RDG Capital Fund Management, a shareholder of TravelCenters of America (TA), has requested that TA in a share buyback to grow travel stop chain’s stock price.
RDG announced it has delivered a letter to the TA’s Board of Directors strongly recommending a $100 million share buyback that RDG estimates would increase TA’s stock price by more than 33% to $17 per share.
RDG also commended the Board for its recently announced initiative to monetize a portion of the TA’s real estate. However, RDG believes the labyrinth of complex sale leaseback transactions has led to investor confusion, which has caused the TA’s share price to remain significantly undervalued.
RDG noted that TA trades at a 2015 estimated P/E multiple of just 12.9x, a material discount to its fuel and convenience store industry peer group median of 23.1x. This mispricing creates a share buyback opportunity that can increase both earnings per share and net asset value per share while demonstrating the Board’s confidence in management’s ability to successfully execute the TA’s business plan.
Following the recommended stock buyback, RDG believes TA would still have ample debt service coverage and liquidity to continue to fund the company’s growth through acquisition and greenfield development.
Furthermore, even after the recent series of sale leaseback transactions, RDG estimated that TA still owns real estate worth more than $400 million, which provides a significant source of future liquidity to replenish cash spent on an opportunistic stock buyback.
RDG has asked the Board to seriously consider this recommendation and act quickly to take advantage of the TA’s undervalued stock for the benefit of all shareholders.