There have been a ton of recent spin-offs this week. Yesterday, CorePoint Lodging (CPLG), a La Quinta (LQ) spin-off, began trading. LQ had run up after it was profiled recently at the Sohn Contest and it looks like the thesis has already played out as the spin-off, CPLG, is trading at ~12.0x EBITDA, in-line with peers.
Today, EuroSeas (ESEA), a Greek Shipper, completed its spin-off of its Dry Bulk Shipping segment, EuroDry (EDRY). This situation seems very interesting at a high level as the company is a micro-cap and likely under-valued. The shipping market appears to be experiencing positive tailwinds after a decade of over-supply. I need to get more comfortable with the shipping market as I don’t know it well. I’m also going to be very careful as the shipping market is extremely cyclical and ESEA has significant debt. For more information, check out my notes which I posted recently.
Today, spin-offs Wyndham Hotels & Resorts (WH), Spirit MTA REIT (SMTA), Perspecta (PRSP) all began trading. I will be sure to let you know if any of them look particularly compelling.
Spin-off News and Analysis
It has been a while since we’ve taken a look at the relative performance of the Bloomberg US Spin-off Index so last week, we pulled the latest data. From 2005 through last week, the Bloomberg US Spin-off Index has generated a ~512% total return, outpacing the S&P 500 by 314%. Check out the article to view year-by-year performance going back to 2005.
GE recently announced that it will be spinning off its Transportation business which will then merge with Wabtec (WAB). I will be posting my notes in the near future, but this could be an interesting set-up. The locomotive industry is extremely cyclical, but is coming off a trough. There could be some indiscriminate selling as the spin-off will be very small relative to GE’s market cap ($123BN). Transaction won’t close until Q1 2019 so plenty of time to do additional work.