ERA - ERA Group (spinoff)

[Olmsted]

I took a brief look at ERA group and for the life of me cannot figure out its (high) valuation.  It is a helicopter operator to the oil & gas industry, and was just spun out of SEACOR. 

 

To be generous, I lookes at its absolute peak EBITDAR (EBITDA adjusted for leases and some other items) - EBITDAR in 2011 of $86.5m.  Its enterprise value now is a market cap of 583m + 221m of long-term debt + 242m of preferred stock = $1.05b.  I didn't add in receivables and a deferred tax asset considered a current asset, but I also didn't subtract current liabilities or $198m in deferred tax liabilities.  This is EV/EBITDAR of 12.1.  Its competitors are around 8.  The comparison is further too generous since EBITDAR adjusts EBITDA for lease expenses, so to do this apples-to-apples I should have adjusted enterprise value to capitalize the leases (which I did not).  A pure EV/EBITDA is 13.5.

 

Its market cap is 2x book value.  P/E of 36 (based on 2011).

 

Seems expensive - am I missing anything?  I thought about aggressive depreciation, but that should only make earnings look worse than reality, not EBITDA.  It has a minority stake in Aeróleo, a Brazilian helicopter operator.  Perhaps investors are bullish on the offshore O&G growth opportunities there?

 

Form 10:

http://www.sec.gov/Archives/edgar/data/1525221/000152522113000008/exhibit991-eragroupincprel.htm

 

Good background on stockspinoffs.com:

http://www.stockspinoffs.com/2013/02/04/era-group-now-officially-flying-solo/

[Grahamisback]

You should read what happened to Series A and Series B preferred stocks recently  ;)

 

I think Era Group is correctly valued by Mr Market atm but SEACOR seems cheap !

[racemize]

Please keep posting these spinoffs!  I will try to contribute to these as well.

[Olmsted]

You should read what happened to Series A and Series B preferred stocks recently  ;)

 

I think Era Group is correctly valued by Mr Market atm but SEACOR seems cheap !

 

Is this what you're referring to?

 

 

Q: What will happen to Era Group’s Series A and Series B preferred stock and Class A and Class B common stock?

 

A: We currently have two classes of authorized common stock: Class A and Class B, of which only Class B common stock is outstanding, and two series of authorized preferred stock: Series A and Series B, of which only Series A preferred stock remains outstanding. SEACOR owns all of the outstanding shares of our capital stock, including our Class B common stock and our Series A preferred stock. Prior to consummation of the Series B Exchange (as defined below), SEACOR also owned all of the outstanding shares of our Series B preferred stock. On December 18, 2012, we entered into an agreement with SEACOR (the “Series B Preferred Stock Exchange Agreement”) pursuant to which SEACOR transferred to us 500,000 shares of our Series B preferred stock ($50.0 million in liquidation value) that it held in partial satisfaction for the benefit that SEACOR (and other SEACOR U.S. federal consolidated group members) will receive by applying U.S. federal net operating losses generated by us in 2012 against SEACOR group taxable income. We repurchased for cash the remaining 500,000 shares of Series B preferred stock ($50.0 million in liquidation value) outstanding not transferred to us as described in the preceding sentence for $50.0 million (the transfer and purchase collectively referred to as the “Series B Exchange”). We funded the cash repurchase with borrowings under our Revolving Credit Facility. See “Certain Relationships and Related Party Transactions—Agreements between SEACOR and Era Group Relating to the Separation—Series B Preferred Stock Exchange Agreement.” Immediately before the spin-off we will recapitalize (the “Recapitalization”) our then outstanding capital stock and will exchange our then outstanding Class B common stock and Series A preferred stock for shares of newly-issued common stock, par value $0.01 per share. Following the Recapitalization, we will have only one class of common stock issued and outstanding, and no preferred stock will be outstanding. The common stock that SEACOR receives in the Recapitalization, which will represent all of our outstanding capital stock at that time, will be the stock distributed by SEACOR in the spin-off.

 

So this means I shouldn't have included the preferred in enterprise value.  That makes it less expensive - maybe about in line with its comps.

[eclecticvalue]

The one thing that bothered me was the low cash and high debt and I think Seacor did the spinoff to offload debt which is good for them. It seems Seacor has a berkshire like mentality when running the business. So they can be worth looking at.

[Olmsted]

The one thing that bothered me was the low cash and high debt and I think Seacor did the spinoff to offload debt which is good for them. It seems Seacor has a berkshire like mentality when running the business. So they can be worth looking at.

 

They apparently have a very good track record:

 

http://brooklyninvestor.blogspot.com/2012/05/ckh-seacor-holdings-inc-annual-report.html

 

Perhaps we need to can this thread and start one for Seacor!

[Haasje]

Anyone looking at this now its back in the low twenties? I'm long because it trades pretty far below the value of its assets when it sold off after the oil price collapse. I don't think its good business for oil companies to shut down offshore rigs once they are in operation so ongoing operations shouldn't shrink too much. Low prices are definitely putting a damper on growth but because it trades at a pretty deep discount to asset value, I figure I can wait for good news while being pretty well protected.

 

It's not a very agressive investment but I think of it as a safe one with optionality. It's different from a oil play because although heli's are mainly used to service oil and gas they are actually pretty multifunctional. Love to hear your thoughts.