Key Summary: On July 21, 2022, Nierenberg Investment Management stated the Company is undervalued and projected long-term growth through franchising. On August 7, 2023, they restated their 13D, anticipating a 7-9 times share price increase by 2032, recommending share buybacks, debt repayment, and cost reductions. On December 21, 2023, they expressed satisfaction with the Company's ongoing value creation and investor confidence. On June 29, 2020, 180 Degree Capital Corp disclosed an 8.6% stake, criticized the stock’s relative performance, and supported new Board additions to enhance shareholder value. On March 1, 2020, Vann A. Avedisiantrust nominated four Board candidates, leading to a Settlement Agreement on May 10, 2020, increasing the Board size and appointing two representatives. GrizzlyRock Capital disclosed a 5.3% stake on October 26, 2017, seeking value-enhancing dialogue, later reducing its stake to 2.6% on March 1, 2019. Privet Fund nominated four Board candidates on February 7, 2018, resulting in a Settlement Agreement on April 12, 2018, expanding the Board and appointing a Privet Fund partner.Market Cap: $315 million | Potbelly Corporation owns and operates Potbelly Sandwich Works sandwich shops in the United States.
On July 21, 2022, Nierenberg Investment Management Company (9.4%) stated its belief that the market is far from recognizing the Company’s rapidly improving unit and corporate economics, its substantial potential profitability increase from franchising, the quality and experience of the Company’s management and board, its brand, and unique positioning. Source
Valuation insight
Nierenberg Investment Management views the Company as a coiled spring that could become as much as a 10X for its shareholders over the next decade. Using a 10% discount rate, Nierenberg Investment Management estimates that this $5 stock could be worth $17.77 today; with a 15% discount rate, it could be worth $10.03 today, double where it is right now.If the Company were to use future free cash flow to freeze its share count at 29M, Nierenberg Investment Management could envision EPS climbing to over $2.00 in 10 years. With profitable, growing franchisors valued at 20X earnings and 3X revenues, Nierenberg Investment Management could see the Company’s share price rise to about $40-60 in 10 years, the midpoint being 10X where it is today.
On August 7, 2023, Nierenberg Investment Management restated its 13D that the Company's strong performance post their July SC 3D filing justifies an update to reflect increased company value and a request for opportunistic repurchase of 8M shares over 9 years. It anticipates a 7-9 times share price increase to $69-86 by 2032, indicating enhanced confidence in leadership, governance, strategy, and execution compared to last year.
Nierenberg Investment Management outlined a projection based on high franchising success for the company over the next nine years. Retaining 300 company-owned shops after refranchising 80, they estimate an annual shop revenue growth of 5%, potentially reaching almost $2.1M per shop by 2032. With this, the corporate level revenue could grow to $842M, pre-tax profit to $141M, and post-tax profit to around $99M. Nierenberg Investment Management suggests that with efficient cost reduction and the elimination of unnecessary debt, the company's annual EPS could potentially increase by $0.13. It recommends a share buyback plan to reduce the share count by 21% over nine years, estimating a potential share price rise to $68.80 to $86.00 based on P-E ratios.
Nierenberg Investment Management's suggested actions for the company include:
Clear existing borrowings while maintaining a prudent line of credit.
Thoroughly review all corporate level costs for potential savings.
Utilize free cash flow to decrease the share count from 29.3 million to 23 million.
Encourage insiders to invest in shares.
On December 21, 2023, Nierenberg Investment Management stated that it was pleased with the company's ongoing value creation, including improving customer traffic, shop profitability, and positive EBITDA growth. The acceleration of the franchising strategy and increased investor confidence are noteworthy. It recommends paying off the debt, considering share repurchases, and reducing corporate-level costs to maximize long-term profitability. These actions, combined with potential savings, could significantly benefit Potbelly's earnings per share and long-term growth prospects, making it an attractive opportunity for investors. Source
Past
180 degree capital corp
On June 29, 2020, 180 Degree Capital Corp disclosed 8.6% and stated that the stock price performance on a relative basis to its competitors has been dreadful. It further stated, " 180 supports the recent additions to the composition of the Board of Directors, including the appointment of Joe Boehm as Interim Lead Independent Director. 180 encourages the Board to execute on any and all steps that are necessary to enhance value for all shareholders." Source
Vann A. Avedisiantrust
On March 1, 2020, Vann A. Avedisiantrust delivered a notice to the company nominating four candidates for election to the Board at the 2020 annual meeting of shareholders. Source
On May 10, 2020, the company entered into a Settlement Agreement with Vann A. Avedisiantrust and pursuant to it, the company (i) increased the size of the Board from eight to ten members, (ii) appointed David J. Near and Todd W. Smith (Vann A. Avedisiantrust representatives) to the Board, and (iii) appointed David J. Near to the Compensation Committee of the Board and Todd W. Smith to the Nominating and Corporate Governance Committee of the Board.
GrizzlyRock Capital
On October 26, 2017, GrizzlyRock Capital disclosed 5.3% and requested that the company disclose all material steps undertaken by J.P Morgan in its role as the company's financial advisor. It stated that it had sought and will continue to seek an opportunity to meet with the management team and Board of Directors to engage in constructive and value-enhancing dialogue. Source
On March 1, 2019, GrizzlyRock Capital reduced its stake to 2.6%.
Privet Fund
On February 7, 2018, Privet Fund delivered a letter to the company nominating four candidates for election to the Board at the 2018 annual meeting of stockholders.
On April 12, 2018, the company entered into a Settlement Agreement with Privet Fund and pursuant to it, the company (i) expanded the size of the Board from nine members to ten members, (ii) appointed Ben Rosenzweig, Partner of Privet Fund Management, to the Board and (iii) appointed Ben Rosenzweig to the Compensation Committee of the Board. The Board also agreed to include Mr. Rosenzweig in the Company’s slate of nominees for election to the Board at the Company’s 2018 Annual Meeting of Stockholders.
Comments