Premier Exhibitions, Inc. ($3.16, market cap=$95.59 million) is in the business of developing and touring museum quality exhibitions. The Company’s business consists of exhibitions based on the Titanic and on human anatomy.
RMST
The Key to this special situation is RMS Titanic (a subsidiary of Premier). I will skip a detailed history and get to the facts. RMST has salvor-in-possession status over the Titanic wreck giving it the exclusive right to explore the wreck and recover artifacts. They have undertaken numerous expeditions (1987, 1994, 1996, 1998, 2000, 2004) and recovered approximately 5000+ artifacts. In 2006, the court of appeals granted title (see below) to the 1800 artifacts recovered in the original 1987 expedition however they still only have salvor-in-possession status to the other artifacts.
Title (law of finds): complete ownership of the artifacts and the right to sell them.
Salvor-in-possession: not the rightful owner, but entitled to a salvor’s lien (salvage award).
After many years of delaying an application for a salvage award (so as to continue expeditions), in 2007 PRXI filed a motion for a salvor’s lien. With the backing of the affirmative US response to this motion, the court requested PRXI propose covenants that would be included in a salvage award, which PRXI filed in June 08.
The salvage award will be determined by the six Blackwall factors (look them up; I don’t want to take up unnecessary space).
It has been suggested that PRXI has in the past asked for a salvage award of approx. $225 million. Whatever the figure is, one of the leading maritime lawyers in the world, Professor David J. Bederman, has said that at some point Premier will be granted a salvage award by the US district court.
PREMIER EXHIBITIONS AS A BUSINESS
The Titanic exhibitions represent only 19% of PRXI’s revenue, while the Bodies exhibitions represent over 80%. The Bodies exhibitions are notorious in themselves as at the start of 2008, an episode of 20/20 featured the exhibition and argued that the bodies (which are sourced from China) could in fact be those of executed prisoners and such a claim has serious moral implications. Andrew Cuomo investigated these reports and PRXI is still allowed to have the exhibitions in NY so long as they make public disclosures that they cannot certify from where these bodies were sourced.
Let’s look at the financials:
To get the best picture of annual results you should look at the 2008 10K which has results from 06, 07, 08 and represents PRXI as an expanding exhibitions business rather than just as RMST. ROIC for 07 and 08 were 39.7% and 32.5% respectively. The company has no debt and revenues have grown from $12 mil to almost $60 mil from 2006 to 2008. The most recent quarter reported revenues of $13.25 mil despite the weakening economy.
But the most recent quarter is in fact the troublesome one. You see, they reported a loss which isn’t great news especially for a company which is usually so profitable. So what happened? While gross margins were squeezed a little as PRXI took on more exhibition costs directly (rather than through partnerships), it is in fact the general and administrative costs which more than tripled from $2.5 mil in 07 to over $8 mil. The reason was as follows:
“The increase in general and administrative expenses is primarily attributable to enhancement of our senior management team, non cash stock compensation, general and administrative costs associated with the MGR acquisition, and the addition of staff to support our new exhibitions such as Dialog in the Dark, Sports Immortals and Star Trek.”
That’s enough to make your blood boil. And that is where the famed Mark Sellers of Sellers Capital comes in. After purchasing more than 15% of the company’s stock, he just recently got a spot on the board of directors along with his colleague. To add to that, the CEO behind this mess, Bruce Eskowitz, and his top executives have been replaced and Arnie Geller was reinstated. Now, some may argue that Geller isn’t the most competent manager, however given his huge shareholding (about 7%), he is aligned and with the help of new directors, PRXI should get back on track.
VALUATION
The range of values that PRXI could take is enormous and depends on the outcome of the RMST case. There is huge uncertainty. What is known is that the company has no debt and makes about $60 million in revenues and given the larger number of self-run exhibitions now, gross margins are down to about 52%. G&A used represent a bit more than 20% of revenues but this last quarter it was as high as 53%. With new management, if it is lowered to even 30%, EBITDA will be about $11 mil, giving it an EV/EBITDA multiple of about 7.6 for a very high ROIC company. But wait, what about the salvage award. Well, when the salvage award is determined, the court will attempt to find a buyer who will vow to conserve the whole collection (it must stay together). If they can’t fetch the amount that they determined to be the appropriate salvage award, they give title to RMST over all the artifacts.
What about downside risks? Well we know the company isn’t going bankrupt and that is the first priority. Given the public pressure on the Bodies exhibition (a few states even banned it) there could be a problem for the very long term viability of this exhibition in the US. However, growth engines such as international shows; the new Dialogue in the Dark and the Sports Immortals exhibitions could well counteract this long term trend. After all we’re still talking about a company that generated 10 million in free cash flow last year with same business model. The only reason anything went wrong was supremely anti-shareholder friendly management which is now out of the picture.
I believe the current market cap represents the value of the business without growth (assuming the restructuring brings back normal profitability), that is EV/FCF of about 8.8. However, growth is inevitable but return to normal profitability isn’t necessarily and we can only hope Sellers and Geller work together to bring it around. This, of course, doesn’t include the key to this whole picture – RMST. The only thing on the books about the artifacts is $3 mil it cost to recover the initial 1800 artifacts in 1987! A salvage award is almost inevitable (as a leading maritime lawyer suggested) and why shouldn’t $100 mil be reasonable. That would represent a 100%+ upside from today. Suppose it was worth $200 mil… well you get the picture. I see only upside and this is without a doubt my favourite stock idea.
Catalysts: salvage award, next 10Q or 10K.
RMST
The Key to this special situation is RMS Titanic (a subsidiary of Premier). I will skip a detailed history and get to the facts. RMST has salvor-in-possession status over the Titanic wreck giving it the exclusive right to explore the wreck and recover artifacts. They have undertaken numerous expeditions (1987, 1994, 1996, 1998, 2000, 2004) and recovered approximately 5000+ artifacts. In 2006, the court of appeals granted title (see below) to the 1800 artifacts recovered in the original 1987 expedition however they still only have salvor-in-possession status to the other artifacts.
Title (law of finds): complete ownership of the artifacts and the right to sell them.
Salvor-in-possession: not the rightful owner, but entitled to a salvor’s lien (salvage award).
After many years of delaying an application for a salvage award (so as to continue expeditions), in 2007 PRXI filed a motion for a salvor’s lien. With the backing of the affirmative US response to this motion, the court requested PRXI propose covenants that would be included in a salvage award, which PRXI filed in June 08.
The salvage award will be determined by the six Blackwall factors (look them up; I don’t want to take up unnecessary space).
It has been suggested that PRXI has in the past asked for a salvage award of approx. $225 million. Whatever the figure is, one of the leading maritime lawyers in the world, Professor David J. Bederman, has said that at some point Premier will be granted a salvage award by the US district court.
PREMIER EXHIBITIONS AS A BUSINESS
The Titanic exhibitions represent only 19% of PRXI’s revenue, while the Bodies exhibitions represent over 80%. The Bodies exhibitions are notorious in themselves as at the start of 2008, an episode of 20/20 featured the exhibition and argued that the bodies (which are sourced from China) could in fact be those of executed prisoners and such a claim has serious moral implications. Andrew Cuomo investigated these reports and PRXI is still allowed to have the exhibitions in NY so long as they make public disclosures that they cannot certify from where these bodies were sourced.
Let’s look at the financials:
To get the best picture of annual results you should look at the 2008 10K which has results from 06, 07, 08 and represents PRXI as an expanding exhibitions business rather than just as RMST. ROIC for 07 and 08 were 39.7% and 32.5% respectively. The company has no debt and revenues have grown from $12 mil to almost $60 mil from 2006 to 2008. The most recent quarter reported revenues of $13.25 mil despite the weakening economy.
But the most recent quarter is in fact the troublesome one. You see, they reported a loss which isn’t great news especially for a company which is usually so profitable. So what happened? While gross margins were squeezed a little as PRXI took on more exhibition costs directly (rather than through partnerships), it is in fact the general and administrative costs which more than tripled from $2.5 mil in 07 to over $8 mil. The reason was as follows:
“The increase in general and administrative expenses is primarily attributable to enhancement of our senior management team, non cash stock compensation, general and administrative costs associated with the MGR acquisition, and the addition of staff to support our new exhibitions such as Dialog in the Dark, Sports Immortals and Star Trek.”
That’s enough to make your blood boil. And that is where the famed Mark Sellers of Sellers Capital comes in. After purchasing more than 15% of the company’s stock, he just recently got a spot on the board of directors along with his colleague. To add to that, the CEO behind this mess, Bruce Eskowitz, and his top executives have been replaced and Arnie Geller was reinstated. Now, some may argue that Geller isn’t the most competent manager, however given his huge shareholding (about 7%), he is aligned and with the help of new directors, PRXI should get back on track.
VALUATION
The range of values that PRXI could take is enormous and depends on the outcome of the RMST case. There is huge uncertainty. What is known is that the company has no debt and makes about $60 million in revenues and given the larger number of self-run exhibitions now, gross margins are down to about 52%. G&A used represent a bit more than 20% of revenues but this last quarter it was as high as 53%. With new management, if it is lowered to even 30%, EBITDA will be about $11 mil, giving it an EV/EBITDA multiple of about 7.6 for a very high ROIC company. But wait, what about the salvage award. Well, when the salvage award is determined, the court will attempt to find a buyer who will vow to conserve the whole collection (it must stay together). If they can’t fetch the amount that they determined to be the appropriate salvage award, they give title to RMST over all the artifacts.
What about downside risks? Well we know the company isn’t going bankrupt and that is the first priority. Given the public pressure on the Bodies exhibition (a few states even banned it) there could be a problem for the very long term viability of this exhibition in the US. However, growth engines such as international shows; the new Dialogue in the Dark and the Sports Immortals exhibitions could well counteract this long term trend. After all we’re still talking about a company that generated 10 million in free cash flow last year with same business model. The only reason anything went wrong was supremely anti-shareholder friendly management which is now out of the picture.
I believe the current market cap represents the value of the business without growth (assuming the restructuring brings back normal profitability), that is EV/FCF of about 8.8. However, growth is inevitable but return to normal profitability isn’t necessarily and we can only hope Sellers and Geller work together to bring it around. This, of course, doesn’t include the key to this whole picture – RMST. The only thing on the books about the artifacts is $3 mil it cost to recover the initial 1800 artifacts in 1987! A salvage award is almost inevitable (as a leading maritime lawyer suggested) and why shouldn’t $100 mil be reasonable. That would represent a 100%+ upside from today. Suppose it was worth $200 mil… well you get the picture. I see only upside and this is without a doubt my favourite stock idea.
Catalysts: salvage award, next 10Q or 10K.
