Some discussion of financials:
finance.messages.yahoo.com
Re: abxa.ob valuation Part 1
by: aboyarorders
Long-Term Sentiment: Strong Buy 08/26/03 04:16 pm
Msg: 20815 of 20842
Investment Prospectus: ABX Air (ABXA.ob - $1.95 - 8/26/2003)
This is a Spin-Off. For those of you who have read Joel Greenblatt’s "You Can be a Stock Market Genius" you will see that this could very well be a textbook Spin-off. In fact, I am going to forward this to him and maybe he will include it in his next edition.
INVESTMENT BACKGROUND:
Airborne Express has been liquidated. Shareholders received $21.25 in compensation from the German purchaser, DHL, and 1 share of ABXA. ABXA is the airline portion of the company. All foreign companies, including German, are prohibited under US law from owning US airlines.
The board of directors recommended an “Alternate Compensation” package which would entitle Airborne shareholders to $21.65 per share of Airborne and NO shares of ABXA. I repeat, NO shares of ABXA. The implied value of the ABXA share was $21.65 - $21.25 or $0.40.
The shares are currently trading at $1.95 after only being widely traded for the last week.
Reading all 200+ pages of the SEC documents gave me the impression that the text was trying to hide the true value of ABXA which appears to be far above 40 cents. I have a link to the Definitive Proxy Statement that I am referencing so you can do your own due diligence and confirm or disprove my analysis.
sec.gov
PRICE TO EARNINGS RATIO:
Page 109 of the DPS (Definitive Proxy Statement) gives the proforma for the company. Please note, that Airborne has been in business for a number of years and these are their best estimates how ABXA performed last year. Last year, ABX Air earned 31 cents.
It earned similar amounts the last three years.
The PE ratio is calculated by:
PE = 1.95/.31 = 6.3
Please note, I have not seen this PE in writing anywhere. You have to calculate it yourself.
STABILITY OF EARNING:
Like I said, ABX has been in the business for a number of years. During the spin-off it signed contracts with DHL to maintain the existing relationship. What is nice about them, is that the contracts are COST PLUS. This insures a steady revenue stream.
CASH FLOW:
Cash flow paints an even rosier picture. On page 109 the document reads,
“Operating cash flows were $44.9 million and $41.1 million in the first quarter of 2003 and 2002, respectively. Operating cash flows in 2002, 2001 and 2000 were $177.0 million, $208.8 million and $215.6 million. ABX Air’s operating cash flows are primarily a function of the level of depreciation and amortization expense. “
2003 Cash Flow should be in the neighborhood of $177M
Cash Flow without including D & A is misleading so reading further down the page we read,
“Capital expenditures were $98.4 million in 2002, $94.9 million in 2001 and $340.5 million in 2000”…
“The level of capital spending for 2003 is anticipated to increase to $110 million primarily related to scheduled aircraft acquisitions and related modification costs.”
So, 2003 CapEx should be around $110M
FREE CASH FLOW:
FCF = 177M – 110M = 67M
Shares = 52M
FCF / Share = 67/52 = $1.29
Remember the shares are currently trading at $1.95
Your free cash flow return per share = $1.29 / $1.95 = 66%
Re: abxa.ob valuation Part 2
by: aboyarorders
Long-Term Sentiment: Strong Buy 08/26/03 04:16 pm
Msg: 20816 of 20842
Investment Prospectus: ABX Air (ABXA.ob - $1.95 - 8/26/2003)
IT GETS EVEN BETTER:
There appears to be some tax advantages as well. I encourage you to read the full document and decide for yourself. Page 97 of the DPS states,
“ There is an impairment charge of $639.0 million and related net tax benefit of $242.8 million to record ABX Air assets at fair value.”
I take this to mean that ABXA will be exempt from paying tax on income for some time to come. As I said, please read the document and decide for yourself.
LIQUIDITY:
There is a buffer zone should the company need it. On page 109 it states
“ABX Air’s cash balance was $32,000 as of March 31, 2003 and $33,000 at the end of 2002 and 2001”
Of course, $32,000 doesn’t look like much but after you do your research you will discover that they probably mean $32M.
The balance sheet on page 98 states that they have 60M of cash on March 31, so I’ll let you be the judge of the real balance.
IMMEDIATE SELLING PRESSURE:
Many fund managers who could own Airborne at $20+ a shares are not permitted to own ABXA which is currently selling at $1.90. Their rules force them to liquidate immediately. Additionally, due to the way the Merger agreement was worded, many people may get the impression that the stock is worth 40 cents and that the current price of $1.90 is a dream come true. Many may be tempted to cash in their “gains”. This will increase selling pressure in the short term and keep the stock price artificially low.
A WORD OF CAUTION:
One thing that is concerning is that debt that the company carries. It has 94M in long term debt and has a 75M promissory note. Therefore total long term obligations are around $170M.
LT Debt / Share = $170 / 52 = $3.20 a shares.
This is a high number. I believe that the earning power of the company, combined with the cost plus contracts (secured revenue stream) is able to handle the debt. As always, do your own due diligence.
CONCLUSION:
The strong free cash flow coupled with a strong earnings history and a balance sheet with 35M of shareholder equity is enough for me to be an owner. Free cash flow to share price is around 66%. This looks like a great opportunity Spin-off with a strong “Margin of Safety”.
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Re: abxa.ob valuation Part 2
by: mikesspamlessemail 08/26/03 08:31 pm
Msg: 20823 of 20842
according to the 10-Q, shareholder equity is around 240 million. Where did you find 35 million? I agree, should trade at at least 4.00 if the free cash flow numbers they estimated are accurate.
Posted as a reply to: Msg 20816 by aboyarorders
Re: abxa.ob valuation Part 2
by: aboyarorders
Long-Term Sentiment: Strong Buy 08/26/03 09:39 pm
Msg: 20825 of 20842
You are looking at the assets pre-spinoff. You need to reference the definitive proxy statement..... Here's a link for your convenience.
sec.gov
See page 22....
Posted as a reply to: Msg 20823 by mikesspamlessemail
Re: abxa.ob valuation Part 2
by: aboyarorders
Long-Term Sentiment: Strong Buy 08/26/03 09:42 pm
Msg: 20826 of 20842
Also, there is a re-alignment of some debt and a 75M promissory note.
Posted as a reply to: Msg 20823 by mikesspamlessemail |
