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Tuesday, April 30, 2013

Erickson Air-Crane Successful Acquisition Financing Has It Poised To Take Off

Last week I wrote an article on Erickson Air-Crane (EAC) titled:

"Why Erickson Air-Crane Could Double In 2013". READ ARTICLE

Since then EAC has secured financing for two major acquisitions that places a value on this Company of more than double the current share price. I will look at this valuation based on EV/EBITDA and P/E Ratio on EPS with the closest comps I can find:

Bristow Group, Inc. (BRS), Seacor Holdings Inc. (CKH), and Air Methods Corp. (AIRM). AIRM is mainly medical air transport services so it is the least closest comp of the three.

In March of 2013, EAC announced two acquisitions that would more than double the size of its company. These acquisitions will be immediately accretive and are expected to close in Q2 of 2013. The headlines of the press release stated, "Transformative, Accretive Acquisition of Global, Diversified Air Services Business. Acquisition Would Double the Size of the company." EAC did $180 million of revenue and $44.5 million of EBITDA on its own in 2012. It stated that had it owned both of these acquisitions in 2012, it would have done $430 million in revenue and 25% EBITDA margins or $108 million in EBITDA.

In the article that announced the acquisitions, the CEO Udo Rieder commented, "We believe that there are significant opportunities for incremental growth and efficiency embedded within the global operational platform we are assembling". These are amazing numbers on a pro forma 2012 basis and then the CEO mentions incremental growth and synergies going forward beyond 2012.

The company had approximately 9.7 million shares outstanding and a float of 2.8 million shares prior to this these transactions. The company is only diluting the outstanding shares by 4 million preferred shares equivalent with these transactions, leaving them with approximately 13.7 million fully diluted shares and a float under 3 million. The rest of the financing of these acquisitions is coming from secured bank debt the company raised last week and does not dilute the shares outstanding.

The forward numbers are astounding when you compare to similar companies in the air services segment:

PE Ratio

Bristow Group, Inc. (BRS) has a current PE of 16.4. The stock price is $62.51 and the current year EPS estimate is $3.81

Seacor Holdings Inc. (CKH) has a current PE of 16.6. The stock price is $72.91 and the current year EPS estimate is $4.39

Air Methods Corp. (AIRM) (which is not a direct comp because they do hospital air services) has a current PE of 16.6. The stock price is $37.14 and the current year EPS estimate is $2.24.

EAC as a standalone did $1.54 EPS last year in FY 2012 (more than doubling their original guidance). These two acquisitions would more than double the Company. EAC stand alone EBITDA was $44mm and it would have been approximately $108mm on a pro forma basis with these two acquisitions in 2012. It is clear that with the higher margin business EAC EPS would have been approximately $3 per share in FY 2012. That is in between the $37 stock AIRM $2.24 EPS estimate and not far from the $62.51 stock BRS $3.81 EPS estimate. The middle of those two stock prices is $49.76.

If I apply the 16.5 P/E ration of the comps to $3 EPS I get an EAC share price of $49.50.

EV/EBITDA

Bristow Group, Inc. (BRS) has a market cap of $2.2 billion + $900 million of debt divided by $294 million of EBITDA = 10.65 EBITDA multiple.

Seacor Holdings Inc. (CKH) has a market cap of $1.5 billion + $967 million of debt divided by $235 million of EBITDA = 10.5 EBITDA multiple.

Air Methods Corp. (AIRM) (which is not a direct comp because they do hospital air services) has a market cap of $1.4 billion + $648 million of debt divided by $263 million of EBITDA = 8 EBITDA multiple.

If I take EAC 2012 pro forma numbers:

$108 million of EBITDA X 8 - $400m of Debt = $464 million divided by $13.7 million shares outstanding = $33.87 per share.

$108 million of EBITDA X 10 - $400m of Debt = $680 million divided by $13.7 million shares outstanding = $49.64 per share.

Someone told me they read an article yesterday where someone modeled an EV/EBITDA for EAC of $22 going forward. Well to back in to that number you would have to take EBITDA down to $87mm when management said it was approximately $108mm in 2012 and spoke of growth going forward. When you look at the facts and comps, EAC may be the best value that has yet to be discovered in the market in my opinion.

Keep in mind this is based on 2012 Pro Forma numbers. If you factor in the fact that the CEO said he sees incremental growth and efficiencies (higher EBITDA margin) potential going forward beyond 2012, you can see why EAC is grossly undervalued and as I stated in my last article, could more than double in 2103 once the street realizes these numbers. Disclosure: I am long EAC.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

No comments:

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