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Just When I Think I’m Out, They Pull Me Back In

August 01, 2012 | About:
whopper investments

whopper investments

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I’ve recently re-initiated a small-ish long position in Premier Exhibits (PRXI), as it has fallen from the $2.60 range to the $2.20 range. I’ve talked about them quite a bit in the past and sold my position in them about a month ago, after they failed to announce a sale by the deadline for their broker to receive their full bonus.

So why did I restart my position?

  1. The company currently has a market cap of $105 million or so. They have no debt that is recourse to the parent company (the note payable on their balance sheet is only recourse to the exhibition company). I tend to agree with this analysis of the artifacts worth, but even if you think that is too optimistic, the artifacts have been appraised at $190 million. Take out a 10% commission (likely too high at this point!) and 30% for taxes and you get $120 million in after-tax value of the artifacts. The company has already said they plan on distributing all proceeds from the sale to shareholders, so there is no real reinvestment risk. Thus, with a market cap of $105 million, the market is forecasting a really negative sale scenario
  2. I don’t think this is frequently pointed out, but the $190 million appraisal does not include the value of the intellectual property from their most recent excavation, which produced things like this History Channel special box set. What do I think the value of that type of intellectual property is? Honestly, I have no idea. But there is some real value there, and it should add another layer to the margin of safety.
  3. The exhibits business, which I had always treated as a net negative, is really turning a corner. The recent acquisition looks to be a home-run, and the company was solidly profitable despite elevated SG&A expenses from the acquisition and (likely) related to the recent management changes and expenses associated with the auction process. While the value from the exhibit business is likely to be small compared to the value from the Titanic assets, there’s some real upside here, and it really represents a cherry on top of the investment.
So I’ve reacquired a position. I’ve said it before and I’ll say it again: I think there’s a huge margin of safety buying in the low $2s (well below appraised Titanic asset value). Not so much when the stock is in the $2.60-ish range (selling around the after-tax value of the Titanic assets). We’ll see how it goes!

Disclosure: Long PRXI

Rating: 5.0/5 (2 votes)

Comments

tonyg34
Tonyg34 - 1 year ago
auction houses take 20% of sale price (christies, sotheby's, etc)

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