Elkem $ELK is a 'specialty' chemicals company where the combo of a high debt burden and poor macro are pressuring results and the balance sheet. As a consequence, the company put its Silicones division (one of its largest divisions) up to sale. This has been going on for ~6 months with the company now classifying the segment as discontinued. A sale at decent prices will significantly improve the b/s and provides a clear catalyst for a rerating.

Despite the strong move, I remain interested in the upcoming Iveco $IVG spin. Iveco is mostly known as a designer and producer of vans and trucks. Its core operations are boring, commoditized, capital intensive and exposed to cycles. In short, not the most interesting company. But Iveco has also a relatively small (for its size) Defence segment, focused on a wide range of vehicles (armored, protected, amphibious, customizable). This unit has long been in the company, and discussions regarding a potential separation have regularly come up given the relatively small size and volatile growth. It was also often considered annoying, as just the presence of such as segment was a no-go for many European investors given the strong push to ESG / sustainable portfolios (whatever that means) over the past years. Of course this all changed with the Russia – Ukraine war. Suddenly Europe is not considering defence as toxic anymore. There’s no more a discussion about whether or not to invest in defence – it’s now all about ‘how much’. There are even plenty of examples of European Defence stocks being included in ESG / sustainable portfolios (ah the hypocrisy). What makes me look today is that Iveco has now decided to proceed with the separation of the business via a spin-off. The news of the spin is a positive surprise, as there previously was talk about divesting the segment to e.g. Leonardo for €500m–1.0bn. $IVG will continue to explore incoming offers for the segment (it has clearly stated there’s good interest in the business) but I assume a spin will be the most valuable option for the company. Indeed, while the shares had a good run since the first announcement (roughly +50%), I think there could be much more to go. One the one hand we have a rapidly growing and profitable business. Revenues grew +31% yoy in Q1 25 and ebit +64% (~13% margin). There’s some lumpiness, but overall the business is firing on all cylinders (pun intended), the order book is full and the outlook is solid. And then there’s the valuation of the sector. Listed European Defence companies are trading at anywhere between 10x ev/ebitda to 30x, the higher being more ‘smart’ weaponry. Why couldn’t this business fetch 15x ev/ebit? That would be € 2.2bn EV on Q1 annualised, almost half of Iveco’s current EV (including factoring and some provisions). And why not even more in the current climate? I could easily see it go much higher as a separate entity with the markets pricing in a > decade of growth. The shift towards Defence spending that Europe is witnessing is simply mindboggling. The industry went from a pariah to ‘must invest’ in an incredibly short amount of time. This won’t stop after the Ukraine war. Europe is ready to invest, and it will be off a very low base. We highlighted $IVG on the blog. Check it - and much more - out @ToffCap

The next 💩-co trade is going to be Syntec $OPTX. Bit of tech, bit of defense, lots of dark-yellow flags, late filings... can see it 🚀 on some bullish (fakish) PR. But first waiting for the dump as they'll be downgraded to OTC.