The Odey Special Situations Fund isn’t a good year so far, but fund managers believe things are going up. According to an August letter to the fund’s investors, monthly returns were up 2.49% and year-to-date returns were 3.4%. Odey’s benchmark, the MSCI World USD Index, rose 2.49% in August and 17.84% in the first eight months of the year.
Fund manager Adrian Courtney emphasized competitive bidding merger arbitrage as a key strategy for the fund, citing three shares he believes will drive performance for the rest of the year.
Wine, Spirit and Cider specialist Distel is 9.8% of O’Day Fund’s net worth, and Heineken is approaching that for the merger. Heineken plans to make a deal by the end of September. The Odey Special Situations Fund typically does not expand its pre-trading situation without a binding offer like Distell, but it does have a significant allocation due to the “abnormal and significant asymmetry of potential consequences”. I have.
Courtenay explained that Distell is trading at 13x lower PE and 7.3x EV / EBITDA. He said the company received a discount of more than 75% on the valuation paid by Heineken in June to acquire a stake in United Breweries, one of Distel’s peers.
The Odey team finds Distell attractive as a leading alcoholic beverage company that provides its acquirers with a “stepping stone to accelerate access to the rapid economic growth offered by the African continent.” We also like Distell because it is a beverage company with best-in-class key performance indicators based on South Africa’s monopoly and duopoly market share.
Courtney believes Distel is “far below a reasonable estimate of its intrinsic value,” not only when compared to United Breweries, but also to other peers in the same industry.
Turtle Beach is 7.6% of the net asset value of the Odey fund. This is another pre-trading situation, but the non-binding offer price is disclosed at $ 36.50 per share, a premium of 28% of the share price at the end of August. This offer came from 6.9% of activist Donerail Capital.
Distell has accepted the approach from Heineken, but Turtle Beach has resisted the Donerail Capital approach. Courtney said the activist’s career will set a timeline to drive this situation in order to dismiss the company’s directors at the June 2022 Annual Shareholders’ Meeting.
Like Distell, the Odey fund was attracted to Turtle Beach because of the asymmetry of results. Turtle Beach is a leader in gaming headsets, accounting for 46% of the market. There are also some new game controllers that investors aren’t paying attention to, but Turtle Beach can significantly exceed revenue estimates, according to Odey’s research.
Courtenay explained that Turtle Beach has a low starting point rating as it trades only at 11.5 times the company’s future net income fund estimate, excluding cash. He also said that Turtle Beach’s EV / sales ratio is one-fold EV / sales, the lowest of any other company in the industry. Therefore, if the deal fails, he sees little downside. Courtney added that the intrinsic value of Turtle Beach is much higher. Peers like Logitech are slow-growing, trading more than 20 times more than PE and 3 times more EV / sales. In addition, he said that trading in the game space was done at even higher multiples, close to four times EV / sales.
He added that Turtle Beach now has several options to oppose attempts to acquire activist shareholders. One option is to find a friendly “white knight” suitor to sell the company. The other is to use the net cash position to buy back the company’s stock and raise the stock price.
The Odey fund’s position in Noront Resources is 11.59% of its net asset value, and Courtenay said it could be reduced within the UCITS guidelines. He emphasized the stock in a July letter. He said the company is already on the road to accelerating to intrinsic value with a counter offer from Wyloo Metals in August.
The Odey Fund secured its first position in Noront with a premium of 1.5% on the first binding offer from BHP Billiton. While it was unusual for a fund to pay above the binding offer price of a stock, Courtney determined that the potential for a rise in the situation was “very rare” and the net asset value estimate was compared to the first offer. And it was between $ 2 billion and $ 11 billion. society. He explained that the situation provided 98.5% capital protection, combined with “abnormally high” equity upside options.
Andrew Forrest, controlling shareholder of Wyloo Metals, has issued a statement regarding its competitive bidding on Noront Resources. He said 17 years ago that Fortescue Metals deposits would not be mined due to lack of infrastructure, but they proved their critics wrong. rice field. He wants to do the same with Noronto. If shareholders share his views, he added, “it is impossible today to value new mining areas with immeasurable potential for these assets.”
Courtney said Forrest’s development of Fortesque made him the second wealthiest person in Australia and the 87th wealthiest person in the world. Forest now needs to compete with BHP Billiton, the world’s largest mining company, to decide who will buy Noront Resources. Courtney does not expect Forest to give up soon, especially given his personal net worth of $ 20 billion.
In Canada, the two offers from BHP and Wyloo have a three-month duration, so the Odey fund will accelerate the timeline to the intrinsic value that this competitive auction will clear by the end of November.