Buffett Small Cap Investing
Premier Exhibitions (PRXI) Analysis

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By deadcat2
October 17, 2007

Posts selected for this feature rarely stand alone. They are usually a part of an ongoing thread, and are out of context when presented here. The material should be read in that light. How are these posts selected? Click here to find out and nominate a post yourself!

This board has given me a lot of ideas, the most recent one being DXP Enterprises (DXPE) which has netted me a return of approximately 28% since I purchased it back in August. Even after the recent runup, I still expect healthy appreciation for DXPE. (my earlier analysis can be found here in this post.) I hope I can return the favor with PRXI, which I think is worthy of consideration as a small cap with a very good possibility of giving back returns in excess of 50% for the next couple years.

For those unfamiliar with this company, Premier is a $400M small cap engaged in the exhibition of two shows - the Titanic artifacts, to which they have the salvage rights, and The Bodies Exhibition, a somewhat macabre exhibit displaying real human bodies preserved through a proprietary process and then cut away to show internal organs, muscles, etc. in various poses and displaying different states of health and disease. I've read newspaper reviews prior to openings, and much of the copy seems to warn potential exhibition visitors about the graphic nature of the displays and the range of emotions they may experience. While the warnings may frighten away the most squeamish, I suspect the majority of folks are intrigued enough that the warnings serve as additional draw for folks, just to see how really macabre the show might be. Revenue figures certainly suggest that is the case.

Premier is a simple business, relatively undiscovered. When I first started looking into PRXI back in January (disclosure: I purchased some at under $10 near the end of that month), it was followed by only one analyst. Recently it's caught the attention of about 3-4 more analysts, the most recent giving it a thumbs up yesterday (but don't hold that against the stock ;-). Let's look at some of the financials.

On 10/11, Premier reported earnings of $0.17 for 2Q08, a penny shy of estimates. For the first half of the year, earnings stand at $0.27, already exceeding earnings for the entire previous year. As of market close today, the stock is off nearly 15% at $12.87. I'd say that's shabby treatment for a company whose quarterly revenues grew 157% yoy from $6.3M to $16.1M. Net income surged 423% from $1.3M to $5.5M. From the conf call, it appears that Titanic exhibitions are experiencing an increase in attendance, perhaps due to the nearing of the centennial for that event in 2012. The Bodies exhibitions are also doing well, with additional exhibits being created, with the total now at 13, at a cost of about $700,000/exhibit. The Bodies exhibits have contributed 68% of revenue and the Titanic, 32% this quarter.

To get a bit more perspective, here are a few figures from the 2007 annual report (I've added the estimates) for the year ended 2/28/07:

Operating income(2.4M)2.6M12.2M
Provision for taxes-(2.5M)4.9M
Net income(2.4M)5.3M7.4M
EPS($0.12)$0.19 $0.24 $0.68 $1.13

The reason I displayed the provision for taxes was to put into perspective what might appear to be a somewhat anemic growth rate in eps of only 26% between 2006 and 2007. To get a better idea of income growth, look at the increase in operating income from $2.6M to $12.2M.

From the conference call, Premier maintains their guidance for $0.68 in eps - net of taxes - for the 2008 fiscal year. That's a growth rate of over 280% with a forward p/e of less than 19! Not often does an investor have the opportunity to buy into a growth story at these prices. The moat for the Titanic artifacts is relatively wide and the possibility of competition with this exhibit appears low. While there are competitors to The Bodies exhibit, Premier has established itself as the leading exhibitor in this venue with more traveling exhibits than anyone else and bookings both domestically and internationally. Management feels that these are evergreen exhibits, and should experience many years of interest. In fact, management maintains that interest in a repeat engagement in major cities is often higher than that for the initial engagement.

From the 2007 AR, current assets/current liabilities = a very healthy 17.6. Cash has increased from $4.1M to $16.8M. The company has no long term debt.

I've been backing up the truck on this one today, purchasing additional shares from $12.87 - $13.25. Gravity seems to have exerted undue force on this stock today, dropping it over 6% on no news whatsoever. But for those who follow small caps at all, you know that volatility is just a part of the ride - these stocks will tend to fluctuate with general market trends that have nothing to do with their business. I believe today is a good example (read as... opportunity) of that.

Now for some back of the envelope calculations. Assuming PRXI is able to approximate the earnings estimates of $1.13 for 2009 (which is only 18 months away), and at that time they sport an absurdly low p/e of only 20 for a company with this level of growth, shares will be valued at around $23, an increase of approximately 77%. If investors reward it with a multiple slightly more in line with it's growth - let's say a conservative 30 - then the future price could be as high as $34, an increase of around 260%. With anticipated announcements of new and different exhibitions (the real lifeblood of a company like Premier), this stock should also exhibit ;-) a number of good growth years ahead.

Hoping others might find value for themselves in this post,