Price: $16 Market Cap: $515bn Valuation: 5x EBITDA / 6.4x FCF Category: Core
Bristow Group Inc (VTOL)
With the merger in the books, I thought it made sense to give an update on this stock…
For reference, here is the final merger proxy. This was a merger between Era Group and Bristow Group. Importantly, the highly regarded Era management team will be leading the combined business.
With ~32m shares outstanding and a $16 stock price = $515m market cap
The deal highlighted $240m as the new EBITDA run-rate after achieving $35m in cost synergies. This assumed ERA was generating $40m in EBITDA and $165m for Bristow. But based on 1Q20 results, ERA looks more like $30-35m and if Bristow was proportionally the same then call it $125m there.
Most of Bristow’s pro-forma EBITDA is coming from rent savings and helicopter leases going away… At least $68m of the $165m…
Here are the future projections made by Bristow management for the standalone Bristow side of the business going into the merger:
And here are Era’s management projections as part of the merger:
On a combined basis, they were anticipating about $240m in EBITDA, 2x net leverage (~$480m net debt), and $140m in free cash flow:
Perhaps some of the recent downturn in the oil markets puts a dent in a few of these figures…
My guess is that pro-forma EBITDA could be more like $190m… If interest expense is ~$75m and capex is $35m = $80m in FCF after factoring in oil market downturn. This would be $2.50 per share in FCF on a $16 stock price or 6.4x.
So you have a stock in a troubled industry trading at 5x EBITDA, 6.4x FCF, with 2x net leverage… What will they do here? Repurchase stock? Pay down debt? More M&A?
As for the risk in oil markets… Say what you will about rig counts and capex spending… Two main points come to mind here:
- Bristow/Era have minimal exposure to onshore oil or fracking — probably the most at-risk area in oil
- Oil production (not to be confused with exploration) in the Gulf of Mexico has been steady and growing for quite some time while rig count has recently reached 2016/2018 lows — this is the field most heavily serviced by Bristow/Era
This management team has done a pretty heroic job of managing this business in a tough oil environment…
The goal of 15-16% EBITDA margins look very achievable based on what Era management has done in the past (14-17% from 2016-2020)… My EBITDA figures above exclude any gains on asset sales.
Despite years of struggles and bankruptcies by all 3 major competitors, Era has held equity value stable for the past 7.25 quarters while taking net debt down from $270m to $46m…
Capital allocation will be interesting to watch:
- only recently has management felt comfortable with the balance sheet to start repurchasing stock
- debt repayments could still be the priority until oil markets stabilize
- M&A may still be on the table if PHI is still available following its bankruptcy process
Shares could easily appreciate 100% or more — a 7.5x EBITDA multiple would make a $30 stock — Era Group traded at >8x EBITDA during the past few years…