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Monday, May 13, 2013

EAC Updates Guidance - Why Shares Should Be Valued At $40-$60

Much has happened with Erickson-Air Crane (EAC) since I posted this article on April 25th discussing why the Company's shares could double in 2013. EAC Article

The Company has rapidly closed on the acquisition debt financing, received a $100mm credit facility, and completed the largest of two acquisitions that by their own words were "transformative and would double the size of the Company".

Additionally, on last Thursday, May 9th, EAC reported record first quarter revenues and earnings. They also provided guidance on what they termed the significant accretive acquisition of EHI for fiscal 2013 both on a GAAP basis and a Pro Forma basis as if they owned them for all of 2013.

"On a pro forma basis, as if the acquisition and associated financing had occurred on January 1, 2013, the Company expects full year revenues in the range of $385 to $395 million and Adjusted EBITDA for the full year in the range of $108 to $116 million."

The Company noted that its guidance also does not yet include any effect from the planned but still pending acquisition of Air Amazonia from HRT. However on the conference call they did note that from a guaranteed contract they expect annual revenues of $50 million at an EBITDA margin of approximately 25% from Air Amazonia.

It is important to note that with both of these acquisitions, they are bringing in these numbers only using approximately 50% capacity of the aircraft, so there is significant room for upside. The CEO said on the conference call that they are excited about the additional opportunities they are seeing. So there represents upside to the numbers if EAC can win new business and keep existing customers happy.

So I will now update my numbers and price targets compared to similar companies, based on the guidance from EAC.

Bristow Group, Inc. (BRS) has a market cap of $2.3 billion + $900 million of debt divided by $294 million of EBITDA = 11.02 EBITDA multiple.

Seacor Holdings Inc. (CKH) has a market cap of $1.5 billion + $678 million of debt divided by $211 million of EBITDA = 10.3 EBITDA multiple.

Air Methods Corp. (AIRM) has a market cap of $1.4 billion + $663 million of debt divided by $233 million of EBITDA = 8.9 EBITDA multiple.

PHI Inc. (PHII) has a market cap of $511 million + $379 million of debt divided by $119 million of EBITDA = 7.5 EBITDA multiple.

If I take the mid-point of the EAC 2013 pro forma guidance of $112.5 million and conservatively assume no growth in Air Amazonia so I add $12.5mm of EBITDA they expect from that acquisition we have $125mm of EBITDA:

$125 million of EBITDA X 8 - $400 million of debt = $600 million divided by $13.7 million shares outstanding = $43.80 per share.

$125 million of EBITDA X 10 - $400 million of debt = $850 million divided by $13.7 million shares outstanding = $62.04 per share.

The average EBITDA multiple of the 4 similar companies is 9.4. That would imply a valuation of $56.57 per share.

I would recommend reading the top presentation link here titled, "Erickson Evergreen Acquisition slides" to get a full grasp of the potential of this new company.

Potential risks generally include challenges in integrating the acquisitions. However on the call the Company said this is going very well at this point.

To me EAC represents a unique opportunity where a Company made two very accretive acquisitions at a great price, doubling the size of their Company. The street and the stock price have yet to factor in the new Erickson-Air Crane guidance. You can see that the numbers are clear. Once the street does the math, EAC should be a $40-60 stock based on these numbers and share count compared to the valuation of similar companies. With a float of under 3 million, this could even accelerate a move once these numbers are discovered.

This article is not investment advice.

No comments:

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