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Holly LaFon
Holly LaFon
Articles (9481)  | Author's Website |

Chase Coleman Boosts Stake in TransDigm Group

Investor grows position in mid-sized aerospace and defense company

March 07, 2018 | About:

Tech investor Chase Coleman (Trades, Portfolio) increased his shareholding of aircraft components maker TransDigm Group Inc. (NYSE:TDG) ahead of the company’s March 20 shareholder meeting, his firm, Tiger Global Management, disclosed Wednesday.

Tiger Global holds 2,782,000 shares of the company after increasing its position by almost 45%. At an average price of $285.58 Wednesday, the value of the purchase of the 862,395 shares was roughly $246.28 million. It gives Coleman a 5.3% stake in the company and makes him one of the company’s largest shareholders.

TransDigm’s shares have ascended 3% overall this year to trade around $287.51 each on Wednesday after losing their footing at an all-time high in January on first fiscal quarter earnings results. In the past year, they moved up 18%.

The buy marks a shift for the firm, which reduced the position as recently as the fourth quarter, trimming it by 41%.

TransDigm is also a rarity for the noted investor, who fishes primarily in the internet and technology spaces and has outsized positions in Amazon (NASDAQ:AMZN) and JD.com (NASDAQ:JD). It represents his portfolio’s only aerospace and defense stock.

Founded in 2001, Tiger Global focuses on business fundamentals in prospective investments and gives those that make the portfolio a long-term runway.

TransDigm, the maker of audio systems, seatbelts and other aerospace components, is the 35th largest aerospace company by sales, with $3.17 billion in 2017, eclipsed by majors like No. 1 participant Boeing (NYSE:BA), with $94.57 billion and No. 2 Airbus, with $79.83 billion.

The company’s management goes to great lengths to underscore its pro-shareholder perspective.

“Our longstanding goal is to give our shareholders private equity-like returns with the liquidity of a public market,” TransDigm CEO W. Nicholas Howley said in the company’s first-quarter 2018 conference call.

In the call, the company said it would focus on “the details of value creation” and “careful management” of its balance sheet while it employed “a simple-well proven, value based operating methodology.”

“Third, we maintain a decentralized organizational structure and a unique compensation system closely aligned with shareholders,” Howley said. “Fourth, we acquire businesses that fit with our focused strategy and where we see a clear path to PE-like returns.”

For the first quarter, two out of three of TransDigm’s segments had increased sales. Organic sales in its Power & Control unit rose 8.5% from the same period last year, resulting from growth in aftermarket sales, defense sales and commercial original equipment manufacturer.

In its Non-Aviation segment, organic sales increased 7.8% due to higher commercial original equipment manufacturer sales and defense sales.

Organic sales in its Airframe segment declined 4.4% as commercial original equipment manufacturer sales fell. An 8% boost in defense sales helped offset the weakness.

Net income for TransDigm amounted to $314.8 million, increased from $118.9 million the previous year. The result was bolstered by $170.2 million from the Tax Cuts and Jobs Act of December that lowered the corporate tax rate from 35% to 21%, with 24.5% as a blended rate for the year.

The company said it would reap about $70 million in extra cash for the fiscal year 2018 as a result of the tax law, allowing it to raise its expectations in cash from operations to nearly $1 billion. In the first-quarter earnings release, the company had set its expectations for earnings from operations in the range of $906 million to $942 million.

Tax reform may offer benefits to companies in the sector, helped by geopolitical tensions and the Trump administration’s expansion of defense budgets, according to a PwC report on aerospace and defense for 2018.

“While the industry holds substantial dry powder today, tax reform has the potential to impact volumes and values across the board as increased liquidity becomes available to fund inorganic growth agendas,” the author, Bob McCutcheon, said. “Overall, we believe 2018 is shaping up to be another solid year for deal making in the industry.

Mergers and acquisitions are also on the table for TransDigm.

“The pipeline is active,” Howley said. “We’ve been looking at a lot of opportunities recently.”

See more of Chase Coleman (Trades, Portfolio)'s portfolio here.

About the author:

Holly LaFon
I'm a financial journalist with a Master of Science in journalism from Medill at Northwestern University.

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