TDG - Transdigm

[elevensecsrt4]

I actually bought a small position as I continue to research the company further.

Insiders seem to love it at this level. I plan on holding for very long term. And like that the dividends usually lower overall per share cost, under the way they describe part of the dividend payment return of capital. Well run company, but not cheap.

[Liberty]

http://www.transdigm.com/phoenix.zhtml?c=196053&p=irol-newsArticle&ID=1989275

 

Highlights for the quarter and fiscal year include:

 

Fourth quarter net sales of $642.2 million, up 19.0% from $539.7 million;

Fourth quarter EBITDA As Defined of $291.1 million, up 17.3% from $248.2 million;

Fourth quarter adjusted earnings per share of $2.21, up 26.3% from $1.75;

Fiscal 2014 net sales of $2,372.9 million, up 23.3% from $1,924.4 million;

Fiscal 2014 EBITDA As Defined of $1,073.2 million, up 19.2% from $900.3 million;

Fiscal 2014 net income of $306.9 million, up 1.4% from $302.8 million;

Fiscal 2014 earnings per share of $3.16, up 32.2% from $2.39; and

Fiscal 2014 adjusted earnings per share of $7.76, up 12.5% from $6.90.

 

There's also been some new about the COO:

 

http://www.transdigm.com/phoenix.zhtml?c=196053&p=irol-newsArticle&ID=1976928

 

http://www.transdigm.com/phoenix.zhtml?c=196053&p=irol-newsArticle&ID=1976929

[muscleman]

My big concern with an investment here: they have achieved tremendous success in rolling up the "long tail" of niche, sole-source parts suppliers.  How much runway does this strategy have left?  How many attractive roll-up candidates are still out there?  The price reflects continued growth.

 

I think they have a huge M&A runway. The industry is gigantic if you take into account both the commercial and defense side. They barely have started buying businesses HQ'ed outside of the US (they have 4 businesses in Europe, but I think 3 came with other businesses, only one - the most recent EME acquisition - was directly acquired in Germany).

 

In many of their investor day presentations they have slides that show how many potential acquisitions targets they estimate are out there (and what proportion is of what revenue size and EBITDA margins). Looks like a huge fishing pond.

 

Maybe it'll become a problem in 10-15 years, I don't know, but I don't see it for the foreseeable future...

 

How much additional growth room would you expect? Any quantitative guess?

AMZN for example, I could say that the current online sales/total retail sales is less than 1%, so there is probably a lot of growth in the future.

But how about this after market plane parts business?

[Liberty]

I can't say quantitatively. Multiples of the current size is probably right. This is a really huge industry.

 

But it's not with the top line that shareholders will be paid anyway, it's with per share FCF. The way they shrink the equity with huge special dividends and buy back shares, it's clear that they aren't empire-building and trying to swallow everything in sight, they care about per share returns and have high hurdles.

[muscleman]

I can't say quantitatively. Multiples of the current size is probably right. This is a really huge industry.

 

But it's not with the top line that shareholders will be paid anyway, it's with per share FCF. The way they shrink the equity with huge special dividends and buy back shares, it's clear that they aren't empire-building and trying to swallow everything in sight, they care about per share returns and have high hurdles.

 

That's true. Why did they buy back shares at the lofty 20 x pe this year? Is that an attempt to push up the stock price so they can get their options vested, or it really justifies the valuation?

They said the FCF is about 55% of EBITDA. How would I verify that is the case? Their machines will depreciate and needs maintainence capex for sure, but how much would that be?

[Liberty]

I can't say quantitatively. Multiples of the current size is probably right. This is a really huge industry.

 

But it's not with the top line that shareholders will be paid anyway, it's with per share FCF. The way they shrink the equity with huge special dividends and buy back shares, it's clear that they aren't empire-building and trying to swallow everything in sight, they care about per share returns and have high hurdles.

 

That's true. Why did they buy back shares at the lofty 20 x pe this year? Is that an attempt to push up the stock price so they can get their options vested, or it really justifies the valuation?

They said the FCF is about 55% of EBITDA. How would I verify that is the case? Their machines will depreciate and needs maintainence capex for sure, but how much would that be?

 

How about reading the 10Ks and transcripts of calls and investor days?

[muscleman]

I actually bought a small position as I continue to research the company further.

Insiders seem to love it at this level. I plan on holding for very long term. And like that the dividends usually lower overall per share cost, under the way they describe part of the dividend payment return of capital. Well run company, but not cheap.

 

What's your thoughts upon your research? I can't figure out how much more growth they have.

[rishig]

I actually bought a small position as I continue to research the company further.

Insiders seem to love it at this level. I plan on holding for very long term. And like that the dividends usually lower overall per share cost, under the way they describe part of the dividend payment return of capital. Well run company, but not cheap.

 

What's your thoughts upon your research? I can't figure out how much more growth they have.

 

Has anyone looked at smaller aero supplier companies like Meggitt PLC and MTU Aero Engines. The same economics that apply to the Transdigm companies apply here (mostly, other than the private equity style of TDG) - single source supplier of a component, great margin on aftermarket division, long stream of recurring revenues through aftermarket. In fact, these smaller companies are possible acquisition targets for Transdigm (GE aero ..). I think the problem is that everyone recognizes this is a great business and very very rarely they become cheap.

[Liberty]

Quarter is out. Looks good to me. If they hadn't done the special dividend and their interest costs were the same YoY, net income would be up around 30%, which shows the underlying earning power.

 

http://www.transdigm.com/phoenix.zhtml?c=196053&p=irol-newsArticle&ID=2010768

 

Net sales of $586.9 million, up 10.9% from $529.3 million;

EBITDA As Defined of $269.7 million, up 10.7% from $243.6 million;

Net income of $95.5 million, up 10.9% from $86.1 million;

Earnings per share of $1.63, up 13.2% from $1.44;

Adjusted earnings per share of $1.80, up 8.4% from $1.66; and

Reaffirms previously stated Fiscal 2015 financial guidance.

 

Here's the audio of the call if anyone wants it:

 

https://www.dropbox.com/s/aiqygqjwul72s8x/2015-Q1-TDG-CC.m4a?dl=0

[muscleman]

Nice EPS growth. 30 P/E seems to high to me though to buy. :(

[Liberty]

Nice EPS growth. 30 P/E seems to high to me though to buy. :(

 

I wouldn't value it on EPS. FCF is where it's at.

[Guest Schwab711]

Quarter is out. Looks good to me. If they hadn't done the special dividend and their interest costs were the same YoY, net income would be up around 30%, which shows the underlying earning power.

 

http://www.transdigm.com/phoenix.zhtml?c=196053&p=irol-newsArticle&ID=2010768

 

Net sales of $586.9 million, up 10.9% from $529.3 million;

EBITDA As Defined of $269.7 million, up 10.7% from $243.6 million;

Net income of $95.5 million, up 10.9% from $86.1 million;

Earnings per share of $1.63, up 13.2% from $1.44;

Adjusted earnings per share of $1.80, up 8.4% from $1.66; and

Reaffirms previously stated Fiscal 2015 financial guidance.

 

Here's the audio of the call if anyone wants it:

 

https://www.dropbox.com/s/aiqygqjwul72s8x/2015-Q1-TDG-CC.m4a?dl=0

 

To channel my inner Hank Hill, "yup". I have current Owners Earnings or FCF Potential (whatever we want to call it) at ~$10/sh for 2015. My only issue preventing me from buying is the relatively higher Debt/Capital compared to recent years while P/FCF is still ~20 which will put future special dividends out at least a couple years in my opinion.

[moatsandvalue]

Hi all,

Has anyone taken a look to Heico? Similar economics than TDG, but without debt. Business growing 15-20% anually.

 

[Liberty]

http://www.transdigm.com/phoenix.zhtml?c=196053&p=irol-newsArticle&ID=2018861

 

TransDigm Group Incorporated (NYSE: TDG) announced today a definitive agreement to purchase the Telair Cargo Group of businesses ("Telair"), a global leader in aerospace on-board cargo loading and handling, restraint systems and unit load devices from AAR CORP. (NYSE: AIR), for a total purchase price of approximately $725 million in cash, subject to adjustment. TransDigm expects to finance the acquisition through existing cash on hand and possible use of its existing revolving credit facility.

 

Telair revenues are anticipated to be about $300 million with EBITDA margins approaching 20% for fiscal year ending May 2015. Over 80% of revenues are from the commercial aerospace market with the balance from the military aerospace market. Approximately 45% of revenues come from the aftermarket, primarily commercial transport and cargo aircraft. Approximately 95% of the revenues are from proprietary products with about 80% sold on a sole source basis. The business consists of three major operating units, Telair International GmbH ("Telair Europe"), Nordisk Aviation Products, AS ("Nordisk") and AAR Cargo Systems ("Telair US"). The business employs just over 600 employees in its various locations worldwide.

 

Telair Europe, the largest operating unit in Telair and headquartered in Miesbach, Germany, accounts for approximately 60% of the revenues and a higher percentage of the profits. Telair Europe is a market leader in the design, manufacture and support of complete on-board baggage and cargo loading and handling systems for wide-body and narrow-body aircraft worldwide. Since its inception, it has developed long-standing relationships with Airbus and Boeing, resulting in a substantial installed base of systems worldwide as well as positions on a broad range of new and existing aircraft. Major platforms include the A320 family, A330/A340, A350, B747-8 I/F, B737-6/7/8/900 and the CRJ 700/900/1000.

 

Nordisk, headquartered in Holmestrand, Norway, is the market leader in the design, engineering, and manufacture of innovative and cost-effective unit load devices. Offering lower and main deck containers, special purpose pallets and platforms, Nordisk products are in service with nearly every airline or dedicated freight company.

 

Telair US, headquartered in Goldsboro, North Carolina, is also a supplier, designer and manufacturer of in-aircraft cargo loading systems and components for a variety of commercial and military platforms including passenger to freighter conversions. Major platforms include the A400M, B767F and XC-2, as well as A300 modifications.

 

"This is another sizable acquisition opportunity that meets our strategic, operational and value-creation criteria," stated W. Nicholas Howley, TransDigm's Chairman and Chief Executive Officer. "We are pleased with the opportunity to acquire a business of this size that so closely meets our business model. Telair has built a leading worldwide positon in cargo handling equipment and related aftermarket. The products are primarily highly engineered and proprietary. The business has a significant and growing aftermarket. They have continually invested in new platforms and are positioned for growth as the commercial aerospace and cargo markets continue to expand."

 

Mr. Howley continued, "We anticipate that the revenue run rate will be relatively flat for the first 12 to 18 months due to significant A400M shipments in fiscal year 2015 that will not fully repeat in fiscal year 2016. This should be offset by growth in other areas in fiscal 2016. The ramp up in A350 shipments will begin to contribute meaningfully beyond that. As with all of our acquisitions, we see opportunities for private equity like value creation for our shareholders from this transaction."

 

"We are confident that TransDigm's leadership will ensure a strong future for the Telair group, its employees and customers," said David P. Storch, Chairman and Chief Executive Officer of AAR.  "TransDigm is a leading global designer, producer and supplier of highly engineered aircraft components, systems and subsystems for use on nearly all commercial and military aircraft in service today."

 

The acquisition, which is expected to close within the next sixty days, is subject to regulatory approvals and customary closing conditions.

[loganc]

It appears that the Telair deal closed.  Any comments about lower EBITDA margins of Telair as compared with the current TDG business mix?  Is there any reason to expect improved margins at Telair going forward?

[Liberty]

They usually improve the margins of what they buy, though I don't know if they'll be able to bring this one all the way up to their average (seems like a tall order).

[magno111]

They usually improve the margins of what they buy, though I don't know if they'll be able to bring this one all the way up to their average (seems like a tall order).

 

do you know how they improve margins with their acquisitions?

[Gamecock-YT]

Watch their latest investor day presentation on their website. Spells it out quite clearly.

[Liberty]

Another acquisition, this time smaller:

 

http://www.transdigm.com/phoenix.zhtml?c=196053&p=irol-newsArticle&ID=2031444

 

Nice that it's in Europe again. At the investor day (iirc) they were talking about how they had new people looking for deals in Europe and planned to be more active there.

 

TransDigm Group Incorporated (NYSE: TDG) announced today that it acquired the aerospace business of Franke Aquarotter GmbH ("the Company") for approximately $75 million in cash on March 31, 2015.

 

The Company, whose name going forward will be Adams Rite Aerospace GmbH, is located in Ludwigsfelde, Germany and employs approximately 50 people.  The Company manufactures proprietary faucets and related products for use on commercial transports and regional jets.  Major platforms include the Airbus A320, A330, A380 and Bombardier and Embraer regional jets.  Approximately 65% of revenue is derived from the commercial aftermarket and almost all revenue is proprietary and sole source.

 

W. Nicholas Howley, Chairman and CEO of TransDigm Group Incorporated, stated, "Franke Aquarotter has long been a premier manufacturer of proprietary lavatory products with established positions on high use platforms, significant aftermarket content and an outstanding reputation. The highly engineered products are used on almost every Airbus commercial transport platform. The business fits well with TransDigm and will be combined with our Adams Rite lavatory product line in Fullerton, California. As with all TransDigm acquisitions, we see opportunities for significant value creation through our proven value creation methodology."

[Guest Schwab711]

Another acquisition, this time smaller:

 

http://www.transdigm.com/phoenix.zhtml?c=196053&p=irol-newsArticle&ID=2031444

 

Nice that it's in Europe again. At the investor day (iirc) they were talking about how they had new people looking for deals in Europe and planned to be more active there.

 

TransDigm Group Incorporated (NYSE: TDG) announced today that it acquired the aerospace business of Franke Aquarotter GmbH ("the Company") for approximately $75 million in cash on March 31, 2015.

 

The Company, whose name going forward will be Adams Rite Aerospace GmbH, is located in Ludwigsfelde, Germany and employs approximately 50 people.  The Company manufactures proprietary faucets and related products for use on commercial transports and regional jets.  Major platforms include the Airbus A320, A330, A380 and Bombardier and Embraer regional jets.  Approximately 65% of revenue is derived from the commercial aftermarket and almost all revenue is proprietary and sole source.

 

W. Nicholas Howley, Chairman and CEO of TransDigm Group Incorporated, stated, "Franke Aquarotter has long been a premier manufacturer of proprietary lavatory products with established positions on high use platforms, significant aftermarket content and an outstanding reputation. The highly engineered products are used on almost every Airbus commercial transport platform. The business fits well with TransDigm and will be combined with our Adams Rite lavatory product line in Fullerton, California. As with all TransDigm acquisitions, we see opportunities for significant value creation through our proven value creation methodology."

 

 

GIGA looks like it could be a future acquisition target. It's really small ($8m MC) but that doesn't seem to scare them off.

 

 

Also, I recently wrote about TDG. Would definitely be interested to hear critiques on my writing. I'm trying to write more now that I have more time and it is certainly not a strength just yet. :)

http://seekingalpha.com/article/3042866-transdigm-when-is-a-large-moat-worth-more-than-30x-earnings

[Jurgis]

I'd love to buy stock in this company. However, it is expensive.

 

You are somewhat right that you can rationalize the expensiveness and make a case for OKish returns going forward.

 

But then why does management issue special divvies and not share buybacks? Assuming they are smart - and we all think so I believe - they probably do this because they believe the shares to be overvalued.

 

Great company, high price. But, yes, waiting so far meant lost opportunity.

[Liberty]

Also, I recently wrote about TDG. Would definitely be interested to hear critiques on my writing. I'm trying to write more now that I have more time and it is certainly not a strength just yet. :)

http://seekingalpha.com/article/3042866-transdigm-when-is-a-large-moat-worth-more-than-30x-earnings

 

So that was you! I saw it, but only had time to skim it. Seemed like a good overview.

[Liberty]

But then why does management issue special divvies and not share buybacks? Assuming they are smart - and we all think so I believe - they probably do this because they believe the shares to be overvalued.

 

Great company, high price. But, yes, waiting so far meant lost opportunity.

 

They did do some buybacks recently, but they've mentioned previously that they like special dividends because they can get a return of capital treatment for most of them, so taxes aren't too bad, and buybacks have a high execution risk. Their stock isn't exactly standing still, so if you want to do a return of capital  of the size that they've been doing (multiple billions) via buyback, you'd need to buy a massive amount and you'd probably drive the price up quite a bit. I also don't think they think their stock is significantly undervalued. They'd probably do bigger buybacks if that was the case.

[Liberty]

New CFO:

 

http://www.transdigm.com/phoenix.zhtml?c=196053&p=irol-newsArticle&ID=2032118

 

Gotta say, the Cliffs background is a bit scary, but I'm sure they vetted him well.

[loganc]

New CFO:

 

http://www.transdigm.com/phoenix.zhtml?c=196053&p=irol-newsArticle&ID=2032118

 

Gotta say, the Cliffs background is a bit scary, but I'm sure they vetted him well.

 

Quite the disparity between CLF and TDG on the business quality spectrum.  What is your thinking about the COO and CFO retirements happening in such quick succession?