Description
I appologize for this brief writeup, but I don't think this scenario will last for very long and I'm throwing it together this morning. AMIE is a specialty travel company. They put together international trips for high school and college students, little league and other sports teams, etc. The company is run by the Ueberroth family of baseball fame. They are excellent businessmen and have the utmost in integrity.
The company's revenue has grown at a compound rate of 33% over the last 5 years. They have a great business model in that they put together all the necessary pieces of these trips from hotels to flights to booking little league games with top-notch Japanese teams, etc. They provide their customers with a volume-based discount and get paid for the entire trip upfront, so the cash cycle is awesome.
Their cash flow is incredible. It's the best type of FCF investment in the sense that it produces lots of cash even as it experiences rapid growth. The company made about $25mm in FCF in 2000 after subtracting interest income on the cash balances. Their earnings have increased substantially this year with y/y EBIT increasing 40% for the second quarter and revenue was up 27%. They have an incredible amount of cash. The company has about $150mm in cash and about $60mm in customer deposits. I assume many of these trips will be canceled due to this last week and that these deposits will be returned. So the company has a net cash balance of $90mm or $9 per share. The current price this morning is $14 per share, or net FV of $5ps after subtracting cash.
The company makes about $2.50 per share in FCF with a net FV of $5 per share for a multiple of 2x free cash flow! For a company that has compounded earnings at 34% per year over the last 5 years! Their ROE is a little low because their cash is so high, but the company is financially sophisticated and has vowed to get this number back up to the historical range of mid 30%'s with a more effective use of the cash. I would assume they will be taking advantage of the SEC rules change this week and buying shares with all that cash. It's also trading for just over 1x book, and has an average ROE of 20% over last 7 years.
The market is way over-reacting to the undeniable downturn in revenue as a result of WTC. The company will most likely suffer a severe reaction over the next year to two years as people stop traveling as much, but they have a very low expense structure and enough cash to carry them through the worst case scenario anyone could imagine. They don't need to carry many expenses at all and can tighten their belts and wait it out. Unlike hotels/airlines, etc., the company has no fixed cost structure at all.
I'm sure international travel will be curtailed for a while, but this company is priced as if students will never travel again. Even if we have to wait 2 or 3 years, this company is easily worth 2x to 3x it's current price and substantially more with share repurchases. We will have to wait, but the wait should be worth it.
I hope everyone and their families and friends are ok.
-pelican
Catalyst
Market over-reaction to "travel" company. Very high cash balances for share repurchases. Company's stated intention to increase shareholder value with high cash balances.
There is a tremendous margin of safety in the net cash balance and lack of fixed overhead, combined with the unique opportunity to buy a very high growth company for less than 150% of it's net cash.