PRXI: A SIMPLE SITUATION EQUALING A SIMPLE OPPORTUNITY
PRXI position taken between 2.56-2.60 on 11/19/12 - 11/20/12
This is as extraordinarily simple a research report as can be. There are no complicated tax situations, post bankruptcy, creating a potential value proposition a la WMIH. There are no worries about whether a particular technology will be accepted in the marketplace a la PXLW. There are no industry advancements that create a window of opportunity for the company a la SPNS. And there surely are no complicated patent issues that need to be decided in a court of law in various states before value can be created a la UPIP.
PRXI is about as old economy a company as you can get. Literally. Here is a description of their business:
Premier Exhibitions, Inc. presents museum quality touring exhibitions worldwide. The company develops, deploys, operates, and presents exhibition products in exhibition centers, museums, and non-traditional venues. It operates and manages exhibitions, including Titanic: The Artifact Exhibition, which features the artifacts recovered from the wreck site; Bodies...The Exhibition and Bodies Revealed that displays multiple human anatomy sets, which contains a collection of whole human body specimens, single human organs, and body parts; and Dialog in the Dark that provides insight and experience to the paradox of learning to see without the use of sight. The company also sells exclusively sourced merchandise, such as apparel, posters, gifts, and Titanic-related jewelry; publishes exhibition catalogs; and provides ancillary services, including audio tours and visitor exhibition themed photographs through its exhibition gift shops. In addition, it sells Titanic themed and show related merchandise at thetitanicstore.com. Further, the company has the rights to present four exhibitions, including Tutankhamun and the Golden Age of the Pharaohs that consists of possessions unearthed from Tutankhamun's tomb, such as King Tut's golden canopic coffinette and the crown found on his head when the tomb was discovered; Cleopatra: The Exhibition, which offers artifacts and multi-media atmospheres from Cleopatras world; Real Pirates that features authentic items recovered from the Whydah real treasure last touched by real pirates; and America I AM: The African American Imprint. Premier Exhibitions, Inc. was founded in 1987 and is based in Atlanta, Georgia.
That's right. Internet, metals, oil and banking be damned. I prefer a company that runs museum exhibits. Not because there will be a sudden onslaught of young men abandoning Call of Duty so that they can see an exhibit about the Pharaohs. Kids aren't about to start bugging their parents to take them to an exhibit about the Titanic either. Completely vanilla industry, with little in the way of growth prospects. I know.
I'm not buying this because I like the museum business. I am buying this company because their museum business is solid AND they have an asset in the process of being sold that, at a minimum, makes this a very low risk investment, with 80% plus upside from current levels.
Here is what investors have in PRXI:
1. An operating business that has earned close to $4 million in net profit over the first six months of their fiscal year. Adjusted EBITDA of over $7 million during the same period. For the first three-month period ending August 31, total revenues increased by $5.2 million, or 63% to $13.4 million from $8.2 million last year. Net income was $2.8 million, or $0.06 per diluted share on a share base of $49.1 million, which compared to a net loss of $1.8 million, or $0.4 per diluted share in the second quarter of 2012. Operating cash flow of $4.1 million for the first 6 months of the year versus $1.1 million.
There has obviously been quite a bit of positive momentum at the company over the past couple of quarters.
How does this affect the company from a valuation standpoint? Apart from the "Titanic Assets", which I will get to shortly, the operating business alone is worth $70 million using a 10X multiple given the old economy nature of the business.
Total market cap for the company is $124 million based on a $2.59 share price. We have $70 million of that accounted for in the core business based on a very average multiple to earnings. The next point will explain why this company is selling at a bargain price.
2. PRXI has a LOI from a group of investors interested in purchasing its Titanic assets for $189 million. PRXI owns a variety of artifacts from the Titanic. This is a tax advantaged sale, meaning that the standard corporate tax will not apply. It is unclear what the tax rate will be. I don't believe it will exceed 20%. Assuming a 20% tax rate (I believe this is on the high end), you get a value of $151 million for the Titanic assets.
Take the $151 million for the Titanic assets and the value of the operating business $70 million = $221 million. Roughly $4.60 as fair value for the company.
What are the risks?
- The biggest risk is that the Titanic sale could fall through. They have been attempting to liquidate this asset for sometime. Economic uncertainty won't help the cause either. I don't know of many people who enjoy putting money to work in artifacts when their wealth is evaporating. It is imperative that the economy at least remain stable in order to facilitate this transaction.
- The tax rate on the sale may not be as "advantaged" as anticipated. This simply takes away some of the icing on top the cake. It doesn't take away the whole cake. Perhaps a value of $4-4.20 worst case?
Downside risk here, in case of the Titanic sale falling through, is roughly 25% versus the potential for an 80% gain based on fair valuation, possibly more.
Here is a technical look at the company:
PRXI
