YB new stock pitches (Wed, Sep 10)

Reading International (RDI) is a cinema and real estate company that has transformed its balance sheet by selling $30 million in assets (Courtney Central in New Zealand and Cannon Park in Australia) and deleveraging, yet its enterprise value has declined one-for-one with the debt reduction despite the sales occurring at premiums to implied valuations and eliminating concerning near-term maturities. The cinema business has dramatically improved, generating $5.5 million in Q2 EBIT versus -$4.6 million year-over-year due to an improved cost structure from non-performing location closures and record concession per patron numbers. The major catalyst is securing a tenant at 44 Union Square, which management indicates is progressing with LOIs and increased leasing activity, and could add over $5 million in annual free cash flow while enabling refinancing of the 11.5% $46 million mortgage to a more reasonable 7% rate with potential $15 million cash-out at 60% LTV and nearly $1 million in annual interest savings. The author values the real estate conservatively at $200 million (equal to current EV) and the cinemas at $100 million, suggesting shares are worth 3x the current price, with the market expected to recognize this value inflection within 6 months once 44 Union Square is leased and Q4 profits become apparent.

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Tetragon Financial Group (TFG.AS) is a closed-end investment fund with a $1.5 billion market cap trading at approximately 50% of NAV, holding stakes in asset managers including a recently partial sale of Equitix for $256 million while retaining 67%, and notably Ripple Labs as their second-largest holding which provides exposure to a potential Ripple IPO. The fund has concerning governance features including non-voting shares, no high water mark for incentive fees, and management with a questionable history, yet management's ownership has increased from 11% at IPO in 2007 to 40% currently. Management is positioned to create over $1 billion in value for themselves through asset sales and tender offers at deep discounts to NAV while potentially making Ripple a larger percentage of their holdings, with the stock historically trading at 55-60% discount to NAV where it currently sits. The investment presents a capped downside given historical discount levels and upside potential ranging from 60-200% depending on management's strategic decisions, though the opportunity diminishes as the stock price rises and closes the NAV discount since tender offers are more effective at larger discounts.

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Cadeler A/S (CDLR.OL), an offshore wind vessel owner, has transformed through merger with Eneti and an ambitious newbuild program that will expand its fleet to 12 vessels by 2027 for turbine and foundation installation. The company holds a EUR 2.5bn backlog with 97% tied to projects that have reached final investment decision, recent wins include a three-year O&M contract with Vestas and a 2028 Taiwan installation project worth up to EUR 80m, while first half 2025 saw revenue triple and EBITDA surge nearly ninefold with raised full-year guidance. The offshore wind vessel market is tightening as turbines grow to 20MW+ sizes making legacy vessels obsolete, with very few new ships entering before 2028 due to reluctant ordering without firm contracts, while global offshore wind capacity is expected to quadruple by 2030 and rise ten-fold by 2040. Analysts project free cash flow to equity could reach 35-44% of market cap annually from 2026-2028, translating to potential dividend yields of 13-17% once newbuild expansion completes, with the company able to return over 80% of market cap in cash flow by 2028, though Cadeler explicitly states no dividends will be paid short-term while financing fleet expansion. The investment faces risks including heavy newbuild commitments and potential political delays causing project setbacks, while the disconnect between negative sector sentiment from US headlines and cost inflation concerns versus positive fundamentals of secured backlog and scarce vessels creates a potential entry opportunity.

Read the full article here. Read time: 3 min