Thread by @Plum_Capital

Thread for my largest position $ATTO - the latest Substack post went out yesterday afternoon, will link in thread below. Encourage any interested Fintwit to read the post in full, but here is the TL:DR version. Enjoy...

$ATTO - Atento is a leading CRM/BPO player in LATAM, with a growing presence in the US and EMEA as well. This is a $400mm market cap, $200mm EBITDA (pre-leases) business that is relatively unknown to the value community, one that I'd readily characterize as a "hidden gem".

Company is very undervalued, only trading at ~5.2x EV/EBITDA on 2022 guidance, with ~20% FCF yield on market cap based on next year's numbers. Checks all the obvious "value" boxes.

There is a rockstar management team leading the charge, they arrived in 2019 and immediately set up a 3-year biz improvement plan. They are executing well, on target to reach 14-15% EBITDA margin by 2022.

Based on YTD'21 progress and my conversations with management, I am of the personal view that targets are highly sandbagged, and likely to be revised upwards at some point within the next 6 months. Quarterly progression will be too hard to ignore

The results will come from aggressive cost cutting (still a lot of fat and unnecessary costs - i.e. "low hanging fruit") and rolling off of legacy low-margin contracts which will be replaced by higher-margin contracts with more value add CX components

Now the sexier angle - the business is majority owned by unnatural holders (i.e. creditors) who have held this more than 7 years - HPS/GIC/Farallon are keen to sell the asset to a strategic (in my view) and will likely put the business up for sale within the next 12-18 months

And I think the only case where strategic alternatives are delayed is if the underlying rev/EBITDA growth is so strong that they prefer to wait a year or two before selling (definitely possible in my view!)

Given creditors' cost basis (around $55/share right now) and the accretion math for a strategic buyer, I think $50-55/share is the absolute floor in a sale.

Optics are important, and I think any reasonable takeover premium dictates potentially a much higher per share outcome if the stock already trades at a higher level pre buyout. Reflexivity at work in practice!

Finally, the float dynamics are really interesting. There are only ~8% of shares available of the total outstanding #, because the rest are locked up by the Big 3 or held by other strong hands.

And since publication (just yesterday!!), a lot of shareholders are reaching out to me that I did not know before. That 8% free trading shares may really be something like 5-7% in reality given other strong hands potentially out there that are unknown

I think 3Q earnings will be strong, and there's an Investor Day coming up in November in which further guidance or additional disclosure about business performance may be released (I am speculating, no guarantees of course)

It is my view that it's a matter of time before a nimble HF or a family office comes into sweep all the remaining shares. Given how tight the float is, I'd have to imagine that we find ourselves in $40+/share territory very quickly, in 2-3 months or less

If the Company executes well and sells to a strategic in the next 12-18 months, I think $75+/share is easily possible, and sky is the limit if the strategic buyer can underwrite to a lot of synergies and go-forward organic growth. But even $40-50/share is a massive win from here

As always, DYODD! My work is definitely not financial advice! Please see below for the full writeup

plumcapital.substack.com/p/atto-classic…