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Tuesday, May 21, 2013
Monday, May 20, 2013
Three of the last stocks I have written articles about have seen significant price appreciation because they were undervalued, in my opinion:
MER Telemanagement Solutions Ltd (MTSL) went from the $2 range to the $5 range when I said it would double. (They subsequently lost a major customer for 2014 on after they had renewed for 2013.)
Ikonics Corp (IKNK) has doubled from $8 to the $16 area where it remains.
Erickson Air-Crane Incorporated (EAC) has gone from $18 to $29.25 and closed just under $27 today.
I am constantly searching for undervalued companies. I believe I have found the next stock that should be more than double the current price when you compare its numbers to the valuation of its industry.
Flanigan's Enterprises Inc. (BDL), operates a chain of full-service restaurants and package liquor stores in south Florida. The company operates restaurants under its Flanigans Seafood Bar and Grill service mark that provide alcoholic beverages and full food service; and package liquor stores under its Big Daddys Liquors service mark, which offer private label liquors, beer, and wines.
For their Fiscal Year 2012, BDL reported $0.76 EPS that included $0.10 in charges due to the one time start up costs of a new store. So the business, had an EPS run rate of $0.86 in Fiscal 2012.
For the trailing twelve months, BDL reported $0.90 EPS that included $0.28 in charges due to the one time start up costs of a new store. So the business, had an EPS run rate of $1.18 for the trailing twelve months.
For the first two quarters Fiscal Year 2013, BDL reported $0.59 EPS that included $0.18 in charges due to the one time start up costs of a new store. So the business, had an EPS run rate of $0.86 for the first two fiscal quarters of this year. This last quarter they reported $0.40 EPS.
They stated in the last 10-Q, "During the next twelve months, we expect that our restaurant food and bar sales will increase".
The restaurant sector has an average P/E ratio of 22.10. If i take the trailing twelve months of adjusted EPS of $1.18 X 22.10, that equals a share price of $26.08 versus the $11.11 where it closed today. If I conservatively assume they can grow adjusted EPS to $1.40 this year, (since they are already at about the same adjusted EPS level of all of Fiscal 2012 after the first two quarters in Fiscal 2013) then at the industry average P/E ratio that equals a share price of $30.94.
Potential risks include general economic weakness potential and higher food costs. BDL has had what seems to me to be conservative boilerplate warnings about higher food costs adversely effecting gross profit and income for the last 6 quarters that i looked at. However gross profit % was 65.54% in Fiscal 2012 versus 65.64% in Fiscal 2011. Additionally, gross profit % was 64.54% in the first six months of Fiscal 2013 versus 65.03% in the first six months of Fiscal 2012. So for all the quarterly warnings, gross profit % does not seem to move that much and should be mitigated by the expected higher sales in my opinion. Lastly, BDL has a float of approximately 600k shares. A stock with this small a float should not be chased and in my opinion is not for large positions.
It is my opinion that BDL is significantly undervalued when compared to its peer group. Applying the industry P/E ration just to the trailing twelve months adjusted EPS gets you a share price of $26.08 versus the $11.11 where it closed today. I think using trailing twelve months EPS is very conservative given the growth and expected higher sales. Combined with the fact that BDL has a tiny float of approximately 600k and outstanding shares of only 1.86 million, this stock could rapidly appreciate to a point where it is more fairly valued compared to its peers.
Monday, May 13, 2013
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.
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