seekrit squirrel

Finance => Shares => Topic started by: galumay on February 07, 2020, 10:13:02 AM

Title: PTB
Post by: galumay on February 07, 2020, 10:13:02 AM
I took a small position in PTB this week at 88c. It is a business that operates in 4 segments,

Pacific Turbines Brisbane & US - both provides repair, maintenance and overall services for specific turboprop aircraft engines. They also sells engines and parts.

Pacific Turbine Leasing - leases aircraft and engines.

International Air Parts - focused on selling engines parts but also airframes.

The turbo prop engines they sell and service account for about 90% of turbo props in use.

I was initially put off by the level of debt in the business, but a small fund manager with deeper knowledge told me that PBT were selling land worth significantly more than the debt, paying down the debt and then leasing back at less than existing interest costs.

PBT also announced a significant CR and subsequent acquisition last week, Prime Turbines, a US business.

"Prime Turbines is well known to PTB and more than doubles the current workshop capacity before productivity gains

Is expected to provide positive impact to PTB’s earnings with expected EPS accretion of [8.0%] on a full year basis pre-synergies, increasing to 23.7% on a full year basis including additional margin capture from redirecting outsourced MRO services to Prime Turbines"

By my calculations the underlying business, prior to acquisition was around $1, if they can achieve the predicted EPS accretion of 8% even, then the value should be significantly higher.

The downside risk is that the acquisition is a failure, and results in significant impairment to the business, on a much larger register, they dont sell the land and the debt remains. This seems low risk given the experience of operating in this niche, the high level of founder operation and ownership and their history of sensible capital allocation. None the less, the risk is real and for this reason my initial position is fairly small. Because a lot of shares were issued to existing holders at 69c there is a chance of opportunity to accumulate if they sell off, this may creat ongoing softness in the share price in the medium term.

I will sell if execution of the acquisition is not apparent in the next 12 months, and accumulate if it is.

I had looked at this business a few times and the debt as well as the sense that there was limited growth and a pretty capital intensive business put me off. It was only the stregth of conviction by a fellow investor and the large amount of supporting material and research he sent me, as well as the inside knowledge on the takeover and debt that made me change my mind and take a position.