Founder, BWS Financial Inc

Hamed Khorsand

Founder

Independent Stock Specific Research

BWS Financial Inc

BWS provides independent stock specific research focused on companies with distinct value that are going through a special situation where there is a tangible catalyst not priced in. The catalyst can be anything from new product, restructuring, M&A, management change, change in business strategy, etc. BWS’s focus is to understand the change and evaluate the potential return for investors.

BWS utilizes a self formed proprietary approach in discovering stocks by putting great emphasis on deep research. BWS does generate short recommendations following a similar criteria.

Equity Bottom-Up

<ul type="disc"><li>
Verso Corp. (VRS) reported second quarter results benefiting from a series of price increases implemented at the beginning of the year. Demand has not dissipated putting operating rates at well over 100 percent in the second quarter.</li></ul> <ul type="disc"><li>The current demand environment has enabled VRS to raise prices regularly this year that should provide a lift to earnings in subsequent quarters.</li></ul> <ul type="disc"><li>VRS reported second quarter revenue of $329 million and adjusted EBITDA of $52 million compared to our estimates of $282.5 million and $32.3 million, respectively.</li></ul> <ul type="disc"><li>Continued expectations of demand for coated paper should provide VRS a runway to generate a high level of free cash flow well into 2022, affirming our reasoning for the $20 bid being too low.</li></ul> <ul type="disc"><li>We are maintaining our price target of $30. VRS’s earnings power in the current climate should result in the shares trading higher once management addresses the $20 bid currently suppressing the stock price.</li></ul>


Verso Corp. (VRS) reported second quarter results benefiting from a series of price increases implemented at the beginning of the year. Demand has not dissipated putting operating rates at well over 100 percent in the second quarter. The current demand environment has enabled VRS to raise prices regularly this year that should provide a lift to earnings in subsequent quarters. VRS reported second quarter revenue of $329 million and adjusted EBITDA of $52 million compared to our estimates of $282.5 million and $32.3 million, respectively. Continued expectations of demand for coated paper should provide VRS a runway to generate a high level of free cash flow well into 2022, affirming our reasoning for the $20 bid being too low. We are maintaining our price target of $30. VRS’s earnings power in the current climate should result in the shares trading higher once management addresses the $20 bid currently suppressing the stock price.

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Verso Corp. (VRS) received a non-binding takeover offer of $20 a share in cash from current shareholder Atlas Holdings LLC. The acquisition price materially undervalues VRS and the current state of its business.</li></ul> <ul type="disc"><li>This is not the first time Atlas has tried to purchase VRS. Atlas had previously failed resulting in a proxy battle that eventually led VRS changing its Board of Directors. This time, the offer from Atlas could be taken seriously, but at $20 it gives shareholders no value to the current business environment VRS is benefiting from.</li></ul> <ul type="disc"><li>Our investment thesis in owning VRS, and why we value the shares at $30, has been based upon the prognostication of the price appreciation for coated paper resulting in adjusted EBITDA and free cash flow materially higher than 2020 and 2019 levels. The price increase taking effect on July 15, 2021, puts coated freesheet close to 2018 peak levels.</li></ul> <ul type="disc"><li>Current market conditions could lead to VRS generating, in aggregate, approximately $190 million in free cash flow, or $6.42 per share, in 2021 and 2022.</li></ul>


Verso Corp. (VRS) received a non-binding takeover offer of $20 a share in cash from current shareholder Atlas Holdings LLC. The acquisition price materially undervalues VRS and the current state of its business. This is not the first time Atlas has tried to purchase VRS. Atlas had previously failed resulting in a proxy battle that eventually led VRS changing its Board of Directors. This time, the offer from Atlas could be taken seriously, but at $20 it gives shareholders no value to the current business environment VRS is benefiting from. Our investment thesis in owning VRS, and why we value the shares at $30, has been based upon the prognostication of the price appreciation for coated paper resulting in adjusted EBITDA and free cash flow materially higher than 2020 and 2019 levels. The price increase taking effect on July 15, 2021, puts coated freesheet close to 2018 peak levels. Current market conditions could lead to VRS generating, in aggregate, approximately $190 million in free cash flow, or $6.42 per share, in 2021 and 2022.

<ul>
<li>VRS accepting a buyout offer is the best-case scenario for investors.</li>
<li>VRS’s stock is trading at a premium to the $27 a share cash offer on speculation a competing bid might surface. The purchase agreement precludes VRS from soliciting other bids</li>
<li>We are concluding our recommendation by downgrading to Neutral and removing our price target</li>
</ul>


VRS accepting a buyout offer is the best-case scenario for investors.
VRS’s stock is trading at a premium to the $27 a share cash offer on speculation a competing bid might surface. The purchase agreement precludes VRS from soliciting other bids
We are concluding our recommendation by downgrading to Neutral and removing our price target


<ul>
<li>The supply shortage that has plagued the coated paper industry is expected to spill over into 2022. </li>
<li>VRS’s stock is trading at a deep discount to intrinsic value due to management dragging out the process in selling the company </li>
<li>Since the end of the third quarter, there has been tighter availability of substitutes to coated woodfree</li>
</ul>


The supply shortage that has plagued the coated paper industry is expected to spill over into 2022. 
VRS’s stock is trading at a deep discount to intrinsic value due to management dragging out the process in selling the company 
Since the end of the third quarter, there has been tighter availability of substitutes to coated woodfree


VRS: Dragged Out Process Hides Real Value

<ul type="disc"><li>
Verso Corp. (VRS) continued to operate at a more efficient rate than we were forecasting, resulting in higher profitability and cash generation. Demand for coated paper remains ahead of supply allowing VRS to pass through price increases.</li></ul> <ul type="disc"><li>We were not expecting price increases to occur so late in the year since this the time when orders are fulfilled. The industry operating rate remains over 100 percent, which gives room to raise prices.</li></ul> <ul type="disc"><li>VRS’s stock is not trading at the levels we would have expected with the balance sheet’s ballooning cash balance and the Company on pace to exceed $200 million in adjusted EBITDA this year. At the closing price of $23.38, VRS is valued at 2.5 times our 2021 yearend EV to adjusted EBITDA multiple.</li></ul> <ul type="disc"><li>VRS has yet to realize the full benefits of all announced price increases. The timing lag should result in higher 2022 earnings.</li></ul>


Verso Corp. (VRS) continued to operate at a more efficient rate than we were forecasting, resulting in higher profitability and cash generation. Demand for coated paper remains ahead of supply allowing VRS to pass through price increases. We were not expecting price increases to occur so late in the year since this the time when orders are fulfilled. The industry operating rate remains over 100 percent, which gives room to raise prices. VRS’s stock is not trading at the levels we would have expected with the balance sheet’s ballooning cash balance and the Company on pace to exceed $200 million in adjusted EBITDA this year. At the closing price of $23.38, VRS is valued at 2.5 times our 2021 yearend EV to adjusted EBITDA multiple. VRS has yet to realize the full benefits of all announced price increases. The timing lag should result in higher 2022 earnings.

VRS: EV/EBITDA Now 2.5X, Raising PT to $35

United States

Verso Corporation operates in the paper industry. The Company produces coated freesheet, coated ground wood, and uncoated super calendered papers and pulp. Verso offers its products to magazine and catalog publishers, commercial printers, specialty retail merchandisers, and paper merchants.

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