Deep Breath, Deep Value
A mispriced structural winner offering 200%+ upside
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Value Situations is NOT investment advice and the author is not an investment advisor.
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In this inaugural issue of the Value Situations paid tier newsletter, I outline what I believe is one of the most interesting public equity opportunities in the current market - SOL Group is a family owner-managed industrial gas company that would seem to tick all of Berkshire Hathaway’s acquisition criteria, except perhaps the “elephant” size requirement.
This business is a structural winner as evidenced by its remarkable track record of consistent sales and earnings growth over the past 20 years and has never reported a YoY decline in that time, growing through the Great Recession of 2008-2009 and the COVID recession of 2020. In addition, it has delivered average annualised returns of ~15% for shareholders over the same 20 year time period.
Yet despite its high quality, the company is entirely overlooked by the public markets with no sell-side coverage and trades at a steep discount to public peers and its private market value.
With its owner-managers approaching retirement age and no family successors to take over management of the company, it is highly probably the family shareholders will cash-out by selling the company to PE, which would unlock substantial value for shareholders - I estimate upside of ~200% to the current share price in this event-driven scenario.
Alternatively a market re-rating in line with listed peers indicates upside of ~160% from the current price. This situation also offers substantial downside protection should no sale event or market re-rating occur, given business quality and future earnings power, making this a highly asymmetric value situation with the potential upside being multiples of the downside risk.