marazul Posted October 8, 2015 Share Posted October 8, 2015 No position in TDG. Scared by the leverage and valuation. Have been wrong on the name for a while, they continue performing. Link to comment Share on other sites More sharing options...
giofranchi Posted October 8, 2015 Share Posted October 8, 2015 No position in TDG. Scared by the leverage and valuation. Have been wrong on the name for a while, they continue performing. It seems to me Mr. Howley is very focused on how to use TDG’s balance sheet the best way possible… Though lots of leverage is cause for concern most of the time, I think TDG might be the exception. Of course, it is not cheap, but it has still lots of room to grow, and even with a significant contraction in the multiple it is selling for TDG might still turn out to be a good investment. This being said, I’ll now consider an investment in Heico! Thank you, Gio Link to comment Share on other sites More sharing options...
big_triece Posted October 8, 2015 Share Posted October 8, 2015 Thanks for sharing the write up on HEI, Marazul. I've been looking into the company for ~5-6 months now and agree with everything you wrote. I wanted to get your thoughts on one question surrounding the business that I have not been able to understand yet. Do you know if there are a certain number of the PMA parts that account for the bulk of the revenues / earnings? My concern is that even though they advertise having 10k+ PMA parts, they could only really be selling 20% of those. Even worse is my concern that the 20% could all be specifically for a Rolls-Royce engine (and at risk due to the power-by-the-hour contracts). In your research, have you been able to get any insight into the makeup / concentration within the PMA business? Thanks! Link to comment Share on other sites More sharing options...
marazul Posted October 8, 2015 Share Posted October 8, 2015 I don´t have a good answer. They have been diversifying away from power by the hour making small acquisitions throughout different sections of the plane. As you said, they have thousands of parts that cover various sections of the plane, not just the engine. In addition, approximately 40% of operating profit comes from the electronics group (not flight support). So my guess is that the total exposure to Rolls Royce or GE should be relatively low. I also think this management team is on top of any trend that threatens their model and they have been making adjustments. Link to comment Share on other sites More sharing options...
giofranchi Posted November 3, 2015 Share Posted November 3, 2015 I have sold some TDG today and used the proceeds + some new cash to open a position in HEI-A. Is HEI-A of lower quality than TDG? Maybe. Is its price more attractive? I think so. Is its debt load lighter? For sure. Overall, I think a good way to diversify. Cheers, Gio Link to comment Share on other sites More sharing options...
Guest Grey512 Posted November 3, 2015 Share Posted November 3, 2015 I like your thinking. The aerospace cycle is slowing down, in my opinion. We will not see the same kind of growth in the next 3-4 years as we saw in the past 3-4 years. In fact, shorting Transdigm and other names in the aerospace supply chain is not a bad idea IMO and something that I am considering putting on. Heico a less attractive short, but still more of a short than a buy at the current price (+ given my near-term industry view). Link to comment Share on other sites More sharing options...
Larry Posted November 3, 2015 Share Posted November 3, 2015 I like your thinking. The aerospace cycle is slowing down, in my opinion. We will not see the same kind of growth in the next 3-4 years as we saw in the past 3-4 years. In fact, shorting Transdigm and other names in the aerospace supply chain is not a bad idea IMO and something that I am considering putting on. Heico a less attractive short, but still more of a short than a buy at the current price (+ given my near-term industry view). What do you mean by slowing aerospace cycle? OEM, backlogs of Boeing and Airbus? Would be interesting to hear your thinking on this. Transdigm does not make much money on OEM. They make over 75% of their EBITDA on aftermarket which is basically selling spares and replacements to airliners, and as long as people are going to fly around, those planes are going to need spares to keep them operating. Link to comment Share on other sites More sharing options...
Liberty Posted November 3, 2015 Author Share Posted November 3, 2015 I like your thinking. The aerospace cycle is slowing down, in my opinion. We will not see the same kind of growth in the next 3-4 years as we saw in the past 3-4 years. In fact, shorting Transdigm and other names in the aerospace supply chain is not a bad idea IMO and something that I am considering putting on. Heico a less attractive short, but still more of a short than a buy at the current price (+ given my near-term industry view). Hi Grey, If you think the aerospace cycle is going to get ugly, wouldn't OEMs be better targets than companies that rely on aftermarket sales that are more a function of large existing installed base and RPMs? TDG, to take one example, has had some real stress tests in the past decades; it grew through 9/11 and through 2009 (the only time RPMs went down since the early 1990s). Link to comment Share on other sites More sharing options...
handycap5 Posted November 3, 2015 Share Posted November 3, 2015 I like your thinking. The aerospace cycle is slowing down, in my opinion. We will not see the same kind of growth in the next 3-4 years as we saw in the past 3-4 years. In fact, shorting Transdigm and other names in the aerospace supply chain is not a bad idea IMO and something that I am considering putting on. Heico a less attractive short, but still more of a short than a buy at the current price (+ given my near-term industry view). grey, i really would appreciate more of your bearish thoughts on the aerospace cycle, as i have some exposure on the long side. i have a knee jerk bias to expect it never to be "different this time" and all historical trend lines that look like sine waves to trend toward their average. but i've grown reasonably confident that this aerospace cycle is different, for reasons which are well known: 1) record load factors (up 15 points from 1990s), 2) length of backlog, 3) geographic diversity of backlog, 4) Asia being source of incremental demand, and how much water is over there, 5) fuel prices. please tell me why you think i am wrong. Link to comment Share on other sites More sharing options...
giofranchi Posted November 3, 2015 Share Posted November 3, 2015 wouldn't OEMs be better targets than companies that rely on aftermarket sales that are more a function of large existing installed base and RPMs? I agree. And the aerospace part of HEI-A’s business is mostly non-OEM, just like TDG’s. Cheers, Gio Link to comment Share on other sites More sharing options...
Guest Grey512 Posted November 3, 2015 Share Posted November 3, 2015 My (new) negativity on aerospace mainly stems from 1 data-point and 1 'macro' view: - Esterline and Kemet results are weakening. PCP results weren't great either (even though the read-across is not perfect) - aerospace is a capital intensive sector. Not to flog a dead horse, but I am worried about what effects de-leveraging will have on capex-intensive sectors in the coming months But I think you're right. TDG is less exposed than other value chain players like Esterline/Kemet etc. TDG is a good business. My issue is that the market fully realizes that, and continues to assign TDG a very high multiple (even before interest payments). Today *everybody* likes TDG. It's like AAPL in 2012. I do not see a large body of incremental buyers. And the considerable leverage alongside with the gradual wearing off of the market's love-story with roll-ups and all things aerospace in general, together combine to create some downside from here, IMO. Link to comment Share on other sites More sharing options...
Guest Grey512 Posted November 3, 2015 Share Posted November 3, 2015 Two more thoughts: - Intangibles/Total Assets ratio of 70% does give me some vertigo. - I was thinking about zero-based budgeting and 3G the other day as well as VRX. When you push your suppliers too hard (to lower costs) or your clients too hard (to hike prices), eventually, you're going to have to pay the piper. TDG has been incredibly successful in extracting great economic returns for itself (also amplified by leverage). In a way, putting on a short would be to bet on reversion to the mean. Link to comment Share on other sites More sharing options...
Liberty Posted November 3, 2015 Author Share Posted November 3, 2015 In a way, putting on a short would be to bet on reversion to the mean. Maybe, but keep in mind they've been using the same model successfully since 1993, so you could be waiting for a while... Link to comment Share on other sites More sharing options...
Guest Grey512 Posted November 4, 2015 Share Posted November 4, 2015 Fair point. Sorry to hijack the thread one more time. Just saw some JPM research stating that Boeing & Airbus monthly production rate currently is 20% below forecasted levels. Another bearish signal. Link to comment Share on other sites More sharing options...
big_triece Posted December 15, 2015 Share Posted December 15, 2015 http://www.globenewswire.com/newsarchive/hei/pages/news_printer.html?d=10158537&print=1 Just reported a solid 4Q. Full year operating income up 13% yoy, and operating margins grew by 130bps. Seems like concerns regarding growth were overblown. Link to comment Share on other sites More sharing options...
Liberty Posted December 21, 2015 Author Share Posted December 21, 2015 Quarter-billion acquisition for HEICO: http://www.prnewswire.com/news-releases/american-securities-announces-sale-of-robertson-fuel-systems-to-heico-for-255-million-300195732.html Link to comment Share on other sites More sharing options...
marazul Posted December 21, 2015 Share Posted December 21, 2015 Very large acquisition for them. Think they are increasing leverage by 1 turn to 2x debt/ebitda. There is still room for BS optimization. Link to comment Share on other sites More sharing options...
fisch777 Posted December 31, 2015 Share Posted December 31, 2015 Article from WSJ today discussing retrofitting commercial helicopters with fire-resistant fuel tanks, such as those made by Robertson. http://www.wsj.com/articles/helicopter-industry-changes-course-to-make-safety-improvements-1451415864 The article specifically mentions retrofits to Air Method's Airbus AS350s, which it appears are using retrofit kits co-developed by Vector (Airbus) and Robertson http://www.ainonline.com/aviation-news/business-aviation/2015-03-06/vector-cleared-handle-as350-upgrades In addition to the core military business, Heico is clearly targeting this retrofit opportunity. As the WSJ article suggests, the cost/benefit makes sense considering how many deaths/injuries occur due to fuel fires in otherwise-survivable crashes. Link to comment Share on other sites More sharing options...
big_triece Posted February 26, 2016 Share Posted February 26, 2016 http://globenewswire.com/newsroom/nitfitem/814399/en?f=22&fvtc=10&fvtv=4567 solid results to start the year. total sales and EBIT up 14% and 20%, respectively. raised guidance for the year. business as usual for these guys. Link to comment Share on other sites More sharing options...
Liberty Posted February 26, 2016 Author Share Posted February 26, 2016 Looks good to me. Guidance up 6%. Only thing I don't understand is why the super-voting share is $12-14 higher than the As, but that's not new and probably not changing soon... Link to comment Share on other sites More sharing options...
arcticfox Posted April 14, 2016 Share Posted April 14, 2016 Liberty-great question, Can you or someone else explain to me the desire to own voting stock at a premium when there is a controlling shareholder. I have been wondering this in the case of the Malone stocks too. Why not own the Lmck shares versus the Lmca shares, same thing in Disck and Disca. Any insight would be appreciated. Also went back a couple of years on the Bloomberg and noticed the super voting HEI shares have underperformed the others despite this yrs outperformance and wide spread. Link to comment Share on other sites More sharing options...
Jurgis Posted April 15, 2016 Share Posted April 15, 2016 I have been wondering this in the case of the Malone stocks too. Why not own the Lmck shares versus the Lmca shares, same thing in Disck and Disca. Any insight would be appreciated. OT. In case of Malone companies, you just flip between the share classes as spread widens and contracts. Easy money if you hold shares anyway. For Malone companies I don't see any reason for spread to be there at all, since Malone has supervoting B shares, so A's and K's are really not much different. People talk about liquidity differences being the cause of spread, but it's pretty weak argument for DISCA/K, LMCA/K IMO. Link to comment Share on other sites More sharing options...
Larry Posted April 15, 2016 Share Posted April 15, 2016 Heico is definitely a great company and I believe they have a decent runway. I was reading their old earnings transcripts a while ago and I liked what I saw. However this struck me a bit: An analyst was asking them about possible share repurchases and here's the answer from the CFO: Unidentified Analyst Okay, and then is there an accelerated buyback on the table at all? Carlos Macau Accelerated buyback, are you talking about stock buyback? Unidentified Analyst Yes, yes. Carlos Macau No, no and just to explain that further, we want to grow HEICO and buybacks shrink the company. So we feel that we would rather spend hundreds of thousands of millions expanding buying additional company, having cash flow and growth than shrinking the company. So, we’re not in the shrink mode. I just think the CFO has totally missed the idea of share repurchases. But I guess what he meant is that their priority is to do acquisition. However I dont like the idea that you can never shrink your company, per share value is the key, not the total size. But other than that there isn't really anything I dont like about them and I think they'll do well in future. Link to comment Share on other sites More sharing options...
Haasje Posted April 16, 2016 Share Posted April 16, 2016 There are various reasons why the market may perceive value in voting shares even if there is a controlling shareholder though you don't have to agree with it. Higher the frequency with which controll situation may change the more valuable they should be. I wrote an article about that situation at Goog http://seekingalpha.com/article/3346385-google-the-wider-the-discount-of-c-shares-the-more-i-prefer-them which also references a Damodaran paper, which is really the best thing I've found on the subject. Link to comment Share on other sites More sharing options...
Liberty Posted May 24, 2016 Author Share Posted May 24, 2016 This one has been doing well lately, though the A shares still are $10 cheaper apparently because they have 1/10th the votes (that discount might never close... who knows?). Reporting Q1 later this week. Not as cheap as it was, but I still expect good things from them over the long term. Link to comment Share on other sites More sharing options...
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