Special Situation: Titanic Assets
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Premier Exhibitions (NASDAQ: PRXI) is known around the world for the “Bodies: The Exhibition.” It has been big around North America and became even more famous after a scandal a few years ago. This same company owns and displays many artifacts from the Titanic. According to an appraisal done in 2007, the assets are worth $189 million, which is more than the market value of the entire company at $131 million; however, the artifacts have been hard to sell.
Premier planned to sell the assets during the 100th anniversary of the Titanic. It was at the same time that James Cameron re-released the Titanic movie in 3D. Premier hired a company that specializes in selling artifacts and other valuables, but even with a $10 million selling bonus the company was not able to sell the assets. Subsequently, the stock dropped. The sales firm attempted to sell the artifacts again at a smaller $5 million fee after the previous commission ran out but they were not successful. One of the difficulties in selling these assets is that they cannot be split up. All $189 million worth must be sold together due to a court order. Since these attempts to sell, Premier's stock has been quite volatile as investors struggle to find their perceived value of the company.
On the last earnings release a lot changed for the good. First, Premier had another profitable quarter, which proves that they can be a consistently profitable business. Also, the CEO stated that they have a buyer for the Titanic assets that has signed a letter of intent (LOI). This does not necessarily mean the artifacts will be purchased because the unidentified buyer needs to get financing together before the purchase. It is certainly a step in the right direction though.
So if the assets are purchased, what is the value of the company? First, let's figure out the amount of cash that Premier could expect from the artifacts. The assets have been appraised at $189 million and taxes on the sale amount would likely be around $66 million. There is a possibility of a spin-off though. During the earnings call the CEO said, “In addition, the LOI contemplates the sale of RMST stock, which our tax advisors believe is the preferable deal structure for the company to achieve tax efficiency.” So the tax amount could be substantially lower. Then if we assume there will be legal and other fees of about $4 million. So if the spin-off doesn’t work out, Premier could receive around $119 million in cash.
On top of this asset there is a profitable, growing business. After years of losses, Premier is turning around. In the first half of this year, the company had a net income of $4.2 million. Management has said that profit will be lower in the second half of the year, so if we assume the profit is only $2.8 million (67% of the first half of the year), then 2012 net income is $7 million.
The correct multiple is tricky for this growing turnaround. There aren't any close competitors other than small private companies. This low competition is likely due to the moat that Premier has built, which is a good. Lack of competitors also makes it hard to value the company. If we look at other companies that focus on family entertainment, we could look at Six Flags (NYSE: SIX). Six Flags is a drastically different (roller coasters vs artifacts) business and has a PE of about 34. Cedar Fair (NYSE: FUN) is another family entertainment business and has a PE of around 16.
Or we could compare the company to the wax museum owners of France, Musee Grevin. They have a PE of 18. If we end up using a conservative PE of 8 for Premier, the company would be worth $56 million. It could be worth a lot more though since ticket sales are up 28% per exhibition and the number of exhibitions is up 45% in the last year. Many of these exhibitions have a decent moat too. It’s hard to replicate the exclusive rights to display a certain set of artifacts.
So if we value the artifacts at $119 million and the remaining business at $56 million, the present company should be worth around $175 million. At today’s market value of $131 million, it seems an undervalued business. There is a chance of the Titanic deal not going through though, but management is motivated to do it, the buyer wants it, and the artifacts have been up for sale for a while so their shouldn't be any hidden problems. If this conservative estimate actually occurs, an investor could see a 30% gain from today's price.
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