YB new stock pitches (Wed, Mar 18)

Rewey Asset Management initiated a new position in Donnelley Financial Solutions (DFIN), a provider of capital markets and compliance-related technology solutions that is transitioning to a software-as-a-service model for corporate governance reporting, M&A filings, and IPO registrations. In Q3 2025, software solutions revenue grew 10%, led by the less cyclical compliance solutions segment which grew 16%, with gross margin expanding to 62.7% reflecting the higher profitability and lower cost structure of the software model, though transactional revenues declined 4%. The company maintains a strong balance sheet with a 2025 estimated debt-to-EBITDA ratio of 0.6x, trailing twelve-month EBITDA covering interest expense by over 20x, only $43 million drawn on its $300 million revolver, and generates substantial free cash flow which enabled $35.5 million in buybacks in Q3 2025 and $111.6 million year-to-date. Q3 2025 results were obscured by one-time pension plan termination charges and muted Q4 2025 guidance reflected the negative impact of the government shutdown which paused but likely did not cancel M&A and IPO activity, though filings are expected to resume and accelerate into late Q4 2025, with a cyclical uptick in M&A and IPO filings expected in 2026 supported by a resilient economy and lower interest rates. The stock trades at $46.69 per share, down 25.6% year-to-date and 33.2% from its 52-week high of $69.92, representing 10.5x 2026 EPS and 5.6x EBITDA estimates versus peer Broadridge at 24.1x and 16.7x respectively, with DFIN's market value at only $1.2 billion compared to Broadridge's $26.6 billion. The price target is $66, implying 41.4% upside and a 15x EPS multiple, which is roughly 5% below the 52-week high, with potential to exceed this conservative target as investors gain clarity on the more stable software-driven revenue model and if revenue and margin improvement continues, amplified by the likely near-term cyclical boost in 2026.

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SE Holdings (9478.T) is a net-net trading at approximately 70% of NCAV with a negative enterprise value, where 85% of current assets comprise cash and public equities, yet the company generates consistent and growing free cash flow of ¥500-1000M annually and trades at just 8.6x its 5-year average FCF. The investment portfolio alone, which has grown 10x from ¥1.1B in 2015 to ¥11.3B currently (representing approximately 12-16% CAGR with an estimated ¥6B in gains), equals 160% of market cap (~¥7.2B) and 150% of enterprise value (~¥7.9B), comprising 280 diversified listed securities. CEO Koji Hayami, the largest shareholder at 18%, has accelerated share buybacks from historical levels of approximately 2.75% per quarter to a targeted 11% reduction for the current fiscal year ending March 2026, having already repurchased shares at roughly 8% annually in recent years. The Publishing segment (Shoeisha), which generates 20% EBIT margins and accounts for 50-70% of group EBIT, has grown 3-4x since 2015 despite print disruption by transitioning to digital media, conferences, and online platforms serving Japanese IT professionals, though faces potential AI risk to its technical publishing, certification, and training businesses. The company has grown tangible book value per share by approximately 12.5% annually over 10 years and 21.8% over 5 years, maintains FCF margins of 10-15%, and owns 513.13 m² of land in prime Shinjuku-ku, Tokyo valued at ¥775M on books but estimated at ¥1.1B-2.6B currently. The Investment Management segment generates ¥250-300M in annual FCF from dividends and interest, with at least ¥400M of total FCF considered sustainable over the next five years even accounting for AI disruption, providing substantial margin of safety through the combination of liquid asset coverage, strong free cash flow generation, and aggressive value-accretive buybacks.

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Green Dot Corporation (GDOT), a fintech company and prepaid card services provider, was added as a new position in Q4 at $12-13 per share, trading at approximately 4x EV/EBITDA. The investment thesis was supported by several catalysts: on March 7th, 2025, former CEO and current Board Chair Bill Jacobs was named Interim CEO; on March 10th, 2025, the company engaged Citigroup to initiate a strategic review process; Interim CEO Jacobs successfully renewed a large Walmart contract extending the term from 2027 to 2033, removing a major overhang; and the company beat and raised guidance for three consecutive quarters as new business wins ramped faster than anticipated. On November 24, 2025, Green Dot announced the conclusion of its strategic review with a two-part transaction: Smith Ventures (a private equity firm) would acquire Green Dot's non-bank fintech platform for $8.11 cash per share, while CommerceOne Financial would acquire GreenDot Bank with GDOT shareholders receiving 0.2215 shares in the new publicly traded CommerceOne Bank. Using a conservative 0.75-2.25x price-to-tangible book value range for the new GreenDot Bank/CommerceOne Financial entity values the bank stub at approximately $4.70-$14 per share, which when combined with the $8.11 cash payment yields a total deal value in the high teens to low $20s versus the $12-13 entry price.

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