Looking Closer at This Helicopter Operator Spin-off

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Charlie Munger has advised that in order to succeed in investing, one of the things that investors should do is to carefully study spin-offs. Indeed, spin-off situations could offer investors a lot of compelling investment opportunities. Recently, Seacor Holdings (NYSE: CKH) spun off its helicopter operating business, Era Group (NYSE: ERA). Since then, Seacor has dropped from $87 to only $70.10 per share, while Era has been staying in the range of $20 - $23 per share. Let’s dig deeper to see what investors should be bullish on in this spin-off situation. 

Seacor Snapshot

Seacor is a global leading equipment and services provider to offshore oil/gas and marine transportation industries with several business segments: Offshore Marine Services, Aviation Services, Shipping Services, Inland River Services, and Alcohol Manufacturing. Seacor has been trying to restructure its business. In December, it sold its energy trading business to Par Petroleum Company for around $14 million. One month later, it spun off Era, the Aviation Services segment.

The majority of Seacor's revenue, $520 million, or nearly 33% of its total revenue, was generated from the Offshore Marine Services segment. The Aviation Services ranked second with $273 million in revenue, while the Inland River Services contributed around $226 million in revenue in 2012. In its operation, Seacor employed a quite reasonable leverage level. As of December 2012, it had $1.74 billion in total stockholders’ equity, nearly $960 million in short and long-term debt and nearly $310 million in cash and marketable securities. What makes me interested in Seacor is that the company has kept buying back its shares over time. Since 2007, the treasury stock has more than doubled, from $487 million to more than $1 billion.  

Era Snapshot

Era is considered one of the biggest global helicopter operators and helicopter services for major integrated oil/gas companies including Shell, Petrobras, Anadarko and the US government. Era has combined helicopter operating business model and contract-leasing business model. The contract-leasing business model, accounting for 20% of the total revenue in the first nine months of 2012, allows Era to reach penetrate new geographic markets while generating increasing cash flow.

In 2011 pro forma financial statement, Era generated $258 million in revenue and nearly $12.8 million in profits. Era seemed to have quite reasonable leverage. As of September 2012, it had $415.9 million in total stockholders’ equity, $10.85 million in cash, and $278 million in long-term debt. Interestingly, it had nearly $200 million in deferred income taxes, which were effectively considered the interest-free loan from the government.

Peer Comparison

Era is trading at $20.32 per share, with a total market cap of nearly $500 million. The market is valuing Era at 10.78 times EV/EBITDA. Compared to its peers PHI (NASDAQ: PHII) and Bristow Group (NYSE: BRS), Era seems to have a bit more expensive valuation than the other two. Bristow is the largest company among the three, with $2.1 billion in total market cap. At the trading price of $58.30 per share, Bristow is valued at 10.16 times EV/EBITDA. PHI, with the total market cap of $470 million, has the cheapest valuation at 8.26 times EV/EBITDA. Among the three, Bristow seems to be the most profitable company, with the highest operating margin at 15.42%, while the operating margins of PHI and Era were 9.7% and 9.92%, respectively. Whereas both PHI and Era don't pay any dividends to shareholders, Bristow pays to its shareholders 1.4% dividend yield.

Foolish Bottom Line

Looking forward, Seacor seems to be more focused after divesting its energy trading business and spinning off Era. As both are involved in the capital-intensive businesses, I do not consider either Seacor or Era to be good long-term investments. Among those stocks mentioned above, Bristow seems to be the best pick at the moment as it had the highest operating margin and a reasonable valuation.


hoangquocanh has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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