YB new stock pitches (Thu, Apr 3)

Korea Electric Power Corporation (KEP), South Korea's primary electric utility, is emerging as a compelling turnaround story. After years of losses due to government-regulated low tariffs and high fuel costs, KEP returned to profitability in 2024 with a net profit of ₩3.49 trillion and 6% revenue growth. The company's recovery is driven by tariff hikes, cost-cutting measures, and improved operational efficiency. KEP trades at deeply discounted multiples of 4x P/E and 0.3x P/B compared to peers, offering significant upside potential. The resumption of dividend payments after four years signals confidence in the turnaround. However, risks include a high debt burden of ₩205 trillion and regulatory uncertainty. With government backing and a clear recovery plan, KEP presents an attractive opportunity for value investors with a 2-4 year horizon, contingent on continued deleveraging and margin improvement.

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Chemring Group PLC (CHG.L), a UK-listed defence company, trades at 11.3x LTM EBITDA compared to peers at 20x. Bain Capital's reported £3.90 bid (11.9x) is considered too low by analysts and shareholders. The bull case includes potential benefits from increased European defence spending, a record £1.35bn orderbook, and a takeover scenario at £5.30 (+43%, 27% IRR). The base case projects £7.52 (+103%, 26.7% IRR) over three years, assuming 10% CAGR and margin expansion. An upside case with share buybacks estimates £8.23 (+122%, 30.5% IRR). Risks include no takeover materializing and potential defence spending cuts. The investment opportunity offers asymmetric upside of 4.5-13x versus a -10% downside risk. Catalysts include a potential takeover and the European defence spending boom. The opportunity exists due to recent operational issues, defence spending uncertainties, and ongoing capex investments.

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F&G Annuities & Life (FG) presents a potential 25-30% upside opportunity, with a takeover valuation target of 1x book value ($44.28) compared to its current 0.79x. The company recently completed a $280 million equity raise for growth, with FNF purchasing 4.5 million shares, demonstrating confidence. CEO Christopher Blunt bought over $800,000 worth of shares on the open market. Comparable transactions, such as Apollo/Athene and Brookfield/AEL, occurred at approximately 1x book value. Risks include the possibility that FNF may choose to keep FG due to its strong performance, and the uncertain timeline for a potential sale. The stock is currently trading around $35, which is viewed as an attractive entry point. The company will become eligible for sale this summer, but the timeline for a potential transaction remains unclear.

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