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Gold/Mining/Energy : Derlan (T.DRL)
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To: edward harris who wrote (116)12/29/1998 1:23:00 PM
From: Serge Collins  Read Replies (1) of 319
 
Edward: I agree that Derlan's aerospace division should command a premium but I don't think it will be as rich as you expect although that would be nice.

I think it's fair to use Magellan for comparative purposes in order to determine an approximate valuation for Derlan. Magellan has a market cap of about $500 million and revenues will be approximately $400 million this year. Therefore Magellan is trading at 1.25 sales, but it also has debt of about $150 million. By comparison, Derlan Aerospace will have sales of about $180 to $190 million (including the pumps division) and has a market cap of about $75 million, which gives Derlan a price/sales ratio of 0.42. As well, Derlan should have debt of less than $35 million once the divestments are complete. Their balance sheet is in better shape than Magellan's and it is trading at a big discount to Magellan as far as price/sales ratio.

If and when the company is sold, that ratio should close considerably. There is no reason why Derlan can't be sold for something close to their annual sales as the new Derlan will be profitable and have a very strong balance sheet. That would mean a sale price somewhere between $150 and $200 million or about $5 to $6.50 per share. If the buyer were American, say B.F. Goodrich or some other U.S. aerospace firm, we could see a good premium for Derlan.
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