|Shares Out. (in M):||10||P/E||0.0x||0.0x|
|Market Cap (in $M):||82||P/FCF||0.0x||0.0x|
|Net Debt (in $M):||0||EBIT||0||0|
BZC – long
Stock price: $8.66
Market Cap: $82.3M
Cash & Equiv: $10.6M
BZC’s core business has high barriers to entry
Other key points
Valuation and financials
|Products (hoist/winch, cargo hooks)||54|
|Services (overhaul/repairs, eng services)||20|
|EBIT (excluding non-recurring)||11.6|
|Subject||a few questions|
|Entry||06/26/2012 09:54 AM|
a) This business has averaged 20% ROC (defined as EBIT/(NWC+PPE) over the last 6 years. So it looks like an average business (I think 2010 should be included btw because of the contract driven nature of this business) - despite what the high switching costs and market share + barriers to entry seem to imply. If they had so much lock-in, then perhaps they could raise prices (and thereby increase ROC) but they have apparently not been able to do so. Also, the fact that their business is contract driven (Airbus being delayed by so long), and the fact that b2b fell to 0.8 (trend since 2009 has been 1.1, 1.0, 1.0, 0.8) seems to imply that customers have some power in this relationship and their product is not so critical.
BTW B2b does not seem like a good indicator of future revenues at all. In 2009, it was 1.1, yet revenues fell by 8.5% due to lower sales to the US military.
Also, the nature of their business has not changed much over the years. So even with the huge revenue uptick expected from Airbus, is there a reason to believe that this company can generate higher ROC ? I suspect most of their projects have this kind of profit profile built in ?
So it is a reasonable business - why pay 1.5x book - we need a great price for this kind of business no ?
b) Could you explain the "engineering expense" decline a bit more ? Is this wrt projected earnings for projects as compared to r&d or just a decline in engineering expense because of better project planning ?
c) Is there a reason Mike Harlan left and the new CEO was brought in ? From their employment agreements, it certainly looks like -
Specifically, the new CEO's pay seems to be very much tied to an increase in the stock price (and his options are all struck at $8.1). In other words, he gets 400k options of which 50k exercise upon grant. But the remaining options vest 50k at a time, based upon whether the closing price of the stock over a thirty day period exceeds $8.5, $9.5, $10.5 etc. In addition, they vest ratably until May 2015.
So now his remuneration is explicitly tied to the stock price. Ok fair enough. But what is the play here ? What levers can he pull that are in his control ?
d) The two PE firms already own 57%+ of the equity giving them effective control. If they take it private, what is the play here ? There seems to be no way they can accelerate the Airbus (and) other contracts. So are there some cost efficiencies in engineering that they can realize?
e) Taking your FCF estimate of 8.5 million (they did 9.6 million OCF in 2012, 11.1 million in 2011 and 11.7 million in 2010), so lets take $10 million to be conservative. Discounting at 15% gives us an equity value of $66 million (or $76 million if we assume 2% inflation pacing growth). Since I used a lower line item, OCF, it considers debt (and taxes) but we need to negate the environmental liability from this. So it takes it down to 76-17.8 = $58.2 million. Equity value is $57 million so it seems to be fairly priced.
f) So at this price, it really seems to be that we are paying for (substantial) revenue growth from the Airbus contract ??
g) I liked the way the CEO handled the questions on the call BTW - calmly stating that he does not want to give the impression that they are capitalizing R&D and that they are not immune to DoD cutbacks.
|Subject||Tremendous Recent Volume, VN Capital|
|Entry||11/17/2013 10:19 AM|
Spence774, assuming you're still involved, wonder if you have any updated perspective and what you know of VN Capital?
There was enormous volume last week (on Nov 12th it traded 18.5x 3-month avg) primarily in a block trade for this illiquid stock and we've seen VN Capital gradually accumulate more stock (now 12.2% outstanding) but there has not been a recent filing by them or anyone else reflecting purchases made on Nov 12th.
It's notable that the Company increased the pill trigger from 12.5% to 15% last week, thereby inviting VN to own more. With Tinicum and Wynnefield owning 56%, one might infer that the Board is inviting VN to accumulate more to drive the stock higher which might set a higher base from which to claim a premium by a strategic for control. The CEO and Board are appropriately aligned to the stock price increasing. Although recent results were not great (consistent with well-documented challenges for most serving the defense industry), there seems to have been a delay from a large international order that should materialize in the next three quarters. The Compay's competitive position has not been diluted and the Airbus flows could materialize soon for the operating leverage that exists pursuant to a majority of engineering expenses occuring in advance of the Airbus orders.
Thanks in advance for your perspective.