Theme of the Week
Competing against banks
Ever since the GFC, taking market share from banks has been as easy as Fat Tony stealing lunch money from the kid who couldn’t stand up for himself.
It wasn’t just that banks were held back by their own corporate inefficiencies. After the GFC, banks got squeezed by a wave of regulatory changes. Basel III and stress tests forced higher capital and liquidity buffers.
At the same time, the Dodd-Frank Act added stricter leverage rules, tougher mortgage and consumer protections, and empowered the CFPB to enforce compliance aggressively. Balance sheet-heavy, lower-return businesses became harder to justify, risk appetites narrowed, and growth took a backseat to stability.
Let’s start with payments. Every time you are charged a $30 international wire fee, both on the sender and receiver side, with an extra 50 bps for FX on top, you are reminded why bank payments are asking to be disrupted.
This is a classic case of Joseph Schumpeter’s creative destruction. Disruption typically comes from new entrants with little to lose rather than from established firms dismantling their own cash cows.
Everyone who runs a Wise account alongside a Chase bank account needs little further explanation of who comes out on top.
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Kliff Note of the Week
Spin Monitor: Enviri (NVRI) approved the sale of its Clean Earth business for ~$3bn. Closing expected on June 1. This also paves the way for the Harsco Environment and Rail spins.
As a reminder, Enviri will use $1.35bn of the proceeds to repay existing debt, while Enviri shareholders will receive $14.50-16.50 in cash and 0.33 shares of the SpinCo per Enviri share.
New Enviri expects pro forma revenue of $1.3bn and EBITDA of $135m, with 2.0x net leverage at closing. Enviri is up a bit since our initial flag, but it still looks pretty cheap.
Cluster Insider Buy Monitor: MarketWise’s (MKTW) largest shareholder, Stansberry, continues to buy shares, with strong activity from insiders as well over the past months. MKTW recently popped a $50m buyback, ~18% of its market cap.
Things look to be stabilizing. Q1 billings grew 15% yoy, paid subs increased, they even target a $1.80 p/s gross dividend (~9% yield).
CEO Changes Monitor: S&P Global (SPGI) held their investor day for the upcoming spin of their mobility business, guiding to 7.5%-10% organic revenue growth and 8-11% EBITDA growth.
This is a high-quality asset with little overlap with SPGI’s core business, so the spin seems to make sense and should unlock value. However, after the SaaSPocalypse it’s hard to say whether this will trade at the multiple it deserves.
13D Monitor: Tensions between LIM Advisor and shipping company Iino Kaiun Kaisha (9119 JP), with Iino’s board rejecting all proposals from the activist (i.c. removing the poison-pill, disclosing director pay individually, a 100% payout dividend, and a large buyback).
Meanwhile LIM accuses of a.o. ‘management appropriation’. The June AGM will be the next big collision. Iino is trading at ~1x book, on arguably conservative book values given today’s rates.
Strategic Alternatives Monitor: GoPro (GPRO) seems to be throwing in the towel after years of changing strategy, from selling premium cameras to affordable cams.
They tried drones, media, subscription models, and even an AI data licensing strategy. They announced strategic alternatives after receiving several unsolicited inbound strategic inquiries from the defense sector.
Houlihan Lokey retained as advisor. Hard to value an asset that will probably never make money as a stand-alone entity.
Other Interesting ED Action: Angel Studios (ANGX) is a strange company that popped up on our screens as insiders have been adding. A recently listed streaming company, with quite some coverage and fwiw strong growth projected.
No clear idea here (yet), but if they continue to grow at the current decent pace, the 60%+ gross margins will provide quite a bit of operating leverage.
