to 0.0-0.8x annual fixed salary for the period

• 70% weighting to ROI, defined as EBIT/invested capital

• 30% weighting to sustainability goals

While the surface level compensation structure seems quite good, I have a few concerns. Firstly, management should be held accountable for FILA’s lackluster stock price performance since the reverse merger, preferably by tying a meaningful portion of variable pay to stock price performance going forward; both in relative and absolute terms.

Secondly, the lack of transparency makes the remuneration report less useful. Italian law allows companies to omit the numerical values of performance targets if they are considered strategically sensitive, and FILA exploits this exemption. Luckily, we can back-solve them from percentage achievements and get an approximation.

The implied targets translated to an expected y/y increase of ~2% for adjusted EBITDA, and y/y reductions in pre-tax ROIC and NFP of ~7% and ~34%, respectively. Overall, I like that the executive compensation is strongly tied to EBITDA growth, deleveraging, and return on capital, but there is undoubtedly room for improvement.

Dividends and Buybacks

In March this year, FILA’s board renewed authorization for the company to repurchase up to an additional 500k shares, or ~0.9% of the current share capital. Coupling this with the current treasury share count of ~331k shares would bring the maximum potential treasury shares to 831k or ~1.6%. This seems rather immaterial at first, especially given how the LTI plan dilutes the share count, but this is largely due to FILA’s dividend policy being the main priority.

For 2025, the board proposed a dividend of €0.8/ share split into two equal tranches. With FY24 net profits of €60.5m, this equates to a payout ratio of ~56%. So, shareholders see a meaningful portion of profits being returned to them, but mainly through dividends, not buybacks. And this is likely due to Massimo and his family preferring hard cash to share buybacks so that they don’t have to trim their holding to cover private purchases - a reasonable choice I guess.

My Take on FILA’s Fair Value

Now comes the interesting part. While there is no hiding that DOMS trades at an optically rich multiple (~39x FY26e EBITDA), there is still a lot of FILA’s value that seems to be unaccounted for. If we solely look at FILA’s current share price and net out the after-tax value of the DOMS stake/sh, the stub value is €1.2/sh. Put another way, investors who buy FILA shares today pay ~1x the midpoint of FY25e FCFE for FILA’s core business. And this is a business that has delivered annual levered free cash flow of €52m on average over the past five years.

FILA’s core operations are undoubtedly in a temporary (hopefully) slump, with soft demand in core markets, paired with the consensus view being that arts material and school and office supplies are in secular decline. As I pointed to earlier, the digitization trend seems to have largely reached a plateau, and FILA’s exposure to emerging markets like India through DOMS and higher-growth markets like Mexico and Asia, should help offset negative or moderately positive growth in mature markets.

There are different ways to go about valuing FILA. A more aggressive assumption would be to value the DOMS stake as-is, but this seems quite unfeasible given the size of the stake (26%). Kicking it up a notch would be to assume that the current multiple is more than warranted, and that DOMS’ stock will continue ticking upwards in lockstep with underlying business improvements.

Personally, I have assumed that DOMS should be valued at 20x FY26 EBITDA, a reasonable assumption given consensus being a 20% 3-year fwd EBITDA CAGR. Margins are expected to remain stable at ~18%, and you get further upside optionality if DOMS hits the upper end of its 18–20% growth and ~17%+ margin targets, paired with further accretive acquisitions and majority stake purchases like Super Treads and Uniclan Healthcare.

A more challenging point was to find suitable peers for FILA. There isn’t a plethora of publicly listed European peers, so the chosen group was a combination of adjacent businesses and a Japanese peer. Still, I believe FILA should trade at 6x FY26e FCFE, if not meaningfully more, as things pick up.

Using the midpoint of the FY25 free cash flow guidance provided in the H1 report, of €40m, I believe the floor on FILA’s valuation is €9.3/sh. The pro rata figure is adjusted for taxes, but since the carrying value of the DOMS stake is ~€140m and the gain is only subject to an effective tax rate of 1.2% (5% is treated as taxable gain * 24% IRES rate), the tax bill is negligible.

In a more bullish scenario, where FILA experiences a meaningful multiple rerate (still within reason, of course), and DOMS’ current valuation is sustained, the upside becomes much more significant.

Note that the above calculations use the high-end of the FY25 guidance, which is still stifled compared to 2021, 2023, and 2024. Stated differently, a complete recovery or improvement vis-à-vis these years could make the upside even more substantial.

As Smoak Capital mentioned in his H1 fund letter, FILA can, despite the statutory 25% threshold, trim an additional 6pp of its stake without it impacting its shareholder rights. This is due to the SHA granting FILA important rights like board nomination, access to key information, and veto on reserved matters, provided they maintain a minimum stake of 20%. This makes further partial stake sales likely, but the exact timing of it remains to be seen.

Valuing FILA at 6x run rate EBITDA (adjusted for IFRS-16), and solely accounting for the after-tax value of 6.01% of DOMS, a 25% return within a relatively short timespan is not far-fetched.

Lastly, viewing FILA from an EBITDA lens, valuing the DOMS stake as-is or at 20x FY26e EBITDA, and using reasonable multiples, suggests a double is very much doable from here.

In total, I believe the absolute floor on FILA’s valuation is €9.3/sh (5% upside), while moderate multiple expansion, further deleveraging, and accretive stake sales could lead to a double (or more, depending on execution and market recovery). Most importantly, the downside appears limited at current levels.

Why does this opportunity exist?

1. Difficult y/y comps after DOMS deconsolidation

The DOMS IPO in 2023 led to misleading y/y comparisons, with headline revenue and EBITDA looking weaker than the correctly adjusted figures.

2. Cyclical industry stigma

Stationery, school, and art supplies are viewed as low-growth markets in secular decline due to digitization trends, overshadowing evidence that demand has stabilized in developed markets and continues to grow in emerging ones.

3. Macro overhang

Softer consumer spending, tariff worries, FX headwinds, and geopolitical risks have driven sentiment off a cliff, leading to negative analyst revisions and lack of investor interest.

Potential Catalysts

1. Further stake sales

This definitely seems to be in the cards after the revised SHA in Q1, but if FILA sells an additional 6% of DOMS, that’s ~€90m in additional cash.

2. Deleveraging

This builds on point number one, but funneling proceeds from stake sales and/or excess cash to deleverage the balance sheet will increase the equity value while also de-risking the balance sheet. This is especially important for a company that is viewed as cyclical and in secular decline.

3. Operational streamlining and recovery in demand

The combination of FILA’s restructuring efforts and demand recovery in key markets should see both revenue and margins gradually pick up, although FY25 looks bleak.

4. PE optionality

While rather speculative at this point, mentioned how Italian press has pointed to PE interest in FILA. With more than a century long history, strong brands, and consistent profitability, FILA does have the hallmarks of a typical PE candidate. Rumors alone could be enough to reignite investor interest and trigger a multiple rerate, but the Candela family’s ~60% voting control means that any potential sale or strategic move would hinge entirely on them.

Final Words

Joel Greenblatt has, on several occasions, said that he approaches position sizing not in terms of the highest potential upside, but by putting the most money into the investments where he believes he won’t lose money. This isn’t investment advice, but I believe FILA fits that category well.

When you pay 1x FCF for the stub, and the stub itself is a cash-generative business with a leading market position and long track record of profitability, FILA feels like the kind of idea that hits you over the head with a baseball bat, to paraphrase Buffett. One could argue that the long-term secular headwinds and lack of stock price accountability tied to management’s compensation make FILA a less attractive investment, but this doesn’t warrant an implied valuation of only 1x FCF for its core business. And when you add an otherwise aligned management team, sensible capital allocation, and decent returns on capital into the mix, the valuation becomes even more obscene.

I believe a recovery in FILA’s core business segments, continued execution from DOMS, further stake sales, and a prudent capital allocation policy (both buybacks/dividends and deleveraging) will ultimately lead to a significant rerate. In the meantime, shareholders can enjoy a dividend yield currently running at ~9%.

This is not investment advice. I hold shares of F.I.L.A. - Fabbrica Italiana Lapis ed Affini (FILA.MI) at the time of writing, and my views may be biased. Please do your own research and consult a financial advisor before making any investment decisions.

Starz Entertainment (STRZ) shot up about 75% shortly after becoming a standalone publicly listed company earlier this year, mostly driven by a combination of a low starting valuation and a strong Q4 print.

But the euphoria was short-lived as the stock cratered ~20% two weeks ago due to a disappointing Q1 earnings release that saw OTT subscribers down 120,000 Q/Q (-1%), paired with OIBDA of only $33.4m (run rate figure far away from the FY25a of more than $200m). While the price action could prove warranted over time, I believe STRZ offers meaningful upside from here.

Starz Entertainment the Business

STRZ is a cable network and over-the-top (OTT) streaming platform that offers movies and original series (e.g., Power, Outlander, and Black Sails), primarily targeting women and underrepresented audiences in the US and Canada. It was acquired by Lionsgate in 2016 and became a standalone company on May 7 this year as Lionsgate Studios was spun out under the ticker LION. The RemainCo, STRZ, offers content via traditional cable feeds, its own VOD service, and its DTC, OTT streaming platform Starz. More specifically, it operates a dual revenue model comprised of (1) a growing DTC, OTT streaming service, and (2) its legacy linear pay-TV network business.

Data from STRZ’s 1Q26 10-Q

1. Streaming Service

The flagship streaming business, Starz (~70% of revenue), offers ad-free, premium streaming directly to consumers through its OTT platform via web, mobile, and smart TVs. In addition to original shows, STRZ also licenses content from Universal Pictures, Disney, and Sony Pictures, and entered a multi-year (currently running into 2028), exclusive first-pay output agreement with Lionsgate for its theatrical releases. This ensures that Lionsgate films are released on Starz after their theatrical and initial home release windows, and before they become available on other streaming services. This hybrid structure, with originals and new movies, provides users with a steady stream of new and entertaining content.

Starz snapshot - From STRZ’s 2025 investor presentation

Ad-free subscriptions are currently sold for $10.99/mo, with regular promotional offers as low as $4.99/mo. While the promotional offers are unsustainable over time, STRZ is reshaping its cost structure, partly through lowered content spend, to be able to sustain subscription plans that undercut the larger streaming services. And by maintaining a lower price point (~30% lower than most competitors), STRZ positions itself as an add-on rather than a head-to-head competitor with the likes of Netflix and Max.

OTT and linear - from STRZ’s 2025 investor presentation

While STRZ’s platform is small in the grand scheme of things, revenue has grown more than 11x since 2017 and is currently sitting a little south of $900m. Despite this impressive growth in isolation, it has barely offset the accelerated decline in traditional cable, with group revenue flat over the period.

Viewership figures - from STRZ’s 2025 investor presentation

Despite its niche offering, STRZ has been able to produce shows that rake up impressive viewership. Its original series Ghost and BMF have both released episodes that surpassed Hulu and Max in terms of average hours viewed per subscriber and total hours viewed. Still, one should note that the above figures are somewhat misleading as STRZ used internal figures for itself, and retrieved competitor data from Nielsen, with the accompanying note saying that Nielsen likely understated this data. In other words, they are not apples-to-apples comparisons, and should be taken with a grain of salt.

Streaming service by subscribers in the US - from FlixPatrol

But if we only look at subscriber count (although they are retrieved at varying points in time), a more undeniable fact is that STRZ is currently #10 in the US, positioning it closely to both Apple TV and AMC+.

A final point on the DTC, OTT platform is that while Netflix and other key players have already rolled out ad-supported tiers, STRZ deemed this infeasible as its lack of scale makes it less compelling for advertisers. This has resulted in 100% of OTT revenue being derived from subscriptions, which can be described as a double-edged sword.

While one could argue that the pure-play OTT set-up is beneficial due to no exposure towards fluctuating ad-dollars (election years, etc), and prevents STRZ from competing with ad tech platforms like Meta and Alphabet, this also leads to a growing subscriber count and/or higher ARPU being the only viable growth path. And since STRZ wants to maintain its position as a discounted OTT platform, meaningful APRU growth is not an option.

OTT subs have trended lower in recent quarters, reflecting both a weaker content cadence and an inferior library position vis-à-vis the larger streaming platforms with broader audience appeal.

2. Legacy Linear Pay-TV Network

The legacy linear business has shrunk substantially over time, and now represents less than 1/3 of the overall business. And while it is in structural decline, the migration to the Starz platform serves as a profitability headwind due to legacy cable’s superior profitability, largely due to lower content spend and churn, and higher APRU. But it is important to note that the migration to OTT will likely reduce legacy cable-related capex too, partly offsetting the effect of growth in lower-margin OTT subscriptions.

In addition to its traditional premium cable, the segment also encapsulates STRZ’s cable VOD service. This functions similarly to the OTT streaming platform, but access is delivered through cable-TV rather than over the internet.

The change in pro forma revenue over the last three years shows that growth has been a real obstacle. While increased efficiency and a lighter cost structure could boost profitability, a return to growth remains vital. And if we use 1Q26 as any indication, things have turned sour since STRZ became a standalone company, with margins contracting substantially y/y.

Strategy Going Forward

While STRZ reached its FY25 OIBDA target of $200m, the 1Q26 print does not bode well for the rest of the year. Still, as mentioned in his great STRZ writeup earlier this year, CEO, Jeffrey Hirsch, has laid out a clear path to meaningful and sustainable cash flow generation by FY27.

Cost-cutting levers - retrieved from Value Don’t Lie

Past years have seen content spend at “elevated” levels, largely due to STRZ effectively subsidizing Lionsgate Studios. Now that STRZ is a standalone company, Hirsch believes this will come down to $600m-$700m, compared to $850m-$900m in the FY22-FY25 period. By increasing STRZ’s outright ownership of shows, instead of licensing from Lionsgate Studios, margins should also begin to pick up. This is largely driven by two things: (1) keeping international rights, and (2) capturing downstream revenue.

If STRZ owns shows outright, it controls the rights to sell/license them abroad, which Hirsch quantified as $40m-$60m of annual savings, offsetting production costs once ownership ramps up.

Hirsch also pointed to windowing, or window economics, which are distinct content licensing windows mainly comprised of Pay-1 rights, Pay-2 rights, and syndication. Pay-1 refers to the first premium TV/streaming window after a theatrical release (typically lasts 12-18 months), and is generally more expensive as demand peaks early, while Pay-2 kicks in after the Pay-1 window expires. The latter enable movies/shows to be licensed to other platforms again, but often at lower prices.

Hypothetical timeline for windowing - from DisCo

And while Hirsch mainly borrowed Pay-1 and Pay-2 as movie business analogies, TV shows have similar characteristics. The initial run, e.g., when a show is released on STRZ’s platform, is equivalent to Pay-1, while subsequent runs (think TV rights licensed to other OTT streaming services) are Pay-2.

The last licensing window, syndication, is the resale of older content, but since this requires a large “library”, a show typically needs to have 80-100 episodes of content before willing buyers emerge. Once a sufficient catalog has been built, STRZ can license TV and movie rights to cable operators, Free TV, or streaming platforms. In other words, ownership can turn a show into a repeatable licensing opportunity, meaningfully extending its useful economic life.

Bundling strategy - retrieved from Value Don’t Lie

Lastly, bundling, which currently constitutes ~1% of sales, could prove to be an essential growth lever going forward. Due to STRZ’s discount pricing, it is well-positioned to serve as a complementary OTT streaming service to premium-priced offerings.

Sign-up plans by type - from Antenna

Since bundling is generally more sticky, this should contribute to lowered churn and higher lifetime values for STRZ over time. This, paired with large streaming platforms (e.g., Hulu and Vizio) increasingly viewing themselves as platforms rather than channels, allows STRZ to be sold on top of those ecosystems. And there is undoubtedly value to be derived form bundling, illustrated by the Disney-Max bundle accounting for 22% and 21% of Max sign ups in 3Q24 and 4Q24, respectively.

Above is the OIBDA-to-FCFE bridge. It assumes OIBDA in-line with the FY25 actual figure, taxes being fully offset by NOLs, interest expenses equaling the current GIBD (~$625m) * 6%, and that CapEx is lowered to $10m. While CapEx could ultimately trend higher, and changes in NWC will reduce actual free cash flow, this is partly offset by interest income from bank deposits that I have not accounted for here. In total, it illustrates how STRZ has significant cash flow generation capabilities, and that 70% cash conversion is definitely within reach (if not slightly pessimistic?).

Growth From the Marooned Networks?

There’s a lot of networks out there today that are marooned on the linear side and don’t have technical capabilities to do what we’ve done. We think we can be very additive to content that is stuck on the linear side to give them a digital future. - Jeffrey Hirsch

In an interview with TheWrap shortly after becoming a standalone company, Hirsch hinted at potential consolidation with smaller networks lacking a digital presence. This could involve acquiring under-invested cable assets directly, serving as an inorganic growth lever, or entering distribution partnerships and bundling arrangements to broaden STRZ’s content offering and potentially reignite subscriber growth.

Insider Buying and Activists

Jeffrey Hirsch joined STRZ in 2015 as president of Global Marketing & Product Development, and spent a few years as COO, before being appointed CEO of the company in September 2019. He brings a plethora of experience from senior roles at Cinemax, HBO and Time Warner Cable, gaining the know-how of premium TV networks, bundling and subscriber growth economics, as well as an early career in finance as an associate at JP Morgan’s corporate finance department within media and telecom.

Tenured managers, provided they have performed well since taking the helm, is always a good sign, and the recent insider activity is even better. Although STRZ dropped sharply after the disappointing Q1 print, insiders have been loading up on shares. Hirsch, Bruce Mann, and Harry Sloan, the two last of which are board members, all bought additional shares in the open market at prices between $12.5-$13.0/sh over the last few days. Hirsch now owns ~169k shares worth ~$2.3m, and while I was unable to find any source siting his total net worth, it is safe to say that STRZ now constitutes a meaningful portion of it.

From Simply Wall Street

Overall, insiders own north of 3% of outstanding shares, but more interestingly, activists have become increasingly involved.

Liberty 77 Capital, the strategic investment fund led by former treasury secretary, Steven Mnuchin, has bought shares hand over fist over the last few months, and now owns 1.8m shares or ~11% of shares outstanding. Mark Rachesky, who currently serves as a non-executive chair on the board, also owns more than 17% of the company through his New York-based PE firm, MHR Fund Management, after filing an Early Warning Report (equivalent to a 13D) back in June.

And while activist involvement is no guarantee of investing success, it definitely helps in pressuring management to deploy a sensible capital allocation strategy and turn the ship around.

Valuation

While one could argue that Hirsch’s mid-term guidance is on the optimistic side, I used it as a starting point and made certain adjustments where I saw fit.

Hirsch’s guidance/targets - retrieved from Value Don’t Lie

If we assume that revenue reaccelerates through a combination of more bundling agreements, a slower decline in linear, and new originals content (new seasons of fan favorites are already expected to be released at the backend of the year), I can see STRZ reaching $1.4b in annual revenue by FY27. Coupling this with OIBDA margins expanding from 15% to 20% through increased ownership, which would enable STRZ to monetize content by selling or licensing rights abroad, and deploying a more prudent content spend strategy, would translate to FY27 OIBDA of $280m.

Peer comparison - from Refinitiv Eikon

With STRZ’s capital light core business model, and linear continuing to decline, I view a 70% cash conversion over time as reasonable. Management is guiding for CapEx of $10m annually, and to contextualize this figure, CapEx has been in the $18m-$34m range over the last three years. Still, this is decreasing as the front-loaded separation and infrastructure investments roll off and the shift to pure-play streaming continues. And since STRZ has NOL carryforwards of ~$390m (~$158m of those expire in 2038), this equates to unlevered free cash flow of a little south of $200m. Assuming deleveraging continues in lockstep with cash flow generation, and NIBD falls to 2.5x FY25a OIBDA, this would result in annual interest expenses of ~$30m at a 6% effective borrowing rate. In other words, STRZ could deliver levered free cash flow of ~$170m in FY27, implying a current valuation of less than 2x forward FCFE.

But I am not fully convinced that all the targets Hirsch highlighted will come to fruition, at least not as quickly as he originally expected. The streaming space is highly competitive, and STRZ’s inferior content offering makes it less compelling to consumers despite its lower pricing. Assuming FY27e revenue is equivalent to the current run rate figure, the OIBDA margin remains steady at 15%, and NIBD/OIBDA stays at 3x, unlevered free cash flow could end up closer to $100m. This is still quite strong, but the combination of a then-weaker growth outlook and 8% margin would make a low-to-mid-single-digit-multiple warranted.

I believe the PV of the fair value/sh is closer to ~$23 in the more pessimistic scenario. Still, this translates to an implied upside of 70% from today’s levels.

One could also argue that the large debt level should be accounted for more strongly here. Valuing STRZ on an EV/FCFF basis yields quite similar results for the bull case, but the base/bear case suggests there could be ~70% downside, illustrating the material impact “small” changes in EV have on the equity value of highly leveraged firms.

In total, I believe STRZ’s fair value/sh is somewhere in the $23-$54 range, equivalent to an implied upside of ~70-300%. If we use the equally-weighted fair value/sh of the four approaches (which is again arguable), I believe STRZ is worth more than $30/sh, which suggests that a double from here is definitely within reason.

Sensitivity table, assumes: (1) $1.4b in revenue, (2) 70% CC, and (3) NIBD of $500m (2.5x FY25a OIBDA)

Is a Take-Out Likely or Just a Far-Fetched Dream?

1. Who are likely buyers in such a scenario?

PE shops like Apollo and Blackstone have already shown interest in media assets with the former’s bid on Paramount in early 2024. STRZ’s minuscule size makes it exposed to a potential bid, and PE could prove natural buyers given STRZ’s largely recurring subscriber base and international distribution. From a buyer’s perspective, they could run it as a cash cow or bolt it onto another media PortCo.

Strategic buyers like Paramount Global and Sony Pictures could also emerge, where consolidating the offering with Showtime/Paramount+ could bring synergies, and STRZ could serve as a good entry point for Sony to build its DTC offering.

An important caveat is that most adjacent “peers” are currently in a shedding off phase, off-loading non-core assets, making a potential take-out unlikely in the short-term.

2. What would a reasonable PMV look like?

From a private market value perspective, a buyer would probably pay 4-6x OIBDA for a hybrid lower-tier streaming/linear cable company like STRZ. Using the $200m OIBDA base figure and current NIBD of ~$574m, the current implied take-out range is $14–$38/sh. This underscores the significant equity torque that can come from a leveraged balance sheet and a small market cap, where nearly all of the upside delta accrues to equity holders.

Risk Factors

1. Leverage and Default Risk

Like most media companies, STRZ’s balance sheet is saddled with debt, at least relative to its modest market cap. While management has signaled that deleveraging is a clear priority, its recent history with a consistently negative bottom line makes default risk something to consider.

From STRZ’s pre-split 10K/A

Still, I believe the combination of rate cuts on the horizon, a clear leverage target, and maturities several years out into the future, positions STRZ well to service its debt. Using the run rate figure of unadjusted 1Q26 OIBDA, STRZ should comfortably cover its interest expenses in the meantime, with an ICR of ~1.7x.

And the untapped RCF of $150m also provides the optionality to draw on it if things were to get ugly.

2. Continued Subscriber Loss

STRZ’s stock is very sensitive to negative developments in OTT subscriber count. While linear is in structural decline and continued subscriber loss is expected (although the rate of decline could still have a material impact), growth in OTT subscribers is the only viable growth path going forward.

The inability to generate exciting new content (due to talent churn, for instance), and the consequential lack of subscriber growth should, all else equal, prevent a multiple rerate, and could even lead to further multiple contraction over time.

3. Missteps in Strategy Execution

Overinvesting in content without scale or without gaining consumer traction, or the lack of bundling interest from larger streaming OTT players could make Hirsch’s short-to-mid-term targets unachievable.

4. Distribution Partner Risk

Since a significant share of subscribers come through 3P-platforms (e.g., Amazon channels), changes in revenue share terms or loss of carriage revenue could have a material impact on STRZ’s business.

Why Does This Opportunity Exist?

1. STRZ being the RemainCo of a recent spinoff typically leads to indiscriminate selling, and the source of this is twofold: (1) shareholders who held Lionsgate pre-spin to receive the spinoff shares and sold the RemainCo shortly after, and (2) STRZ’s sub $300m market cap and lack of liquidity forcing larger institutional investors to sell their positions to comply with investment mandates.

2. Despite linear representing less than 1/3 of total sales, the market might paint STRZ with the same broad brush as structurally challenged media names.

3. Leverage of 3x OIBDA makes the balance sheet seem overly leveraged relative to its market cap, with investors neglecting the cash generation and deleveraging path.

4. The mix of a weaker content offering and a debt-saddled balance sheet makes investors less inclined to buy, and this paired with the subscriber count scare in Q1 has made it a less appealing investment.

5. Its size makes it an underfollowed and overlooked name by many institutional investors.

Potential Catalysts

1. Improved Content Pipeline - Power Book IV: Force

While one could argue that this is somewhat speculative to assume, Power Book II: Ghost, season 4, averaged more than 10.5m multi-platform viewers per episode within 90 days of release, surpassing Power Book III: Raising Kanan, season 3, from 2023. With the release of season 3 of Power Book IV: Force being set to November 7, 2025, I believe the subscriber count could pick up meaningfully in anticipation of this, especially as this is the final season of the spinoff.

If STRZ can continue this momentum with a robust content pipeline, subscriber growth could be sustained beyond the near-term release slate.

2. Further Deleveraging and Rate Cuts

A simple but effective catalyst would be aggressive deleveraging, allocating a meaningful portion of excess cash and cash flow to quickly reach the leverage target of 2.5x OIBDA. This, paired with further rate cuts, would immediately add to free cash flow and increase the equity value. And, by extension, less debt would de-risk the balance sheet and likely warrant a multiple rerate.

3. Reaccelerated Subscriber Growth

This likely comes as no surprise, but STRZ delivering positive Q/Q OTT subscriber growth in Q2 will likely drive the stock higher. Firstly, the stock puked after the Q1 print, mainly due to a downturn in subscriber count and lackluster OIBDA. Secondly, since STRZ’s only real path to growth is adding subs (limited pricing flexibility due to the value-tier strategy) as pointed to earlier, any weakness in this area is heavily punished.

4. Take-Out Announcement

While the timeframe for this remains uncertain, STRZ’s small size, discount pricing, and niche content offering make it a logical bolt-on for larger players. And even rumors of a potential take-out could trigger a significant rerate given the stock’s limited liquidity.

Final Words

STRZ is definitely a company with some hair on it, but that is expected when you can purchase shares at less than 2x forward free cash flow. While linear continues its structural decline, I believe the OTT platform can grow through a combination of bundling agreements, potential tuck-in of marooned networks, and a stronger content slate going forward.

If management succeeds in making the cost structure leaner through more prudent and normalized content spend, greater ownership of originals, and reduced linear maintenance costs, 20% OIBDA margins do not seem far-fetched. This, paired with reaccelerated revenue growth and deleveraging, positions STRZ as a potential multi-bagger from current levels.

Once the industry exits the shedding phase (simplifying portfolios and selling non-core assets), STRZ’s small size and complementary offering make it a logical take-out target, serving as a potential catalyst to crystallize the fair value. Additionally, any beat or raise on guidance/targets could see the stock surge, as the leveraged balance sheet and thinly traded stock create significant equity torque.

This is not investment advice. I hold shares of Starz Entertainment (STRZ) at the time of writing, and my views may be biased. Please do your own research and consult a financial advisor before making any investment decisions.

That said, the sell-off seems overdone. NORTHM still holds an equity portfolio worth more than DKK 700m (almost covering the entire market cap), owns valuable real estate, and is currently priced at less than 2x the low-end of FY25 EBITDA guidance. And thanks to the rollout of its successful FKD system, SDR is nearing profitability. With several improvements in motion and a valuation reflecting extreme pessimism, is NORTHM now positioned to inflect, and by extension, offer meaningful upside from here?

Business Model

NORTHM’s business is divided into two main segments:

1. Last Mile (FK Distribution and Svensk Direktreklam)

2. Digital Services (BoligPortal, Dayli, and Bekey)

Last Mile is NORTHM’s legacy business focused on the distribution of physical media through FKD and, more recently, SDR.

FKD is a leading distributor of unaddressed printed material (e.g., leaflets and local newspapers) based in Denmark, delivering more than 1.1b items annually. 1.9m households or 62% of total Danish households receive their advertising leaflets, with 2.3m Danish households (76%) also receiving local weekly newspapers. These figures disprove the speed of the structural decline narrative as Danish households still enjoy physical deliverables despite increased digitization. NORTHM also caters to increased optionality, enabling households to selectively opt in to specific leaflets instead of everything through its NejTak+ offering. ~450.000 households have already signed up for the offering, illustrating NORTHM’s ability to adapt to changing consumer preferences and retaining customers.

Change in household orders and printed matter volume - From NORTHM’s 2024 annual report

• JaTak = Households that accept all unaddressed advertising (e.g., leaflets and print ads)

• NejTak = Households that opt entirely from receiving printed advertising material

• NejTak+ = Personalized opt-in solution where households can choose which leaflets they want to receive

SDR was acquired by NORTHM in December, 2023, and is the largest private distributor of printed matter and local newspapers in Sweden. It was a logical target as SDR’s operations were inefficiently run, and implementing the successful model of FKD could lead to meaningful synergies over time. The transformation is well under way, but not without short-term pain. In FY24, the DKK segment was hit with a DKK 155m write-down driven by significantly lower anticipated leaflet volumes and a material earnings decline. Despite current losses, management expects SDR to become EBIT positive in FY26. Its extensive reach, with 4.6m households receiving local weekly newspapers (91%), 2.2m receiving leaflets (49%), and 1.1m receiving both, underscores the substantial profitability potential with a leaner and more efficient model in place.

SDR’s printed matter volume - From NORTHM’s 2024 annual report

Digital Services is a portfolio of digital platforms connecting businesses and consumers across various sectors. It is comprised of BoligPortal, MineTilbud (Dayli) and Bekey, and represented ~14% of 1Q25 revenue.

BoligPortal consists of BoligPortal.dk and BostadsPortal.se. BoligPortal.dk is Denmark’s leading rental housing platform, connecting professional and private landlords with tenants. In FY24, the platform had 622.000 monthly visitors, 114.000 advertised rental homes, 36.000 signed moving reports, and 28.000 signed rental contracts. Its sister portal, BostadsPortal.se, while smaller, reached 243.000 monthly visitors last year, and management believes it has vast market potential.

Revenue mix/growth, and EBIT margin - From NORTHM’s 2024 annual report

More and more landlords and tenants are moving towards online rental management, from listing properties to moving reports and signing contract. Its digital tools streamlining these tasks positions it well to capitalize on the increasing demand for rental properties in urban areas like Copenhagen. And its capital-light model should contribute meaningfully to group profits over time as its share of the revenue mix continues to increase.

Dayli, formerly known as MineTilbud, is one of Denmark’s leading platforms for the online distribution of digital promotional newspapers and catalogs. In January 2025, MineTilbud’s activities were spun out of FK Distribution and renamed Dayli to support new business opportunities. These include expansion into Sweden, where Dayli and the digital publishing platform Publisher were introduced.

The Dayli platform connects retailers with consumers through the online distribution of promotional content, including digital leaflets, catalogs, and special offers. While the platform primarily caters to consumers, it also serves a growing base of diverse business segments. The platform has more than 1.5m users (or ~36% of Danes above 18), surpassed 1.2m weekly visitors in 2024, and achieved a 49% engagement-to-visit rate.

Users and reads - From NORTHM’s 2024 annual report

In 2024, Dayli acquired the Danish software firm Avio to access its proprietary publishing technology, which now represents the foundation of Publisher. Publisher enables retailers and suppliers to manage and distribute content across both digital and physical channels, complementing Dayli’s offering well. This also strengthens its value proposition as a one-stop marketing and publishing solution for the retail industry.

Bekey provides and services digital access systems for locked stairwell doors (SmartRelay) and private home doors (SmartLock) in Denmark and Norway. In 2024 alone, the Bekey system facilitated more than 14m door openings, including 1.4m by distribution customers (e.g., logistics and meal delivery companies). Access is managed through the cloud-based system Netkey which assigns encrypted digital keys to authorized users, and the users can then unlock doors or access the SmartKeyBox (physical lockbox they also offer) using the Bekey mobile app on their phone with all access events being centrally registered and logged.

In addition to the above companies, NORTHM acquired a 50% stake in the Danish data-driven fintech company Karman Connect A/S in 2016. Karman connects lenders and borrowers for unsecured consumer loans across Europe, and delivered revenue and EBIT of DKK 16m of (65% y/y growth) and DKK 1.3m in 1Q25, respectively. Management notes that this year is off to a notably better start than 2024 as Karman experienced strong demand across markets and partners, suggesting that the revenue decline since 2022 could be a thing of the past.

From NORTHM’s 2024 annual report

Chairman Stepdown and Transfer of Majority Stake

Recently, NORTHM announced that its current chairman, Ole Borch, is stepping down from his position. It is not due to any governance related issues, but rather because he is taking on the role as chairman of a new foundation established on behalf of the company’s founder, Richard Bunck. The press release also disclosed that this foundation is expected to take over the majority holding in NORTHM currently held by Baunegård ApS, Bunck’s holding company.

The implications of the above are twofold. First, it ensures long-term stability, but this at the expense of strategic flexibility. NORTHM will likely become insulated from market pressure, hostile bids, and activist investors. I am only speculating, but unless a meaningful chunk of Bunck’s holding is sold to cover philanthropic activities, the strategy will likely emphasize legacy and executing his vision over aggressive growth, accretive divestitures, and other value-creative levers.

If the focus on enterprise sustainability over value creation does in fact come to fruition, this may lead NORTHM to keep underperforming divisions alive, retain excess capital (e.g., the current equity portfolio of ~DKK 700m), and avoid a complete sale. In other words, since the foundation’s mandate will likely reflect Bunck’s values and current strategic view, the sub-optimal capital allocation pattern could persist. The lack of large activist investors and pressure from the board could also lead to management becoming complacent.

While the above could prove to be a material risk from a shareholder perspective down the line, I believe the valuation more than accounts for this as I will show later on.

Management and Compensation Structure

Richard Bunck is the founder and vice chairman of NORTHM. He founded Reklame Distributionen in 1965 (later became Forbruger-kontakt A/S) and served as CEO of NORTHM from 1965 to 2004. He owns ~11.3m shares, equivalent to 63% of the company. This should in isolation align the interests of insiders and shareholders, but the return over the last 5 years have been disappointing to say the least.

NORTHM 5-year stock price performance - From Refinitiv Eikon

Overall, insiders own a little south of 12m shares or ~64% of shares outstanding.

Management receives annual base salaries ranging from DKK 2m to DKK 4.4m. The 2018 option program unfortunately expired last year, and I hope a new long-term stock based compensation plan is introduced swiftly to better align management and shareholder interests.

A portion of annual compensation is variable pay and based on (1) nominal EBIT, (2) change in revenue, and (3) change in EBIT for the business unit or area each executive is responsible for. If any of the parameters are negative in a fiscal year, they have a downward impact on total variable remuneration (nominal EBIT was positive in FY24 but was offset by a negative change in EBIT and revenue, resulting in zero variable pay for the year).

To better ensure a strong focus on long-term and stable value creation, 50% of the cash-based variable pay is deferred and paid the following year only if the result is still in accordance with the company’s remuneration policy.

The above compensation plan has room for improvement, and it will prove especially important as Bunck’s holding is transferred to the foundation as this will likely result in less board pressure and shareholder involvement.

Valuation

FK Distribution

FKD is NORTHM’s flagship business. It represents 55% of group revenue and delivered 124m in FY24 EBIT. While SDR is still in a transformation phase, FKD has successfully executed on the same strategy. It is difficult to determine a suitable multiple for both FKD and SDR as all northern unaddressed mail, leaflet distribution, or local newspaper delivery companies are state-owned or privately held. The closest publicly listed “peer” DHL (purely due to its distribution networks), trades at ~11x forward EBIT, but its size, economies of scale, and differing business mix justifies a premium. As such, I have used a 5x EBIT multiple, somewhat arbitrarily but also to remain conservative. This seems fair (and potentially overly conservative) when accounting for FKD’s efficient operations and the stickiness of physical deliverables in Scandinavia despite ongoing digitization trends. Based on the midpoint of FY25 EBIT guidance, this equates to 70% of the current market cap.

Svensk Direktreklam

SDR is well under way with its transformation, primarily in adopting FKD’s automated packing technology, and the automation rollout is expected to be fully implemented by H2 2025. This transition moves SDR from manual, franchise-based packing to centralized, machine-based operations in-house, which is expected to reduce labor costs and improve efficiency. This paired with the pivot to youth-based distributors for the delivery of advertisements and leaflets should meaningfully lower costs, and as such, also justify a 5x EBIT multiple as SDR becomes EBIT positive.

The EBIT estimate is 1 year further out, and this coupled with execution risk, warrants a higher discount rate. Still, if SDR is able to deliver FY26 EBIT of DKK 40m, the fair value could cover 22% of the current market cap.

BoligPortal

BoligPortal is a capital-light and scalable business, well-positioned to further capitalize on the rental trend in urban areas. While EBIT was heavily stifled in FY25, largely due to higher strategic investment costs and a weaker rental market in Denmark, strategic partnerships and further streamlining should ensure continued EBIT growth. Peers trade at ~24x times EBIT on average, but scaling the multiple for growth and EBIT margin differences, I have applied a 14x EBIT multiple.

Based on the midpoint of FY25 EBIT guidance (DKK 35m), this translates to DKK 490m at year-end 2025 or DKK 26/share today.

In other words, FKD, SDR and BoligPortal cover more than the entire current market cap, and that is without accounting for the large equity portfolio, valuable real estate, and Dayli, Bekey and Karman.

Dayli (MineTilbud)

Since Dayli is currently unprofitable, and the timeline for profitability is uncertain, I have decided to value it on an EV/S basis. Again, it is difficult to find accurate peers as the business activities are quite niche. The Polish company Wirtualna Polska (WPL) has certain overlapping activities, but its wide array of digital services (e.g., technology and sports broadcasting) makes it an unsuitable peer. Its 22% 3-year revenue CAGR and 18% EBIT margin also explains why it trades at ~1.5x sales, a multiple that would likely overstate Dayli’s fair value. Polaris Media (POL) on the other hand, the Norwegian legacy media conglomerate, trades at only 0.4x, largely due to its lack of growth and volatile bottom line. Using the midpoint of these two or a slight premium to POL, at least until the path to profitability becomes more clear, seems like a sensible choice.

Applying a 0.5x EV/S multiple to the midpoint of FY25 guidance yields a fair value of DKK 15.5m, or DKK 0.73/share when discounted back at 10%.

Bekey

Bekey is in a similar position, and its negative EBIT margin has actually accelerated in recent years, worsening from -57% in FY22 to -121.4% in FY24, as it continues its efforts building infrastructure and improve internal processes.

While adjacent peers trade at close to 2.5x sales, it is obvious that their consistently positive revenue growth and higher EBIT margins warrant this. If Bekey is able to streamline operations further, and reaps the benefits of its current restructuring efforts, a rerate could be justified down the line. In the meantime, its high fixed costs and low scale will likely limit profitability, and a meaningfully lower multiple is therefore justified.

I have applied a 0.5x EV/S multiple to Bekey too, and doing so translates to a PV/share of DKK 0.5.

Karman Connect

NORTHM also holds a 50% stake in Karman Connect. As mentioned earlier, 2025 has been off to a great start for the fintech company, but its heavy tilt towards unsecured loans results in substantially higher credit risk and consequentially a lower multiple.

While 2022 was a great year from a profitability perspective, with ~24% y/y revenue growth and an EBIT margin of close to 25%, revenue has since nosedived 35% while EBIT has turned negative. EBIT was also consistently positive (EBIT margin of 11.3-24.7%) in the 3 preceding years, but I will value Karman based on sales as the full-year EBIT figure remain uncertain.

Both LendingClub and Upstart are trading at high EV/S multiples, and this despite negative revenue growth and low-to-negative margins. If Karman sustains its current trajectory throughout the year, a similar multiple could be warranted. But would Karman be fairly valued at such a multiple, or is it LendingClub and Upstart that are too richly priced? I view the latter as more likely, and will value Karman at 1x revenue run rate.

With NORTHM’s 50% stake, this equates to a little south of DKK 2/share.

Equity Portfolio

In addition to the wide array of subsidiaries, NORTHM also holds a large equity portfolio. As of April 30, 2025, the total portfolio value was DKK 634.8m, and adjusting for interim returns, it is currently worth north of DKK 700m. While this is a nice addition, the portfolio concentration and individual holdings are quite worrisome.

NVIDIA constitutes roughly 37%, with the portfolio holdings trading at ~30x forward earnings on average. A low-hanging fruit would be to completely liquidate the portfolio and funnel the cash into buybacks, and while analysts have been pushing for this, I have not found any indication of management giving this real consideration yet.

If they eventually decide to sell the portfolio, this will incur a capital gains tax of 22% (the Danish corporate income tax rate applies here too). Since NORTHM does not disclose what portion of the current portfolio value that is gains or when the portfolio was created, I had to make certain assumptions. A recent equity report noted that the portfolio has appreciated significantly since 2015, and assuming it has delivered a 15% CAGR since then, this implies that the 2015 portfolio value was around DKK 172m. If we treat this figure as the initial investment, the current taxable gains are DKK 573m.

Based on the above assumptions, I believe the after-tax value of NORTHM’s portfolio is ~DKK 620m.

Real Estate

NORTHM owns the property at Gladsaxe Møllevej 28, 2860 Søborg, its corporate headquarters, through its wholly owned subsidiary, North Media Ejendomme ApS. Several of its subsidiaries, including FK Distribution and Dayli, are also registered at this address. The property sits in a growing, well-connected suburb of Copenhagen, and as such, is likely to continue rising in value over time. Its current carrying value, net of accumulated depreciation, is only DKK 4.7m, and heavily understates the fair value.

The vast majority of NORTHM’s property holdings are tied to the investment properties held by North Media Ejendomme Aps, which had a carrying value of DKK 144.7m as of the most recent filing.

For the sake of simplicity, I will use the 1Q25 reported property value of DKK 237.5m as a proxy for the fair market value of NORTHM’s total real estate holdings.

SOTP

By combining the value of all the different parts, we get an idea of the SOTP value. NORTHM also had around DKK 3.8m of unallocated expenses in 1Q25. Using the run rate figure and applying a 5x multiple as a shortcut for the “terminal” value of these expenses, this equates to around DKK 85m. Adding cash, the after-tax value of the equity portfolio, and real estate, and netting out interest-bearing debt (including lease liabilities), I believe NORTHM is worth close to DKK 100/share. Note that the real estate is valued through a combination of historical cost, less accumulated depreciation, and fair value models, likely understating the true value of the overall portfolio. I have also applied a 30% discount (assumes a 30% drawdown) to the equity portfolio given the high level of concentration and stretched valuations in most names.

DCF

Alternatively, one could value NORTHM from a DCF perspective. This is less reliable as financials in any one year could be heavily skewed by the performance of the equity portfolio paired with fluctuating performance in the different subsidiaries. Still, assuming that the EBITDA margin will gradually revert back to its 7-year normalized average of ~20%, and NORTHM maintains a 70% cash conversion ratio throughout the forecasting period, the FVPS is DKK 88. This also assumes a 5x exit multiple, with cash flows and the terminal value discounted at 10%, but both the revenue and EBITDA margin assumptions seem achievable.

Using an equally-weighted average of the two approaches, I believe NORTHM is worth around DKK 90/share or ~120% above the current share price.

Risk Factors

Accelerated Transition to Digital

An obvious and significant risk is the digitization trend accelerating. While Denmark and Sweden have remained strong markets in terms of demand for the delivery of physical local newspapers and leaflets, this could change over time. And since FKD and SDR constitute 86% of total revenue, this would have a material impact on NORTHM’s performance. I believe the stickiness of physical deliverables will remain quite strong, and even though the transition to digital will continue, the market is likely pricing in a quicker structural decline than what will play out.

Continuing to scale other ventures (e.g., BoligPortal and Bekey) and cutting segment spending as soon as convincing evidence suggests that demand will quickly taper off should help to limit this risk.

Subpar Strategic and Capital Allocation Decisions

As I pointed to earlier, the transfer of Bunck’s shareholding to a foundation could have an adverse impact on share price performance and strategic and capital allocation decisions. While a mission-driven focus and long-term stability will be preserved, activist involvement and takeover bids will likely be limited or blocked. Less pressure from the board could also see management becoming complacent as there will be less pressure to deliver return.

The above is likely framed as overly pessimistic since Bunck’s current goals remain strongly aligned with creating shareholder value. The foundation will also prefer dividends to trimming its stake to cover expenses, making the resumption of dividends likely as the transfer of his holding is completed.

Catalysts

Buybacks and Dividends

Liquidating or trimming the large equity portfolio and funneling proceeds to dividends or buybacks will signal a focus on shareholder value to the market, especially after halting its dividend in March this year. As touched upon earlier, dividends also seem like a preferable choice to cover the foundation’s expenses, and accretive capital allocation should trigger a multiple rerate.

SDR Turning Profitable

If SDR reaches profitability in 2026, as communicated by management, this should add meaningfully to group EBITDA, and consequentially cash flow. There is still execution risk, partially explaining why the market is currently not assigning any value to it.

Monetizing Real Estate

A more speculative potential catalyst is to conduct a sale-leaseback of the currently owned properties. This will free up capital to exploit the significant current mispricing through buybacks, but the likelihood of this is uncertain.

Final Words

NORTHM is a compelling but slightly complex opportunity. Despite lackluster performance last year, and a still-difficult environment for its subsidiaries, management continues to executive on its strategy. The current valuation seems to not only heavily discount short-term earnings volatility, but also extrapolates the subpar performance, assumptions that seem overly pessimistic.

FKD remains highly cash-generative despite a softer market, while the SDR transformation, if successful, could lead to meaningful margin uplift. Additionally, BoligPortal and Dayli’s scalability offers both growth and margin expansion opportunities, with the large equity portfolio and valuable real estate adding to the upside.

There are risks around capital allocation and governance, especially in light of the transfer of Bunck’s majority stake to a foundation, but should NORTHM resume its dividend, initiate buybacks, or deliver on key operational targets (e.g., SDR profitability), investor sentiment could shift meaningfully and trigger a multiple rerate.

With a fair value more than double the current share price, NORTHM offers significant upside potential for those willing to stomach some short-term volatility for cheap, cash-rich exposure to Scandinavian legacy media. Its equity portfolio and real estate holdings limit the downside, while you get the optionality from BoligPortal, Dayli, Bekey, and Karman Connect for free.

This is not investment advice. I hold shares of North Media A/S (NORTHM) at the time of writing, and my views may be biased. Please do your own research and consult a financial advisor before making any investment decisions.

As a response, EVC sold its digital advertising representation business to Aleph Group for $16.4m, narrowed in on news programming, revamped its sales management structure, and reorganized business units.

The appointment of Brendan Carr as chairman of the Federal Communications Commission (FCC) has brought new life to the industry, with many expecting significant deregulation and increased market consolidation through M&A activity as station caps are lifted. EVC’s radio and TV station portfolio could see a significant uplift in its valuation as willing buyers with deep pockets begin picking up media assets, with its rapidly growing Ad-tech business potentially adding to the upside.

Business Model

EVC is the owner and operator of one of the largest networks of Spanish-language television and radio stations in the United States, providing advertisers with multi-channel marketing to engage with the Latino audience. It also owns and operates a smaller portfolio of television stations that broadcast English-language programming, and provides programmatic advertising technology and services.

Its operations are divided into two segments: (1) Media and (2) Advertising and Technology Services. The Media segment includes television, radio, and digital marketing operations, while the Ad-tech segment delivers performance-driven programmatic advertising and technology solutions through Smadex, its data-powered buying platform, and Adwake, its digital marketing unit specializing in user acquisitions and ad campaign execution.

With US advertisers spending close to four times more advertising dollars on digital channels compared to TV and radio, and the former continuing its rapid growth trajectory, it is good to see the Ad-tech trucking along well and now constituting close to 40% of total sales.

From EVC’s December 2023 Investor Presentation

• EVC owns and operates 44 radio stations (37 FM and 7 AM) and 49 TV stations. 39 of the radio stations are located in the top 50 Latino markets in the US, broadcasting into markets with around 19m US Latinos, according to the media research company Nielsen, or approximately 31% of the total Latino population in the country.

• Smadex is a demand-side platform (DSP) that helps mobile app companies advertise more effectively by using automation and proprietary data. Instead of manually choosing where to show ads, Smadex lets advertisers buy ad space automatically across mobile apps, websites, audio platforms, and connected TVs. Its engineering team and use of exclusive data allows for smarter targeting, faster campaign optimization, and stronger performance. This makes it easier and faster to reach the right audiences, helping apps get more downloads or users, and improving ROAS.

• Adwake focuses on helping apps grow by creating custom advertising strategies. It specializes in finding new users, building brand awareness, and re-engaging people who’ve used the app before. By using a mix of different platforms and ad formats, Adwake ensures that apps get high-quality traffic and scale their presence effectively.

With media properties in 13 out of the 20 highest-density US Latino markets and Latinos representing an estimated 14.7% of all eligible voters in the 2024 election (an all-time high), EVC’s significant reach enhances the value of its offering during election years. Since 2008, its political net revenue has risen 4-fold — a trend that is likely to continue as the US Latino Population grows.

Also From EVC’s December 2023 Investor Presentation

Change in Share Structure

The saddening passing of founder and CEO Walter Ulloa in December 2022 had two main implications for EVC. Firstly, EVC’s Second Amended and Restated Certificate of Incorporation led to each share of Class B common stock being converted into Class A common stock upon his death. This in turn improved shareholder democracy and significantly increases the likelihood of a takeover as buyers no longer need to negotiate with a single controlling shareholder in a transaction.

It also led to a pivot away from family-run, value-destructive leadership with the introduction of Michael Christenson as CEO shortly after. He prioritized proven investments, efficient operations, and sensible capital allocation, with dividends being the main priority, followed by organic growth and deleveraging.

The elimination of a dual-class share structure, a shareholder-focused CEO, and potential FCC deregulation should materially increase the probability of M&A activity - either through a complete takeover or the sale of individual assets to the highest bidders.

Management and Compensation Structure

Michael Christenson was appointed as CEO of EVC in July 2023, bringing vast experience from both investment banking and cloud-based and security software. Having held IB and investment advisory positions for close to 30 years, Christenson seems like the ideal CEO as the broadcasting industry is potentially entering a period of increased deregulation and market consolidation.

Key insiders own around 8% of outstanding shares, and the current compensation structure seems to correctly incentivize the management team. Still, Christenson’s 2023 pro-rated base salary of $950k (close to $2m annualized) is unusually high, especially given EVC’s position as the smallest broadcasting operator. The rest of the management team has annual base salaries in the range of $630k-$825k, or less than half of what Christenson takes in.

From EVC’s 2024 Proxy Statement

After Ulloa’s passing, the board moved away from a largely discretionary cash bonus plan, replacing it with a performance-based annual cash bonus plan. The plan also allowed the board to adjust the bonuses by up to 50% based on the compensation committee’s assessment against qualitative factors including market share, customer experiences, expense control and stock price performance.

Also From EVC’s 2024 Proxy Statement

In addition to the strictly cash based compensation, key executives were granted 245,000 RSUs in February 2023, vesting over the period 2023-2026. Christenson, on the other hand, was granted a combination of RSUs and PUs when he was hired in July the same year. Half of his initial equity awards (1,000,000 units) were granted as PUs, and will be earned only if the average closing price of our Class A shares common stock over 30 consecutive trading days equals or exceeds five specified share price hurdles of $5.75, $7.25, $9.00, $11.20 and $13.75 within five years after grant (with each price hurdle subject to equitable adjustment to reflect dividends or other changes to our capitalization during the performance period). Each price hurdle earns 1/5 of the 1,000,000 PUs.

In other words, Christenson will only earn the granted PUs if EVC’s stock price rises between 200%-600% over the next 3.25 years, equivalent to annualized returns of 41% to 85%.

His 1,000,000 RSUs are subject to time-based vesting, in which 20% of the units were vested in July last year, while the remaining 80% are vested in eight equal semi-annual installments thereafter.

More interestingly, EVC filed an 8-K on April 4 this year, announcing that the Compensation Committee had made certain changes to the executive compensation program. This included reductions in the annual base salary of Christenson, Liberman (COO) and Boelke (CFO) of 47%, 38%, and 25%, respectively, and the exclusion of the executives from EVC’s Executive Cash Incentive Bonus Plan in 2025. Instead, they were granted additional RSUs and PUs as shown below.

The awarded RSUs vests as follows: (i) 25% on December 20, 2025; (ii) 25% on December 20, 2026; (iii) 25% on December 20, 2027; and (iv) 25% on December 20, 2028.

The fact that all three executives were willing to take a meaningful cut to their annual base salary and opt out entirely from the cash bonus plan not only better aligns their interests with those of shareholders, but also signals their confidence in EVC’s long-term value.

Valuation

EVC’s value is comprised of three main parts: (1) Media (traditional TV and radio stations), (2) Ad-Tech (Smadex and Adwake), and (3) Spectrum Licenses.

Media

The Media segment has hit a rough patch from a profitability perspective, with EBITDA before corporate expenses decreasing north of 40% over the last two years. This was partly driven by lower sales in FY23 and Meta Platforms terminating its ASP partnership agreement last year, which accounted for 53% of consolidated revenue and 63% of the digital segment at the time. Rising salary expenses, increased investments into Media in anticipation of the 2024 election, and non-cash SBC also explain part of the noticeable decrease. As can be seen below, the rising sales figure has not yet translated to improved EBITDA.

While the P&L looks rather disappointing at first glance, it could be due to front-loaded investments (e.g., more newsroom hires). Whether the increased focus on Media was a good call or a dud remains to be seen, but further cuts in redundancies and streamlined operations should lead to meaningful reductions in corporate expenses.

This has already been illustrated by the $12.8m reduction in FY24 corporate expenses, which was partly due to a reclassification of certain corporate expenses (moving them to OpEx and SG&A), but also due to lower salary and bonus expenses and professional service expenses. Even with the meaningful y/y decrease, EVC’s common size corporate expenses of 10-15% are still substantially above the industry standard of 3-5%, suggesting that there is room for further reductions.

To get an idea of what segment EBITDA could look like after corporate expenses, I have, somewhat simplified, allocated corporate expenses proportionally based on segment sales. And since EBITDA is currently in a slump, I used the 3-year average EBITDA after corporate expenses as a proxy for normalized EBITDA - which totaled $34m. US mid-to-small market TV stations are typically valued at 6-8x EBITDA while radio stations are often sold in the range of 4-6x EBITDA. Since TV and radio are not reported separately, I have applied the midpoint of both ranges, equivalent to a 6x EBITDA multiple. If Media delivers $34m of annual EBITDA, this translates to $204m, or close to 70% of the current EV.

Ad-Tech

Ad-tech is a hidden gem buried inside a structurally declining broadcasting business. Segment sales grew 42% y/y, and delivered EBITDA before corporate expenses of $12m. AdTheorent, an adjacent peer, was acquired by Cadent, LLC, a platform-based converged TV advertising solutions company and portfolio company of PE firm Novacap, for $324m last June. The purchase price translated to acquisition multiples of around 1.9x sales and 15x EBITDA.

An important caveat is that while AdTheorent had delivered a 4-year sales CAGR of 9%, growth had started to slow, reaching only 2.9% and 0.4% in FY23 and FY22, respectively, a far cry from the 42% Ad-tech posted in FY24. Hence, one could argue that applying the same transaction multiples understates the fair value of Ad-tech. Still, the average of the two approaches yields a fair value of $226m, which covers 3/4 of EVC’s current EV - not bad!

Spectrum

Spectrum is the range of invisible radio frequencies that wireless devices use to communicate. It powers everything from TV and radio broadcasts to Wi-Fi, smartphones, satellites, and 5G networks. It is a scarce resource that you cannot just make more of, which is exactly what makes it so valuable. And it is the FCC that assigns specific frequencies from the broadcasting spectrum to individual stations.

The last FCC spectrum auction was held back in 2017. It generated $19.8b of total gross proceeds, led by T-Mobile and Dish Network with aggregate bids of $8b and $6.2b, respectively. EVC sold four spectrum licenses and received total proceeds of $264m, with the spectrum from its WUVN station getting more than $125m. With the FCC pushing for further deregulation, lawmakers are currently debating proposals to renew the FCC’s auction authority. This could make a new spectrum auction à la 2017 a reality (although likely at a meaningfully lower scale as the 5G craze has started to wear off).

EVC’s remaining spectrum licenses have a carrying value of approximately $177m. While this is only an accounting figure, I think it could serve as a low-end estimate as it has been consistently amortized since the last auction and monetization is now starting to seem more probable.

To estimate how much EVC could potentially fetch from a new auction, I will use the MHz-pop valuation approach.

EVC’s TV stations reach over 12 million US households, and RabbitEars reported that its total reach is around 49.5m individuals. In the 2017 incentive auction, the average spectrum valuation was around $0.93 per MHz-pop, and pairing this with the 6 MHz of spectrum TV stations are typically allocated, suggests that EVC could receive total auction proceeds of around $276 million.

And while TV stations are completely dependent on spectrum licenses to remain on air, EVC could enter channel sharing agreements (CSAs) to prevent remaining stations from going dark. I would actually go as far as to say that CSAs could be a net benefit to EVC as costs — including transmission, engineering and maintenance, and utilities— would be split with the other party based on bandwidth usage or negotiation terms.

One should also note that the above $ per MHz-pop was an average. The top 40 markets reached as much as $1.31 per MHz-pop in the 2017 auction, while certain rural areas only fetched $0.50 per MHz-pop. Interestingly, T-Mobile acquired 600 MHz spectrum licenses at $2.64 per MHz-pop from Columbia Capital in September 2022, and entered an agreement with Comcast a year later to lease and potentially purchase 600 MHz spectrum licenses for total considerations of $1.2b to $3.3b. The latter consideration implies around $2.21 per MHz-pop, highlighting larger players’ willingness to fork over a lot of cash for low-band spectrum.

Complete Sale

In addition to selling the three parts separately, a complete sale is also a real possibility. As pointed out in his fantastic writeup, EVC moved its HQ from Santa Monica to Burbank in late 2024. Randomly (or maybe not?) enough, EVC is now headquartered in the same building as the Spanish-catering media company Estrella Media. MediaCo Holding (MDIA) acquired close to all its broadcasting assets for $200m in April last year, and exercised an option to acquire the remaining station licenses from its parent, Estrella Broadcasting, in an all-stock deal in February this year. These proceeds drove the total considerations to close to $210m.

Soo Kim plays a pivotal role as he is MDIA’s largest shareholder through his hedge fund, Standard General, holding close to 91% of outstanding shares. He has built a reputation of identifying undervalued or distressed assets and turning them into profitable ventures through streamlining, reducing efficiencies and aggressive M&A to scale or pivot business models. His fund acquired a majority stake in Young Broadcasting for $75m post-bankruptcy, facilitated its merger with Media General back in 2013, and pocketed $300m of profit when it was sold to Nexstar Broadcasting group in 2016, around 5 years after the initial investment.

With this in mind and given EVC’s similar characteristics, a complete takeover does not seem like a stretch.

Searchlight Capital, a $17B private equity firm with a strong media track record, is also a potential suitor as mentioned by David. They have already shown interest in Spanish-language media with their 2022 acquisition of Hemisphere Media, and adding EVC to Hemisphere’s portfolio could create synergies and boost market share.

Notably, Searchlight also co-acquired a 64% stake in Univision in 2020, and Univision parent Televisa Univision holds a non-voting 10% stake in EVC—making Searchlight no stranger to the Entravision name.

There are clearly multiple ways to approach this, but by connecting the dots, we can map out a range of potential outcomes. If we add up the estimated fair value of Media, Ad-tech and potential proceeds from the sale of spectrum licenses, EVC’s fair EV could be close to $700m. Netting out NIBD (including marketable securities and operating lease liabilities) of $136m suggests that the FVPS is close to $6.5, implying more than a 3x from here.

If the currently suppressed Media EBITDA turns out to be the new normal, Ad-tech is sold for 1x sales or 10x EBITDA, and EVC only fetches $0.50/MHz-pop for the spectrum licenses, the FVPS is closer to $3.5. Although this is more than 40% below what I view as the best case, it still represents nearly a double from the current share price.

Risk Factors

Even though the investment thesis seems quite compelling and there are several ways for EVC to double or even triple from here, there are certain ifs and buts making it less straightforward.

Limited Deregulation

While Chairman Carr has come out strong and clearly aims to spur a wave of deregulation in the US broadcasting industry, Congress could put a stop to it. If station ownership caps are not lifted, the anticipated surge in M&A activity will likely fall far short of expectations. And if the FCC is not granted auction authority, EVC may be unable to monetize its spectrum licenses.

Debt Maturities

While most of outstanding debt matures in 2028, liquidity problems could arise if EVC’s current profitability slump persists.

From EVC’s 2024 10-K

The 3 year runway should be a sufficient window to deleverage, refinance or restructure, and the ~ $100m worth of cash on hand cuts the principal amount down to a much more reasonable $87m. Still, a prolonged recession and credit contraction could pose a real threat.

Recession

If a full-blown recession were to occur, advertising is among the first things companies cut. For a company that almost exclusively generates sales from ad spend (less than 10% comes from retransmission fees), this would materially impact results. Additionally, potential suitors might delay bids in anticipation of lowered valuations to scoop up media assets on the cheap.

Timing

Lastly, even complete crystallization of currently hidden value could lead to subpar returns if a complete sale, sale of Media or Ad-tech, or spectrum auction takes place many years down the road. I have not included the discounted proceeds from a sale or auction in the valuation as I do not know exactly when this would take place. Still, if we discount the proceeds at 10% and assume that they are received within the next 3 years, the implied upside from current levels is in the 40%-150% range. In other words, EVC should still deliver stellar returns from here provided the events unfold within a reasonable timeframe.

Catalysts

Station Caps Being Lifted

The current FCC National Broadcasting Ownership Cap restricts any single entity from owning stations that reach more than 39% of US TV households. While nuances like the UHF discount—allowing UHF stations to count only 50% of their audience reach—provide some flexibility, lifting the caps further could spur increased M&A activity.

Large players such as Soo Kim and Searchlight Capital have already expanded their station portfolios, and George Soros has recently made significant inroads into the broadcasting landscape. In 2022, a group associated with Soros funded the $60m purchase of 18 Hispanic radio stations from Univision, including Radio Mambí. And in early 2024, Soros Fund Management acquired more than $400m of Audacy's debt during its bankruptcy proceedings, making it the largest shareholder post-restructuring. The acquisition gave him considerable influence over more than 200 radio stations across 40 markets, reaching an estimated 165 million Americans, and lifted station caps might fuel continued station rollups.

Ad-Tech Growing

If Ad-tech continues its current growth trajectory, the segment will likely surpass Media soon and become EVC’s largest reporting segment. Its better growth prospect and expanding margins should also alter the market perception, warranting a multiple rerate.

FCC Spectrum Auction

The announcement of a new FCC spectrum auction will likely lead to an immediate increase in EVC’s value as the market begins pricing in the currently neglected spectrum licenses.

Final Words

At first glance, EVC might appear to be an underperforming and structurally challenged broadcaster, but a deeper look reveals a very different story. Christenson is a seasoned leader making the right moves to streamline operations and reposition the business, and his — along with Liberman’s and Boelke’s — decision to take meaningful salary cuts and opt out of the cash bonus plan entirely in exchange for RSUs and PUs suggests genuine alignment with shareholders.

The potential monetization of underappreciated spectrum licenses through a future FCC auction, paired with deregulation and the lifting of station caps, could trigger a wave of M&A activity across the broadcasting industry. A partial or full sale of EVC’s Ad-tech assets (Smadex, Adwake, or both) would also provide a clear path toward deleveraging. Meanwhile, the company’s outsized corporate expense base vis-à-vis industry peers indicate further room for cost-cutting and margin expansion.

While execution risks and a weakening macro backdrop remain, the combination of clear industry tailwinds, an incentivized management team, and a significant discount to fair value makes EVC a compelling asymmetric opportunity. And with a dividend yield approaching 11%, investors are paid to wait as the market catches up.

This is not investment advice. I hold shares of Entravision Communications (EVC) at the time of writing, and my views may be biased. Please do your own research and consult a financial advisor before making any investment decisions.

Business Model

TNZ was created in 2021 through the recapitalization transaction and rebranding of Calgary-based junior oil and gas E&P company Altura Energy, pivoting away from domestic E&P to become a global acquirer of cheap, cash-generative E&P assets. The transformation was led by Anthony Marino (formerly CEO of Vermilion Energy and Baytex Energy) and a team of experienced executives with deep international operating and M&A expertise, and they get a lot of bang for their buck by targeting and acquiring non-core and orphan assets from larger players.

From TNZ’s 2025 Investor Presentation

This is a highly value-accretive approach as these assets are often mispriced by the market, have little competition from other buyers, and offer immediate cash flows. They also provide ample upside potential through operational improvements, rework and modest spending, as the CapEx needed to unlock meaningful returns is quite low due to already-existing infrastructure and stable production history.

After rebranding, the 87.5% stake in the Leduc-Woodbend (LWB) field in central Alberta served as a foundational asset and stable production base for TNZ. The field has seen a steady production increase since then, growing from 1.05k boe/d in 3Q21 to 1.54k boe/d in 3Q24, or 47% growth in three years.

A year later, they acquired upstream, midstream, and CCAS assets in the Dutch North Sea. The deal included natural gas production of 5 mmcf/d from nine offshore licenses (avg. 8.4% working interest), plus interests in five non-producing licenses, including the undeveloped Rembrandt and Vermeer oil discoveries operated by Wintershall. Reserves were independently assessed at 809k boe (PDP) and 1.21mn boe (2P), with a 10-year productive life.

Midstream, TNZ gained an 11.34% stake in Noordgastransport (NGT), a major gas pipeline network with 99.8% uptime. They also inherited a stake in the L10CCS Project, a carbon capture and storage initiative that leverages existing infrastructure and targets carbon neutrality at >50,000 boe/d production. This time around TNZ did not even lay out any cash to finance the deal (crazy, right?), but rather assumed future decommission liabilities tied to the assets and posted financial security of C$58.9mn, which was later lowered to C$16.9mn.

Building on this foundation, TNZ bought XTO Netherlands (upstream and midstream assets) from ExxonMobil in June 2023 for the rich sum of C$220k, expanding its working interest in several offshore license blocks and adding around 1.8k boe/d of 2P reserves. The deal structures are a testament to the kinds of deals management is able to secure with its niche playbook.

In 2Q24, TNZ also purchased 100% of the Watelet gas plant and 87.5% of acquired leaseholds in Alberta for C$2.8mn, giving the firm operational control of the gas plant and accompanying pipeline infrastructure processing its LWB field gas production. While the current production of the leasehold assets is rather negligible, it offers potential drilling opportunities in the Rex, Ellerslie, and Glauconite formations of the Mannville Group.

Total Production Ex. NOBV - From TNZ’s March 2025 Corporate Presentation

NOBV Acquisition

In July last year, TNZ announced what was undoubtedly the most transformative acquisition for the company to date: NAM Offshore B.V. (the offshore part of NAM - a JV between Shell, ExxonMobil and the Dutch government).

The NOBV deal is expected to close in July this year and will add around 11k boe/d of production with a 99% weighing to TTF-priced natural gas. While the gross base considerations are C$246mn, the management team, as shrewd as they are, were able to get all interim FCF between the Effective Date (Jan 1, 2024) and closing (July 1, 2025 if everything goes to plan) deducted from the purchase price. TNZ paid C$34mn at signing, and due to the interim FCF agreement, management expects the final cash-to-close figure to be around C$45mn. In other words, only C$79mn of the C$246mn purchase price actually goes out of their pockets.

Does that sound too good to be true? Well, it is, kind of. The agreement contains several contingents:

1. Contingent earn-out: NAM is entitled to contingent payments equal to (i) 50% of 2025 NOBV FCF, (ii) 50% of 2026 NOBV FCF, and (iii) 25% of 2027 NOBV FCF, up to a maximum of €120 million in aggregate payments. But TNZ does not have to make any further payouts related to the earn-out if the €120mn threshold is not reached over this period.

2. Exploration Volume Contingent Consideration: If TNZ discovers a new gas field on any of NOBV’s licenses and starts producing from it, NAM is entitled to receive a percentage of revenue as a royalty. But NAM is only entitled to this payment if the cumulative gas sales from the field exceeds certain thresholds, with a 10% cap on royalties payable.

   

3. Price contingent considerations: If the average realized TTF price for a given calendar year between Jan 1, 2028 and December 31, 2031 exceeds €50/MWh (megawatt-hour), NAM is eligible to receive contingent payments of 25.0%-37.5% of after-tax incremental cash flows. To contextualize this figure, the current TTF per megawatt-hour is around €40.

   

   From TNZ’s NOBV Acquisition Announcement

While the above contingent considerations seem rather steep at first glance, it is important to remember that the NOBV purchase price is getting a haircut of close to C$170mn. Additionally, Contingents 2 and 3 are entirely dependent on TNZ either making successful new field discoveries within NOBV’s existing licenses that materially increase production volumes, or on TTF gas prices continuing upward.

Insider Ownership and Compensation

While TNZ is currently deploying a proved and value-accretive playbook, decision making could turn sour if management is incorrectly incentivized. So, does the current compensation structure suggest a misalignment between management and shareholder interests?

Well, quite the opposite. TNZ arguably has one of the best comp structures I have seen so far. CEO, Anthony Marino, is mandated to hold shares equivalent to 3x annual base salary, while the remaining members of the management team have to hold at least 1x this figure. The annual base salaries range between C$210k-C$250k, and the value of Marino’s holding was ~ C$12mn as of March 21, 2025. This translates to more than 48x his annual base salary. Talk about eating your own cooking.

The other managers also hold a significant number of shares, with all market values currently exceeding C$1mn. In total, managers and board members own close to 8% of outstanding shares.

Note that the above figures are from the 2024 Management Information Circular and reflect insider holdings as of December 31, 2023. As such, they are somewhat outdated and not fully representative of current insider ownership. Based on the March 2025 corporate presentation, insiders now own 10% of outstanding shares, and around 21% on a fully diluted basis.

In addition to owning shares outright, the management team has STI and LTI scorecards. The STI scorecard consists of 10 different metrics, including everything from total shareholder return to CapEx guidance and ESG strategy. The payment is strictly paid in cash and is based on a 0x-2x STIP multiplier.

2023 STI Scorecard - From TNZ’s 2024 Management Information Circular

The LTI scorecard is a bit more vague as 35% of the payout depends on the board’s evaluation of how well management is executing on the outlaid strategy and sustainability measures. The total shareholder return is measured relative to a peer group, and assigns an outcome multiplier based on quartile ranking. The final payout of all metrics is also based on a 0-2x multiplier similarly to the STI plan. But as opposed to the STI scorecard, which is purely cash based, the LTI payments are primarily settled in PSUs and vest in equal installments over a 3-year period.

2023 LTI Scorecard - Also from TNZ’s 2024 Management Information Circular

Board members are required to hold common shares (including DSUs) equivalent to no less than 3x their annual cash retainer fees (C$45k-C$60k). Based on the 2024 management information circular, all board members, except for Varinia Radu, who was appointed in November, 2023, held at least 6x this figure. Board members are partly awarded with DSUs that are only exercisable when they leave the board.

Overall, insiders own a large chunk of outstanding shares that constitute meaningful portions of their total net worth. And while I would have preferred different weighing to certain STI and LTI metrics, the scorecards sufficiently capture the most important financial and operational metrics, facilitating a good alignment of shareholder and management interests.

Valuation

I can immediately say that oil and gas (and commodities in general) is typically not my forte. The investment thesis largely hinges on favorable TTF prices as NOBV is consolidated into TNZ’s operations, and I do not believe that I have any edge in predicting this. Still, I view TNZ more as a play on a heavily incentivized management team executing on their niche playbook of acquiring cash-generating assets at substantial discounts. This limits the need to form an opinion on future TTF prices to SOME degree, and I have chosen to value TNZ in two different ways.

Pro Forma PDP After-Tax NPV10

The first, and quite conservative approach, is to solely look at proved developed producing (PDP) reserves. TNZ’s FY24 PDP after-tax NPV10 totaled C$45mn, a figure that accounts for the decommissioning liabilities they have assumed in previous transactions.

NOBV’s PDP after-tax NPV10 is significantly higher, currently sitting at C$453mn. But to reflect the contingent considerations entitling NAM to 50% of NOBV’s free cash flow in 2025-2026 and 25% in 2027, I have assumed (somewhat simplified) that its FCF will remain constant at C$134mn in these years. Discounted at 10%, this equates to contingent payments of ~ C$141mn.

To reward TNZ for its best-in-class capital allocation and adjusting for the somewhat distorted NPV figure due to the contingent deduction, I applied a 1.2x multiple to the pro forma PDP after-tax NPV10. This yields a fair value of ~ C$16.5 p/share - 27% above the current share price. I view this as the worst case scenario as it only accounts for the PDP portion of total 1P reserves. For context, the Pro Forma after-tax NPV10 for 1P and 2P reserves are $C766mn and C$1.2bn, respectively.

Free Cash Flow Approach

The second approach requires a few more assumptions but accounts for the significant production growth TNZ is targeting. Management expects to reach close to 15k boe/d in FY25, and has a 2027-2028 production target of 50k boe/d. That is close to 4x the current production level, but I would not put it past Marino and Co. to achieve this. Since NAM will eat up 25%-50% of all NOBV free cash flow over the next 3 years, I will assume that TNZ reaches the 50k boe/d target in FY28 and attempt to estimate that year’s production mix.

Estimated FY25 Production Mix - From TNZ’s March 2025 Corporate Presentation

As can be seen from the above pie chart, TNZ expects TTF’s production mix share (ex. NOBV) to reach 30% in FY25. Since NOBV is expected to produce 11k boe/d and is 99% TTF weighted, this implies that TTF will constitute close to 85% of total production. For simplicity’s sake, I have assumed that NOBV’s TTF weight = 100%.

If we assume that a similar production mix is maintained even as production volumes grow, the boe/y for each category at 50k boe/d (18.25mn per year) in 2028 will look like this:

As I mentioned earlier, I do not believe I have any real edge in predicting future commodity prices. I do not have a spare crystal ball either, so bear with me here. Based on the most recent price forecast summary provided by TNZ, I have used the low-end estimates of the applicable oil, gas and NGL prices for the period 2025-2039. For TTF I assumed two different scenarios: TTF €20/MWh and TTF €30/MWh.

Price Forecasts - From TNZ’s 2024 Annual Information Form

Tying all this together, TNZ could generate sales a little south of C$1bn by 2028. With the addition of NOBV, the production mix will become heavily weighted towards TTF, and I am assuming that management continues to target similar assets in high-price gas jurisdictions such as the Netherlands.

The beauty of TNZ’s playbook is that these non-core and orphan assets generally require low sustained CapEx and gush cash right out of the gate. If we couple this with G&A as a percentage of sales decreasing as production levels grow, FCF margins should continue to expand provided TTF prices remain quite stable. Based on the FY24 NOBV FCF estimate provided in the acquisition announcement, NOBV’s FCF margin for the year was around 38% based on the full-year average TTF price of ~ €35/MWh. Due to TNZ’s other assets posting lower FCF margins and the margin profile of future acquisition being unknow, I assumed a FY28 FCF margin of 20% and 30% for the two scenarios.

Discounting the EV back at 15% and adjusting for NIBD (incl. cash-to-close and decommissioning liabilities), options proceeds and using fully diluted shares outstanding, I believe TNZ’s equally-weighted FVPS is ~ C$25 or about 95% above the current share price. In addition to the ample upside potential from here, the adjusted PDP after-tax NPV10 of C$16.5 p/share limits the downside.

Risk Factors

Regulations

TNZ operates in several jurisdictions, each with its own set of regulations governing the oil and gas sector. Upstream oil and gas in the Netherlands, for instance, is subject to a 50% effective income tax rate, although certain deductible expenses receive an additional 10% uplift to reduce taxable income. Higher tax rates could dissipate profits, while increasing environmental and climate regulations (e.g., the EU Green Deal) could lead to stricter emission targets or revoked licenses.

Key Person Risk

Anthony Marino is arguably the main key to TNZ’s success. Not only has he successfully led and scaled other E&P companies, creating enormous value for shareholders, but his M&A expertise and capital allocation discipline has ensured the maintenance of the accretive deal quality. Losing him could pose a real threat to the company’s current trajectory, but his passion for the business paired with his substantial holding makes this quite unlikely.

Falling Oil and Gas Prices

An obvious risk that could poke holes in the investment thesis is adverse movements in oil and gas prices. TNZ’s position as a junior E&P company elevates its exposure to commodity price swings compared to more diversified energy players, with recession fears and structural shifts in energy consumption posing threats in the short to medium term. The latter is somewhat mitigated due to TNZ’s production mix being heavily weighted to natural gas and this being viewed as a transition fuel. TNZ also deploys commodity hedging strategies to reduce the risk of decreasing O&G prices, but its operating leverage will likely lead to materially lower profitability in the event of a prolonged downturn.

Catalysts

Share Repurchases

In February this year, TNZ announced the renewal of its normal course issuer bid, enabling them to repurchase up to 9% of the current 27.61mn outstanding shares over the next 12 months. With the repurchase program, management can pick up shares cheaply and meaningfully reduce the number of outstanding shares as TNZ trades sideways or lower, adding to the already-growing FCF per share.

New Deal Announcement

As mentioned earlier in the post, TNZ issued C$140mn of senior unsecured notes in November last year, replacing the C$90mn delayed-draw term loan related to the NOBV acquisition. Management pointed to the offering providing liquidity for both further M&A activity and funding of the NOBV deal, and most investors interpreted it as a clear sign that a new deal was in the works. As such, a new super deal with a deal structure similar to the NOBV transaction would likely spur more action in the stock.

Final Words

TNZ is led by a best-in-class management team deploying a proven playbook that achieve fantastic deal terms as larger players want to off non-core and orphan assets. Existing infrastructure and frequent late-stage production stages also make these assets cash gushing machines with little further CapEx needs. With insiders owning around 10% of outstanding shares and a large chunk of management’s overall compensation being tied to sensible financial and operating metrics, they are heavily incentivized to continue applying this strategy and maintain the accretive deal structures. While I am no oil and gas veteran (I think I have said a variation of this twice already), I believe the current valuation of sub 3x pro forma free cash flow coupled with the discount to PDP pro forma after-tax NPV10 makes TNZ a very enticing investment with sufficient downside protection.

Disclaimer: This article is for informational and educational purposes only. It does not constitute financial advice. Please do your own research or consult a financial advisor before making any investment decisions.

Business Model

Thyssenkrupp AG (TKA) was founded in 1999 through the merger of Thyssen AG and Friedrich Krupp AG Hoesch-Krupp, a period marked by broad steel consolidation. The merger created a industrially diversified powerhouse that today organizes its operations into the following five segments:

1. Automotive Technology (AT)

2. Decarbon Technologies (DT)

3. Materials Services (MX)

4. Steel Europe (SE)

5. Marine Systems (MS)

Mid-term adj. EBIT margin target for each reporting segment, from TKA’s 1Q25 Presentation

The AT segment specializes in the development and manufacturing of high-performance components and systems for the automotive industry. Its product offering ranges from steering systems for advanced steering solutions to dampers and axel assemblies. The segment has grown sales from €5.48bn in FY23 to €7.54bn in FY24, and is well positioned to remain an important component supplier as auto electrification and autonomous driving technology continues to grow.

TKA recently formed the DT segment to facilitate advances in sustainable industrial solutions. It currently consists of thyssenKrupp Polysius (eco-friendly cement plant engineering and construction), thyssenKrupp Uhde (chemical engineering tech), thyssenKrupp Rothe Erde (large-diameter bearings and rings), and thyssenKrupp Nucera (tech for green hydrogen production). The latter was spun off and IPO’d in July 2023, and TKA currently holds a 50.19% stake.

MX is TKA’s largest segment by sales and acts as a middleman in the metals and materials supply chain, managing procurement, storage, and distribution, coupled with value-add services. These services include supply chain management, logistics optimization, and digital solutions to enhance efficiency for its customers. It is one of the largest independent materials distributors in the west, covering industries including automotive and aerospace, and delivered sales of €12.13bn in FY24

The SE segment is responsible for the production of high-quality steel, and serves the automotive, industrial machinery, construction and energy industries, offering flat carbon and electrical steel, and tailor-welded blanks. While TKA has already communicated that US tariffs will have a negligible impact on its operations, SE is currently experiencing a difficult operating environment, reflected in the sharp sales decrease from €13.16bn in FY22 to €10.74bn in FY24. CEO, Miguel López, pointed to increasingly slower growth in the automotive industry, engineering and construction as the main reason behind this.

In April 2024, TKA agreed to sell a 20% stake in SE to EP Corporate Group (EPCG). López described the transaction as “a major success and a key milestone on the path to implementing the planned stand-alone solution for the steel business” in his 2024 letter to shareholders, with the mutual aim being to establish a 50/50 JV with EPCG.

TKA’s MS segment specializes in the design and building of naval vessels and submarines. It is the only German system supplier, and provides submarines for defense applications, surface vessels equipped with up-to-date technology, and maritime defense systems for naval operations. With FY24 sales of €2.12bn, it is the smallest segment by sales, but its current record order backlog > €16bn translates to 7+ years of backlog visibility.

In addition to the aforementioned reporting segments, TKA still owns close to 19% of TK Elevator (TKE) after selling the company to a consortium of Advent, Cinvent, and Germany’s RAG Foundation in July 2020 for €17.2bn. The minority ownership comes from its 18.95% stake in Vertical Topco I S.A., an entity created after the transaction to serve as the parent company of TKE and managing the ownership structure post-acquisition. TKE has trucked on relatively well since the acquisition, growing sales and adjusted EBITDA at 5% and 11% annualized clips, respectively.

Management Compensation and Activist Investors

While the current setup and substantial SOTP and TBV discounts look enticing, a correctly incentivized management team is essential to ensure that the right steps are taken. Looking at TKA’s 23/24 compensation report, the managers currently part of the executive board compensation system are:

• Miguel López: CEO of TKA and DT

• Dr. Volkmar Dinstuhl: CEO of AT and responsible for M&A → Ordinary Board Member (OBM)

• Ilse Henne: CEO of MX and responsible for sustainability → OBM

• Dr. Jens Schulte: CFO → OBM

Note that Oliver Burkhard, former CHRO of TKA, stepped down from his position on January 30 this year to focus entirely on his new role as CEO of MS. As such, he is no longer eligible for the executive board compensation, and the change hints to TKA’s plan of spinning off MS and pursue a listing for TKMS.

The executive board members, consisting of the CEO and OBM, receive fixed annual compensations of €1.34mn and €700k, respectively. In addition, they receive fringe benefits (e.g., company car and insurance) and annual pension allowance instead of a company pension plan, of which the CEO receives €536k and the OBMs receive €280k.

The short-term incentive (STI) bonus is based on net income (35%), FCF before M&A (35%) and individual performance (30%), with payouts ranging from 0%-200% in FY24. For net income, this implied that no STI would be paid out below a €156mn threshold, and was capped at €1.66bn. The CEO had a pre-set base value of €1.25mn in FY24. This implies that if TKA had achieved their target value of €656mn for net income, he would have received €1.25mn*100%*35% = €437.5k, solely based on this target, or double that amount for the 200% cap.

The OBMs had similar structures but with pre-set base values of €510k-€680k. Both the CEO and OBMs also had individual performances as part of their STI bonuses, largely based on the APEX performance program (4%-6% adjusted EBIT margin on group level, cost savings, and transformation and turnaround targets).

Additionally, 25% of the aggregate net payout (STI + LTI) must be reinvested into TKA shares until they have accumulated shares equivalent to one annual fixed gross salary. These shares must be held for the duration of their executive board member tenure, and only the exceeding amount can be sold once the annual fixed gross salary threshold has been reached.

STI plan - From TKA’s 2023/2024 Compensation Report

The LTI bonus operates over a four-year period, and involves granting the executive board members virtual shares at the beginning of each performance period. The number of shares are computed as the LTI target amount divided by the average TKA share price over the preceding 30 trading days. The performance criteria are relative total shareholder return against companies in the STOXX® Europe 600 Basic Resources index (30%), return on capital employed (ROCE), weighted at 40%, and sustainability targets set by the supervisory board.

Shareholder return and ROCE targets - From TKA’s 2023/2024 Compensation Report

At the end of each year within the performance period, the supervisory board evaluates the achievement of these performance criteria and adjust the number of virtual shares where they see fit. At the end of the four-year period, the number of virtual shares are multiplied by the average share price over the preceding 30 trading days to compute the total payout.

LTI plan - From TKA’s 2023/2024 Compensation Report

While the fixed annual compensation is rather egregious, especially for European standards, the STI and LTI bonuses seem to heavily incentivize the management team to turn the ship around. The STI bonus tied to net income and FCF before M&A incentivizes management to divest underperforming divisions and cut costs. The LTI criteria of relative total shareholder return, on the other hand, could push management to seek spinoffs and other transactions to crystallize value, and distribute excess cash to increase the dividend yield and remove the discount currently placed on retained cash.

While I have been unable to confirm whether Cevian Capital, the largest activist fund in Europe, still holds TKA shares after slashing its stake to less than 1% in 2022, the current largest shareholders are a mixed bunch.

Share ownership of thyssenkrupp AG - MarketScreener

The Alfried Krupp foundation is effectively forced to hold its 21% stake, except for under exceptional circumstances, and any selling requires approval from the foundation’s board subject to strict conditions.

Out of the remaining funds, only Niche Asset Management Ltd. (UK-based firm that sometimes takes an activist stance) and Ennismore Fund Management Ltd. (more value-oriented hedge fund) seem somewhat likely to push the management team for further value-crystallization. As such, the investment thesis largely hinges on the effectiveness of the current executive board compensation.

Valuation

TK Elevator

Beginning with TKE, we already know that the 2020 purchase price of €17.2bn translated to a €3.3bn value for TKA’s remaining stake. Based on FY20 and FY21 EBITDA, the valuation at the time was around 17.2x ttm EBITDA and 15.6x forward EBITDA. And TKE’s closest peers, KONE, OTIS and SCHP, currently trade in the range of 14x to 19x ttm EV/EBITDA.

If we simply take the midpoint of the average peer and transaction multiple, TKE should trade at around 16.5x EBITDA. Applying this multiple yields a fair value of around €4.2 p/share or 56% of the current share price.

I am borrowing this insight from Ulf Huse, but TKE also has a €0.9bn loan from TKA. Adding this to the calculation increases the FVPS by an additional €1.45 p/share, suggesting that the FVPS solely based on TKE is around €5.6.

While making this writeup, TKE also announced that Alat, a unit of Saudi Arabia’s sovereign wealth fund, had bought a 15% stake in the company. Though the exact details regarding the purchase price and name of the selling shareholders have not been disclosed, people familiar with the matter have reportedly said that the deal values TKE at €23bn, or around €12bn net of NIBD.

The keen eye might notice that this is 9% below the initial fair value estimate. I will naturally use the low-end for the SOTP calculations, but the high-end gives you an idea of what TKE could arguably be valued at. Further deleveraging, ongoing cost-cutting initiatives and more profitable services growing their share of sales should also contribute to TKE’s intrinsic value growing over time.

Note that the above valuation is without accounting for any of TKE’s five reporting segments. In other words, the TKE stake alone covers 60%-65% of the current market cap.

Marine Systems

In Q1, MS experienced meager increases in sales and EBIT, reaching €568mn and €31mn, respectively, and equivalent to sales and EBIT run rates of €2.3bn and €124m. Still, order intake grew to more than €5.4bn compared to only €529mn in 1Q24 due to a contract agreement reached with the German government for delivery of four submarines valued at €4.7bn.

Management has already expressed interest in turning MS into a stand-alone company through a minority spinoff. While certain analysts believe the transaction should be completed rather quickly to avoid a dampened valuation in light of ongoing peace talks to end the Russia-Ukraine war, several European countries are ramping up their defense spending in light of the US considering withdrawing from NATO. Just this weekend, Ursula von der Leyen, president of the European Commission, urged member states to step up defense investments. This will likely lead to sustained demand for military shipbuilding as companies bolster their military capabilities.

Looking at MS’ most adjacent European peers, both BAE Systems and Fincantieri SpA trade at approximately 19x EBIT. I think a high-teen multiple is quite rich given the capital intensive nature and cyclicality of shipbuilding. If we assume a slightly more reasonable 15x EBIT, that still translates to €3.4 p/share share, and the likely minority spinoff should help crystallize this value, if not enhance it further.

Decarbon Tech

The Decarbon Tech segment is considered a pivotal part of TKA’s long-term strategy. While green tech has generally not delivered on expectations, TKA currently has several different bets on this market. Nucera is rather simple to estimate as it is publicly listed and TKA held a 50.19% stake as of the most recent filing. Although Nucera has had a tough time since its IPO in July 2023, TKA’s stake based on the current market cap equates to around €0.90 per TKA share.

Rothe Erde is more difficult to evaluate, but it generated earnings of €101mn in FY23, a 16% decline YoY. If we assume that it declined at a similar rate in FY24 (potentially too conservative) and back out the 30% corporate tax rate, we can approximate EBIT at around €120mn. In 1Q25, RT outperformed the prior-year figure from an order-intake perspective due to increased demand from the wind sector and accompanying slewing bearings. So while profitability remains a question, there is clear demand and structural tailwinds position RT for further growth.

Valuing RT from a relative valuation perspective, SKF AB and Schaeffler AG are currently trading at an average ttm EV/EBIT multiple of 9.46x. Applying this to RT’s EBIT of €120mn yields a value of €1.82 per TKA share, equivalent to 31% of the current share price.

While Nucera and Rothe Erde collectively equate to a little south of €3 per TKA share, the Decarbon Tech segment also consists of Uhde and Polysius. I have chosen not to include them in the valuation, but if management were to spin them out in the future and they can justify similar valuations, this adds to the upside.

Steel Europe

As I mentioned earlier in the writeup, Steel Europe is arguably the segment that has been hit the hardest in recent time. While TKA has explicitly stated that U.S. tariffs will have a rather insignificant impact on its operations, the steel business is inherently capital intensive and cyclical, and salary expenses have ran rampant with inflation as SE employs around 27k workers. Still, talks of turning SE into a JV with EPCG are currently ongoing. While the specific figure EPCG paid for the 20% stake has not been disclosed, analysts estimated that the purchase price was in the range of €350mn-€400mn. If we use the low-end of this range, the implied EV of SE is €1.75bn. This translates to €1.4bn for TKE or €2.25 p/share.

Alternatively, TKA’s stake could be valued from a peer perspective. Applying the average peer multiple to SE’s ttm EBIT of €359mn translates to a FVPS of €2.77.

Additionally, SE announced plans of reducing its workforce by 40% within 2030. This translates to around 11k workers, and should, with an average cost of €80k per worker, lead to €880mn in cost savings (appr. €170mn p/year). The approximately €2.6bn worth of pension liabilities tied to SE and carried on TKA’s books would also see a noticeable decrease if the JV goes through. If all pension liabilities tied to SE are transferred to the new entity, it will disappear from TKA’s books, while it might be evenly split between TKA and EPCG (appr. €1.3bn each) in the event of it remaining in the parent.

Automotive

With falling new car registrations, volatile fuel prices and governmental push towards use of public transport, European car sales have been in steady decline. One could argue that we are due for a trend reversal, but in the meantime, AT will likely have to soldier through a difficult operating environment. 1Q25 EBIT and adjusted EBIT came in at €-21mn and €12mn, respectively, a far cry from FY24 adj. EBIT of €245mn.

Still, the FY23 adjusted EBIT figure was €266mn, implying that the segment has kept adjusted EBIT in the €245mn-€266mn range over the last two years. And given the difficult operating environment over the last few years, it does not seem too far-fetched to assume that these figures could be close to the bottom EBIT wise (knock on wood). Looking at Schaeffler AG and Gestamp Automocion, they trade at around 8.5x ttm EBIT on average. If we look at the 1Q25 EBIT of €42mn and use the run rate EBIT of €164mn, AT could be worth around €1.35bn at 8x EBIT, or €2.2 p/share.

Material Services

Unlike SE, MX is not exposed to the capital intensity of steel production. Instead, it works as a middleman in the steel and material industry, with value-add services. But despite the more capital light business model, MX is prone to the same macro backdrop. While adjusted EBIT grew from €178mn in FY23 to €204mn in FY24, EBIT told a different story as it decreased to €8mn. While I usually would not even touch adjusted figures with a 10-foot pole, restructuring expenses, impairment losses, and gains and losses from sales under the hood do distort the picture (that does not only apply for the MX segment). Another example would be that hedge accounting on C02 forward contracts have been discontinued since fiscal year 22/23. This results in significant changes in SE’s P&L as fluctuations in the fair value of these contracts are recognized directly in financial results. I consider it reasonable to adjust the EBIT figure to exclude these effects, is it not?

Anyways, when I looked for suitable peers I quickly noted a dichotomy between the multiples the market assigned to these companies and their steel/metal production counterparts.

As can be seen above, MX’s peers trade in the range of 13-17x ttm EBIT. While I would definitely not complain about a take-out offer at similar multiples, I feel that coupling this multiple with the adjusted EBIT figure would be too inflated and unrealistic. Assuming a 50% premium to SE seems more reasonable to factor in the lower capital intensity while also reflecting the current market environment both segments are exposed to. Doing so suggests that MX’s current fair value is close to €1.7bn or €2.7 p/share.

Before synthesizing the individual valuations into a SOTP, we need to understand TKA’s current pension liability. It is carried on the books at €5.75bn, but as Ulf correctly pointed out, that figure is only discounted at €3.3%.

Discount rate on PLs - From TKA’s 1Q25 report

By applying a discount rate of 10%, which is in line with the rate assets are typically discounted at, the present value of the pension liability is closer to €3bn. TKA also has financial debt of around €1.4bn and minority interests of €762mn. Including all of these in the NIBD calculation and subtracting cash and CE of €5.71bn as of 1Q25, equates to a net cash position of €509mn. As shown below, I believe TKA could potentially be worth around €18 p/share based on a realistic SOTP valuation.

An alternative but very simplified approach would be to use management’s FY25 adjusted EBIT guidance of €600mn-€1bn, comparing TKA to suitable peers (somewhat difficult due to all the moving parts) and discounting those figures back at 10%.

There are several faults with this approach, including unreasonable simplification and dependence on accurate management guidance. Still, it serves to illustrate that TKA looks pretty cheap from an EBIT perspective at a single-digit multiple too ~ with FVPS in the range of €8-€14. Note that the discount to fair value from this approach was much more meaningful when I first started making this writeup - not so much after the recent run-up.

Risk Factors

1. Value-destructive capital allocation

A risk factor that is absolutely warranted is bad capital allocation as shown by management’s history of reinvesting cash at low returns and returning only a fraction to shareholders. While the current management team seems to be taking the necessary steps to unlock hidden values, only a portion of this value should be reflected in the stock price if management chooses to retain all cash and deploy it into low ROI projects. The DT segment comes to mind. It is currently a money-losing segment and the spinoff of Nucera shows that the market is not receptive to these types of businesses at the moment. While this could change over time, the success of the investment thesis hinges on prudent capital allocation and preferably a significant increase in capital distributions as cash continues to build up on the balance sheet.

2. Tariffs

Further tariffs and a relatively unpredictable macro environment could pose a threat for the SE and AT segments in particular. While management has said that the current tariffs imposed by the Trump administration are expected to have a small impact on TKA’s operations, North America accounted for more than 20% of the group’s sales in 1Q25. The EU’s carbon tariffs on imported steel could also result in retaliatory tariffs from non-EU countries, negatively impacting SE. And since AT supplies auto parts to global car manufacturers, the segment is especially prone to tariffs from the US and China as it will likely lead to reduced demand for European cars (and consequentially auto parts).

Catalysts

1. Minority spinoff of MS → “Marine Systems has additional opportunities for growth arising from the increase in global demand in a changing security policy environment. We aim to optimally leverage these opportunities by seeking a stand-alone solution for our naval shipbuilding activities.” - Miguel López

2. Intended 50/50 JV with EPCG for SE.

3. Increased dividend could signal that the new management team is more shareholder-friendly.

Closing Words

While I am generally not a fan of investment ideas that depend on SOTP, TKA has shown that it is taking the necessary actions to crystallize these hidden values. In recent time, this has included the finalized sale of Electrical Steel India to JSW Steel Limited and JFE Steel Corporation at the end of January for €440mn, ongoing negotiations with potential buyers for the Springs and Stabilizers business unit, a planned JV with EPCG for SE, and a potential minority spinoff of MS. Additionally, the newly installed management team is heavily incentivized to ensure that they take the correct steps to truly crystallize these values and prevent a repeat from a few years back. As such, I believe TKA presents an appealing risk-reward at its current valuation.

Disclaimer: This article is for informational and educational purposes only. It does not constitute financial advice. Please do your own research or consult a financial advisor before making any investment decisions.

Alline Acquisition

On December 19, Regis announced the acquisition of its largest franchisee, Alline Salon Group (ASG), for $22mn. Having previously owned and operated the purchased salons, Regis has intimate knowledge and experience of the locations. The purchase was funded through $19mn of cash and $3mn of stock, with $15mn of the cash portion coming from upsizing its existing credit agreement. As part of the transaction, Alline is also eligible to receive additional performance-based earnouts totaling $3mn in $1mn increments over the next three years.

Alline’s salon portfolio consists of 314 salons under the Supercuts, Cost Cutter and Holiday Hair brands, and generated ttm revenue and EBITDA of $83mn and $5.8mn, respectively. This equates to a purchase price multiple of 0.27x EV/sales and 3.8x EV/EBITDA. If we account for the performance-based earnouts (note that I simplify it by not discounting the payments), the multiples increase slightly to 0.3x and 4.3x, respectively.

And while the acquisition was carried out at very attractive multiples and immediately adds north of $5mn of annual EBITDA plus synergies of $1.0-$1.5mn expected to be achieved in CY26, the acquisition goes against the franchise-only model. I have tried to understand why management seemingly pivoted away from the franchise-only model, and both @ragnarisapirate (twitter handle) and have had thoughtful discussions about this topic.

On the one hand, Regis could have had a right of first refusal (ROFR), explaining why the acquisition was completed at sub 5x EBITDA. Additionally, management could have viewed the acquisition as a low-risk one-time opportunity to add meaningful EBITDA for a cheap price. In this scenario, the acquisition is non-recurring and the transition to the asset-light franchise-only model could still be intact.

On the other hand, Alline could have been shopping around for a long time without finding any bidders. This could indicate several things, including other potential bidders finding red flags during the DD process or the size of the transaction making it infeasible for smaller operators.

Personally, I remain in the camp of this potentially being a one-off, but remain wary of future developments. If management completes more acquisitions, I will interpret that as confirmation of Regis shifting towards a roll-up strategy. This implies that management has been dishonest about their intentions (or changed their minds), potentially warranting a complete sale.

Updated valuation

When updating the valuation, there are three important changes to account for in particular: (1) timeline for Zenoti payments, (2) higher debt figure and (3) increased CapEx. In the Q1 earnings call, Regis disclosed that it expects to receive $7.5mn of Zenoti payments in 2Q25, offering us clarity on the timing of payments. And as mentioned previously, Regis drew $15mn on its RCF to fund the Alline acquisition, thereby increasing the debt figure (I will come back to the specifics of this later). Finally, the Alline acquisition resulted in Regis’ corporate-owned salon count growing significantly, consequently increasing CapEx.

The only differences in the enterprise value part of the valuation is that I added Alline’s ttm EBITDA, adjusted the debt figure to reflect the $15mn drawn from the RCF, and added the Zenoti payments and proceeds from warrants when exercised. With a strike price of $7 per warrant, this equates to total proceeds a little south of $3mn. While Regis could repurchase the warrants, I have accounted for them by adjusting the number of shares outstanding and adding the potential proceeds.

Based on Regis’ debt and cash position from the Q1 report of $95.2mn and $6.3mn, respectively, the net debt figure was around $89mn pre-acquisition. When we account for the $15mn drawn from its RCF, this figure grows to $103.9mn. And this is without accounting for Alline’s existing debt. But two obvious weaknesses with the above approach is that we exclude annual interest expenses and add the $5.8mn of EBITDA while neglecting the now-higher CapEx.

When valuing Regis from a FCFE perspective, the fair value range changes slightly, but not much.

As shared by Christian, Alline’s past 10-K’s showed that maintenance CapEx ranged between $7k-$12k per store. Using these figures and midpoint, coupled with Alline’s store count of 314 locations, this translates to additional annual maintenance CapEx of $2.2mn-$3.8mn. This is 3-5x higher than Regis’ current maintenance CapEx of $0.8mn, and equates to total annual maintenance CapEx between $3.0mn and $4.6mn post-transaction.

While this figure could have changed since then, it gives us a foundation to build on. And by using Regis’ current debt figure of $110.2mn, the current borrowing terms of SOFR + 9% results in annual interest expenses of around $15.3mn.

Due to Regis’ ample NOLs being above $100mn, they can earn money tax-free for several years, thereby resulting in adjusted EBT being equivalent to FCFE.

Assuming a multiple range of 8x, 10x and 12x FCFE, Regis’ current fair value ranges between $28-$80 p/share, a valuation gap that could be closed quickly provided management allocates cash flow sensibly.

Capital Allocation

As both Gary Wyetzner and William Charters pointed out in their recent updates, Regis has two main levers to pull in order to close the valuation gap. Firstly, and similarly to Valassis, Regis can distribute cash to shareholders through repurchases. With the added EBITDA from the Alline acquisition coupled with upcoming Zenoti payments, Regis could achieve a $19mn-$30mn free cash flow run rate, receiving 34%-52% of its current market cap. If all free cash flow were to be allocated to repurchases (quite unlikely), existing shareholders would see a meaningful increase in their ownership through repurchases executed at low single-digit multiples.

As I mentioned earlier, the Alline acquisition could be an early sign of a pivot towards a roll-up strategy, enabling Regis to gain market share and leverage its economies of scale at value-accretive prices. While this goes against the initial plan of an asset-light franchise-only model, it could prove to be a sensible way of deploying future free cash flow.

Personally, I would like to see Regis meaningfully deleveraging its balance sheet before considering cash distributions or more acquisitions. It has been less than a year since the consensus was that default seemed imminent - a scare we should not forget that easily. By deleveraging, Regis could both “permanently” remove default risk and reduce annual interest expenses significantly, which in turn should justify a multiple rerate to reflect its stronger financial position.

Recent Developments

Two interesting developments since last time have been the increased use of SEO and the launch of the Supercuts Rewards loyalty program. Both measures will contribute to increased organic traffic, while the latter should result in higher customer retention and recurring revenue. Regis’ recent roll-out of its POS system across all brands should also enable effective communication with customers and provide valuable data, feedback and analytics. Furthermore, it should make integration of the Alline portfolio and running company-owned salons easier and more efficient.

Risks

Diworsification

In an excerpt from Wyetzner’s one-year update on Regis, he pointed to how Regis has diworsified its operations in the past. “Its market cap would have been much higher, if it just focused on buying salon chains cheaply and coming up with innovative ways to utilize its scale. Instead, the company was transaction based, buying non-core entities like shampoo stores that are obsolete today, Hair Club for Men, beauty schools, and many others. Regis made no use of its scale, and its brands saw no innovation as Supercuts has not changed at all in decades while a couple of innovative chains took market share from it.”

Hence, if management begins acquiring non-care assets (e.g., shampoo stores and beauty schools), it suggests they have not learned from the past. I view this as much worse than acquiring a salon portfolio at sub 5x EBITDA, and I will be watching this potential development carefully.

Rate hikes

Due to Regis’ unfavorable borrowing terms (SOFR + 9% (8.5% when leverage is less than 3.75x)), its profitability and debt serving ability is prone to changes in interest rates. With an ICR of around 2 (includes Alline EBITDA), higher interest rates could result in the reemergence of default risk. But in a recent change of events, newly re-elected president Donald Trump has demanded that the Fed begins cutting rates in light of falling oil prices.

While the feasibility of this remains uncertain, falling rates will enable Regis to refinance the expensive debt at more favorable rates when the make-whole provision from the refinancing transaction ends, thereby lowering annual interest expenses and improving liquidity.

Catalysts

1. Rate cuts

As already touched upon, rate cuts could prove to be a catalyst provided they remain lower for a prolonged period of time.

2. Deleveraging

Deleveraging should be management’s highest priority to eliminate the inherent default risk and reduce annual interest expenses. Doing so would also remove the bankruptcy discount that is arguably present.

3. Buybacks

Share buybacks is a good way of deploying excess cash and should result in a multiple rerate, but this should be done after having sufficiently deleveraged the balance sheet.

Final Words

While the Alline acquisition came as a surprise for most of us, a roll-up strategy executed at value-accretive multiples could prove to be a sensible way of deploying cash. There is still uncertainty regarding whether this was a permanent pivot or a one-time purchase, and shareholders have had mixed reactions.

Given the recent bankruptcy scare and still-high debt levels, deleveraging should be the number one priority. The acyclicality and recurring nature of haircuts (management mentioned how the average male gets around 10 haircuts per year) provides more predictability in sales, and there are currently several levers management can pull to create shareholder value from here. I remain bullish on Regis but will monitor future developments closely.

Disclaimer: This article is for informational and educational purposes only. It does not constitute financial advice. Please do your own research or consult a financial advisor before making any investment decisions.

While the transformation entails gradual sale of its real estate portfolio, which was the real investment thesis in the initial writeup, several stakeholders will be affected.

Implications for Stakeholders

Firstly, the board approved a reduction in the current workforce of up to 172 employees (135 being terminated on Jan 6, and the remaining 37 on April 1) effective immediately. This is due to the closure of the Alico Citrus division and to reduce overhead. Alico currently estimates that they will incur costs of $1.5-$2.0mn in relation to this, primarily driven by severance payments, employee benefits, and related costs.

Alico also completed a contract extension with its largest customer, Tropicana (80% of sales), last year. So while the older contract expires at the end of the current harvest season, they are still required to carry out their part of the new deal. Luckily, the new contract contained a provision providing Alico with the right to remove certain acreages from the contract “[i]f, in its best judgment, such acreages are no longer economically viable. As a result, “only” around 3,460 acres will continue to be managed by third-party caretakers for another harvest season, with this contract remaining in effect through 2026.

HBU

In the document, Alico also emphasized how the pivot transforms the company into a diversified land company. While around 25% of the RE portfolio can be transitioned for non-agricultural purposes (i.e., residential and commercial real estate), management believes that approximately 75% of current acres can remain agricultural-related. They also mention Highest and Best Use (HBU) several times, suggesting that while its properties are expected to generate agricultural revenue opportunities unrelated to citrus, this is a temporary solution until the HBU can be realized.

So what is the HBU? I presume that the highest and best use is the sale of acres at value-accretive prices. As I mentioned only briefly on Twitter, it is an understatement to say that CEO, John Kiernan, is incentivized to create shareholder value. The 8-K report revealed the following:

1. Kiernan would be eligible to earn an annual discretionary bonus of $100k AND a transaction bonus in the event of a change in control before September 30, 2027

   1. This “change in control” transaction bonus is tied to the sale price per share and market cap at the time of change in control

2. He could also qualify to earn a real estate commission bonus for fiscal year 2025 in accordance with the bonus agreement

3. Based on the performance of Alico’s stock until September, 2027, Kiernan would also be entitled to receive up to 38.000 performance-based restricted stock units, with the number of units divided as follows:

   1. 5.000 received if the average 30 day closing price per share exceeds $35

   2. 12.500 if share price > $40

   3. 20.500 if share price > $45

So Charlie’s adage, “Show me the incentive, and I will show you the outcome” seems to apply here.

Real Estate Portfolio

To evaluate the potential value of the transition, Alico hired real estate experts and appraisers to assess its real estate portfolio and create monetization estimates.

From Alico’s Strategic Transformation Investor Presentation

Assuming that these figures are remotely close to accurate, there remains significant upside despite the recent run-up.

Since Alico expects year-end cash reserves to be sufficient to cover cash operating expenses for at least two additional years, I have fully omitted both cash and CE and income tax receivable from the calculations and treated them as operating cash. While inventory was carried on the books at $30mn, I discounted its value by 30% to reflect lowered NRV due to either citrus greening or Hurricane Milton. Hence, by valuing Alico from a tangible book value perspective, the potential fair value could range between $70 and $83 p/share, equivalent to an implied upside in excess of 100% for both scenarios.

It is worth noting that I do not know what discount rate Alico applied to the monetization estimates for its RE portfolio. As such, the fair value estimate could definitely be lower if it turns out that the discount rate does not sufficiently account for risk, inflation or the opportunity cost of capital. Additionally, if the provided time horizon is too optimistic, this will negatively affect the fair value estimate.

Final Words

On the day of the announcement, Alico surged close to 30% intraday. While no significant value had been realized as part of the announcement, management’s focused efforts and clear plan to crystallize the hidden value of its RE portfolio was greatly appreciated by the market.

There are certain risks that could dampen the potential upside, but it is great to see the initial investment thesis play out. And if you couple the strategic transformation with a thriving Florida real estate market and a highly incentivized CEO, Alico seems like a solid pick with limited downside, even more so than initially anticipated.

Disclaimer: This article is for informational and educational purposes only. It does not constitute financial advice. Please do your own research or consult a financial advisor before making any investment decisions.