YB new stock pitches (Thu, Jan 23)

Magnera Corporation (MAGN), a newly spun-off non-wovens company, trades at $18 per share with $1.8 billion in net debt, 36 million outstanding shares, and $400 million in EBITDA. The company is expected to generate over $100 million in annual free cash flow for the next three years while growing EBITDA to $475-500 million through synergies and volume recovery. At a 6x EBITDA multiple, this implies a potential share price of $40 within three years, representing a 120% upside or 30% IRR. Magnera's debt is cheap and termed out, with management focusing on deleveraging. The company may benefit from potential tariffs on cheap imports. The business has historically averaged over $500 million in annual EBITDA over the past decade, suggesting the projected normalization is achievable. Magnera's upcoming 10-K filing and Q1 report are expected to reveal improvements in non-wovens volumes.

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International Game Technology (IGT), a $3.5B market cap gaming supplier, is selling its gaming segment to Apollo for $4.05B pre-tax in Q3 2025. The remaining lottery business (RemainCo) trades at 5x EBITDA, significantly below peers at 9-16x. RemainCo faces a competitive bid for its Italian Lotto contract, which represents 40% of its revenue, due March 17. Even if the contract is lost, RemainCo would still be cheap at 5.5x EBITDA. The company plans to pay down $2B in debt and potentially return capital to shareholders through buybacks or dividends. The stock's current valuation appears to be discounted due to revenue concentration and the Apollo deal obscuring value. The author believes RemainCo should trade at a more normal 8x EBITDA when uncertainties resolve, and owns IGT Jan '27 LEAPs.

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Fever-Tree Drinks PLC (FEVR.L), a premium mixer company, experienced 50% annual revenue growth pre-pandemic with 30%+ operating margins and 100%+ returns on tangible capital. Recent logistics and cost issues due to the pandemic and Ukraine war reduced profit margins from 28% in 2019 to 5% in 2023, causing a 75% stock drop over three years. Despite challenges, FEVR remains debt-free, profitable, and continues gaining market share globally. Management is addressing issues by shifting US production locally and expects 600bps gross margin recovery in 2024. Post-recovery, FEVR could trade at 7-8x earnings with mid-forties gross margins and low twenties operating margins. The company is a potential M&A target, with transaction multiples typically above 6x revenue, implying a £20/share fair value. Strong management alignment exists with $100 million in stock ownership. Current valuation is 1.8x revenue, down from 8x pre-pandemic.

Read the full article here. Read time: 4 min