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TDG - Transdigm

stahleyp

By stahleyp
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  • 2 weeks later...
Oreo Newbie

Oreo

Posted
Posted

I know the bull case and I am almost certain that I will get flamed here for saying this, but i am tempted to go short here. A few put options out there that are reasonably priced; I wish they were longer-dated, though.

Preliminary rationale.

 

1. I am struggling to work out what is the normalized level of free cash flow (levered or unlevered) that this business would generate if it suddenly stopped doing acquisitions.

 

2. I also think that at some point the economic rent that TDG is extracting via its high margins will start to flow back to its customers.

 

3. At this point in the economic cycle, I'd rather bet against things that are net-levered 6x.

 

4. Some of the other actors in the value chain are struggling.

 

 

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cmlber Newbie

cmlber

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I know the bull case and I am almost certain that I will get flamed here for saying this, but i am tempted to go short here. A few put options out there that are reasonably priced; I wish they were longer-dated, though.

Preliminary rationale.

 

1. I am struggling to work out what is the normalized level of free cash flow (levered or unlevered) that this business would generate if it suddenly stopped doing acquisitions.

 

2. I also think that at some point the economic rent that TDG is extracting via its high margins will start to flow back to its customers.

 

3. At this point in the economic cycle, I'd rather bet against things that are net-levered 6x.

 

4. Some of the other actors in the value chain are struggling.

 

Good luck with that...

 

Why would you short something just because you struggle to understand steady state free cash flow?  Wouldn't you short something because you don't struggle to understand steady state free cash flow and the business is expensive based on your analysis?

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Larry Newbie

Larry

Posted
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CLEVELAND, Aug. 9, 2016 /PRNewswire/ -- TransDigm Group Incorporated (NYSE: TDG), a leading global designer, producer and supplier of highly engineered aircraft components, today reported results for the third quarter ended July 2, 2016.

 

Highlights for the third quarter include:

 

    Net sales of $797.7 million, up 15.4% from $691.4 million;

    Net income of $140.6 million, up 41.9% from $99.1 million;

    Earnings per share of $2.52, up 44.0% from $1.75;

    EBITDA As Defined of $383.9 million, up 22.7% from $312.9 million;

    Adjusted earnings per share of $3.09, up 36.7% from $2.26; and

    Upward revision to fiscal 2016 financial guidance.

 

Net sales for the quarter rose 15.4%, or $106.3 million, to $797.7 million from $691.4 million in the comparable quarter a year ago. Organic net sales growth was 8.3%.

       

 

Looks good.

 

"EBITDA As Defined as a percentage of net sales for the quarter was 48.1%."

 

Very strong margins considering all the acquisitions they've done during the past 18 months or so. Stock also at ATH.

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Guest Schwab711

Guest Schwab711

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At 10%-15% pre-tax margins this is 24x-35x P/EBT

 

TDG must have fantastic pricing power

 

Where do you get the 10-15% from?

 

I should have clarified! It's just a guess based on higher quality manufacturing/aerospace companies of similar size I've seen (BZC had roughly those margins).

 

http://quotes.morningstar.com/stock/analysis-report?t=XASE:BZC&region=usa&culture=en-US&productcode=MLE&cur=

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  • 4 weeks later...
Liberty Newbie

Liberty

Posted
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http://www.transdigm.com/phoenix.zhtml?c=196053&p=irol-newsArticle&ID=2209032

 

TransDigm Group Incorporated today announced that it is seeking to increase its existing term loan facility by an additional $650 million term loan in connection with considering whether to pay a special dividend.

 

The Company is considering paying a cash dividend in the range of $1.1 billion to $1.5 billion with the proceeds of the proposed new term loan and cash on hand. [...]

 

In connection with the proposed additional term loan and related discussions with lenders, the Company is providing an update on its preliminary expectations for certain fiscal 2016 results relative to the guidance provided on August 9, 2016 in its third quarter earnings release.  Based on these preliminary expectations the August 9, 2016 guidance still appears to be materially correct.  Based on currently available information, the Company expects fiscal 2016 EBITDA As Defined to be at or modestly above the midpoint of the previously stated guidance range and net sales to be at or slightly below the low end of the guidance range.  This information is preliminary and based on estimates for the recently completed fiscal year.  The Company plans to announce actual fiscal 2016 results on November 14, 2016.

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Larry Newbie

Larry

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I guess they had a pretty good m&a pipeline but only Young & Franklin closed so now they're (most likely) paying out this dividend (~$20-$27 per share).

 

If my math is not totally off, this would take their net debt/EBITDA quite high, around 6.7x (?) post dividend. I quickly put together some numbers,  I just used the midpoint for dividend ($1.3B). Correct me if I'm wrong there. So they are not able to do acquisitions at least for a while after this, probably tells something about the m&a pipeline right now. So management is really keeping leverage high while debt is cheap and rates haven't risen.

 

Stock is up ~25% YTD, wish I didn't sell down some of my position to buy something else while it was trading at 225 earlier this year.

 

So quiet lately here, anyone here still owning this and what do you think about the probable special dividend?

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Grenville Newbie

Grenville

Posted
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acquisition price for Young & Franklin wasn't made public

 

From the 8k on 9/6/16

 

On September 6, 2016, TransDigm Group Incorporated (NYSE: TDG) announced today that it has entered into a definitive agreement to acquire Young & Franklin Inc. (“Young & Franklin”) and its subsidiaries, including Tactair Fluid Controls Inc. (“Tactair” and collectively with Young & Franklin, the “Company”). The cash purchase price of $260 million includes approximately $73 million of tax benefits to be realized by TransDigm over a 15-year period beginning in 2016. TransDigm expects to finance the acquisition through existing cash on hand.
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cmlber Newbie

cmlber

Posted
Posted

I guess they had a pretty good m&a pipeline but only Young & Franklin closed so now they're (most likely) paying out this dividend (~$20-$27 per share).

 

If my math is not totally off, this would take their net debt/EBITDA quite high, around 6.7x (?) post dividend. I quickly put together some numbers,  I just used the midpoint for dividend ($1.3B). Correct me if I'm wrong there. So they are not able to do acquisitions at least for a while after this, probably tells something about the m&a pipeline right now. So management is really keeping leverage high while debt is cheap and rates haven't risen.

 

Stock is up ~25% YTD, wish I didn't sell down some of my position to buy something else while it was trading at 225 earlier this year.

 

So quiet lately here, anyone here still owning this and what do you think about the probable special dividend?

 

Not sure if it's right that they can't do acquisitions for a while after this (depending on your definition of a while).  If EBITDA grows 10% next year and they leverage the incremental EBITDA at the same 6.7x you calculated they'd have capacity to add $1 billion in leverage a year from now and will generate $400-500 million in that time from cash flow so that's $1.5 billion to spend in a year. 

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Liberty Newbie

Liberty

Posted
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They've deployed so much capital in the recent past that it wouldn't be the end of the world if they took a breather to integrate everything and delever naturally. But they're very opportunistic, so it'll all depend on what goes through the funnel...

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Liberty Newbie

Liberty

Posted
Posted

You're right. I probably meant like a few months from now because I recall Nick saying they have a good m&a pipeline back in conference call or analyst day. But thats true they will delever quickly.

 

You can see their historical pattern here:

 

Ct7nJnrVIAAsfup.png

 

Note how they took leverage up after the cost of debt went way down.

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Larry Newbie

Larry

Posted
Posted

Yea it seems to me that while we're still having low rates they intend to keep leverage at the levels we've been for the past years by paying more special dividends. There's probably an updated version of that graph in Septembers investor presentation.

 

What I probably meant was that if after paying the dividend they had a billion dollar opportunity (like DDC) in front of them, lets say in December, I'd guess they would have hard time getting it done.

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Liberty Newbie

Liberty

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What I probably meant was that if after paying the dividend they had a billion dollar opportunity (like DDC) in front of them, lets say in December, I'd guess they would have hard time getting it done.

 

That could be true. Hopefully during the next call they update us on how much firepower they think they would have after a dividend.

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