Saturday, March 29, 2008

Premier Exhibitions (PRXI): Value not Without Controversy

Of all the presentations we saw at last year's Value Investing Congress in Hollywood, one of the most interesting featured Premier Exhibitions, the Atlanta based company that develops and promotes touring exhibitions around the world. Not just any touring exhibition, mind you, and that's where controversy enters the picture.

Premier happens to operate the highly successful Bodies: The Exhibition, which features whole and partially dissected human bodies, preserved through a technique called "polymer preservation". Certainly not my cup of tea, although the exhibit apparently does an excellent job of displaying the complexity of the human body, as well as detrimental effects of some of the things we know we shouldn't do, such as smoking and overeating.

In order to have a body exhibit, you need human bodies, and questions as to the sources of those bodies were raised on a 2/15 episode of ABC's 20/20. While Premier claims to lease the bodies(all said to have died of natural causes)from a Chinese university, 20/20 suggested among other things that some may have been prisoners, and not all died of natural causes. Of course, if true, the human rights violations are obvious. In reaction, politicos around the country moved quickly to stop the exhibits. The company responded with a press release vehemently denying the claims, and it is worth reading.

Obviously, the stock was punished, falling about 25% in the days following the 20/20 broadcast, to the $4.5 level (its also down significantly from year ago levels of $11.50). The controversy seems to have slowed regarding "Bodies", but there's a more compelling reason to take a look at this company; the primary one that led us to take a position last month.

Premier also happens to operate the traveling Titanic exhibits. But its also the salvor in possession of the Titanic, with exclusive rights to recover artifacts
from the wreck site. The company already holds an impressive array of Titanic artifacts, potentially valued into the hundreds of millions.

Not without its own controversy, the Titanic ownership issue is still in the courts. Earlier this week, the company received a favorable ruling from the government, which has essentially given thumbs up to company ownership of the 3500 artifacts it has already recovered (worth an estimated $100 million or higher). Now its back to the courts, who'd asked the government for guidance on the issue.

This may also be a step closer to Premier being allowed to resume excavation of the Titanic site in order to recover more artifacts. Some have suggested this may all be worth up to $3 billion, a figure we view with some skepticism.

There are apparently stipulations on the collection, one of which is that if Premier ever wants to sell, the company must sell the entire collection at once. This somewhat limits Premier, and perhaps lessens the value of the artifacts, but we still believe this company offers compelling value.

Premier's current market cap is less than $200 million, the company is profitable, and has no debt. Prospective investors must recognize the controversy, volatile nature of the stock and understand that Premier's future is dependent on the courts, and settlement of some rather controversial issues.

Premier Exhibitions: (PRXI)
Price: $6.37
Market Cap: $192 million
P/E: 14.6
Cash: $29 million
Enterprise Value: $167 million
Profit Margin : 24.7% (2007)
27.2% (9 months ended 11/30/07)

*The author has a position in Premier Exhibitions (PRXI). This is neither a recommendation to buy or sell any securities. All information provided believed to be reliable and presented for information purposes only. The author will not trade any of the securities mentioned (buy, sell, short) for at least two weeks following the date of this post.

1 comment:

Byrne said...

I'm a PRXI fan - the combination of cash flow, growth, and a margin of safety is great. I also like how it's a classic, easy-to-hate value investment: their main cash flow comes from transporting cadavers, and their main asset is, basically, a giant underwater grave they have permission to rob.