PRXI is undervalued at $17 per share

I wrote, but did not post, this before July 3 earnings announcement. The earnings announcement looks good.

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Premier Exhibitions (PRXI) is an exhibition company featuring shows on (1) human anatomy (80% of revenues) and (2) salvaged items from the Titanic. The human anatomy shows, under the name Bodies, contain plasticized full body human specimens and selected body parts. The Bodies shows typically feature about 20 bodies and, in addition, displays of hundreds of organs. My favorite was the circulatory system – a very well lit and dramatic display.

PRXI currently trades around $17 per share and has a total market value of about $560 million. I estimate the intrinsic value to be greater than $30 per share. The current share price basically assumes no growth in shows beyond the 11 Bodies shows, no value from the Titanic assets, and no value for the opportunity to add other exhibitions. In fact, PRXI excellent opportunity to expand the number of Bodies shows, and the Titanic artifacts are likely worth much more than their current carrying value and earnings power.

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I first ignored PRXI when I learned of it from this Value Investor Club posting in July 2006 (following the 45 day delay for non-members from a May 23, 2006 posting). More recently, I began to pay attention following a presentation on May 9, 2007 at the Value Investing Congress by Bill Vlahos, Managing Partner of Odyssey Value Advisors. [As an aside, at the Value Investing Congress, West Coast Asset Management presented two ideas, but not an idea it had originally planned to present, Contango Oil & GAS (MCF). In the conference planning, MCF was left to a presentation by Sellers. That only seemed fair, since Sellers holds a very concentrated portfolio, typically less than 10 names, with MCF representing 50% of the fund. Also, as it happens, as we learned in a June 1 article in the Financial Times, one of the few other names Sellers also owns is PRXI.]

The PRXI story offers the prospect of rapidly growing earnings based on an the popular Bodies exhibits increasingly concept, and downside protection because the current stock price appears to PRXI now has in place 11 separate Bodies shows by June 2007. As stated in the PRXI 10-K: These specimens are assembled into anatomy-based exhibitions featuring preserved human bodies, and offer the public an opportunity to view the intricacies and complexities of the human body. The exhibitions include displays of dissected human bodies kept from decaying through a process called polymer preservation, also known as plastination. In essence, the bodies are drained of all fat and fluids, which are replaced with polymers such as silicone rubber, epoxy and polyester. This keeps the flesh from decaying and maintains its natural look. Skin from the bodies is removed, or partially removed, to reveal musculoskeletal, nervous, circulatory, reproductive or digestive systems. The full body specimens are complimented by presentation cases of related individual organs and body parts, both healthy and diseased, that provide a detailed look into the elements that comprise each system. While controversy surrounds the provenance of the bodies, PRXI claims the bodies have been legally obtained from a hospital in China. The shows appear to be popular where exhibited, and the controversy does not appear to have harmed PRXI’s ability to exhibit.

Here’s the math for the current Bodies business:

Earnings Model and Value for 11 Bodies Shows

Tickets per show per six months: 300,000
Average ticket price: $22.00
Gross revenue per show per six months: $6,600,000
Gross margin: 50%
Gross profit per show per six months: $3,300,000
Times two six month periods per year: 2
Gross profit per show per year, before downtime: $6,600,000
Adjustment for required break-down/set-up time: 0.92
Gross profit, per year, per show: $6,050,000
Number of shows: 11
Gross profit from Bodies, annualized: $66,550,000
SG&A expense: $14,000,000
Pre-tax income: $52,550,000
Tax rate: 35%
Tax: $ 34,157,500
Shares outstanding, fully diluted: 33,000,000
Earnings per share: $1.04
P/E multiple: 15
Implied price: $ 15.53

Thus, based on the run rate for the 11 shows, earnings should be around $1.04 per share. A conservative 15 multiple would imply a value of $15.50 per share, just for the current Bodies business. The intrinsic value is likely greater, based on PRXI’s ability to exhibit more widely its Bodies shows, and monetize the value of its Titanic artifacts.

The above attempts to show the earnings power of the 11 bodies shows, and does not attempt to show a earnings projection for specific period. For example, it is not an EPS estimate for the fiscal year ending February 2008.

Titanic Value
PRXI is recognized as the exclusive salvor-in-possession of the Titanic site. As such, it is entitled to a lien against the property recovered to compensate it for its salvage service. PRXI has submitted a claim for for its salvage of $225 million. The determination of the value of the salvage claim is subject to court proceedings.

Vlahos estimates that the Titanic exhibits contribute an additional gross profit of $5 million. If Titanic artifacts contribute $5 million of gross profit, they add about $0.09 per share of EPS, or $1.35 of value at a 15 P/E multiple. Further, Vlahos estimates that the artifacts are worth $200 million, or about $6 per share. Mark Sellers in his FT article provided an estimate for the Titanic artifacts of $125-$225 million, or $3.78 to $6.80 per share.

Bottom Line
Assuming PRXI can take bodies to 20 shows, I’d estimate earnings, excluding the Titanic shows, to be about $1.90 per share. At a 15 p/e multiple, that’s worth around $28-$29 per share. Though if PRXI executes on that plan, it will likely command much more than a 15 multiple. As of February 28, 2007 PRXI had no debt and cash of about $16.8 million, or $0.51 per share.

Key areas for follow up:
In the May conference call, management indicated that they think about Bodies business as 550,000 average annual attendees, $20 average ticket price, and 50% gross margins. Do these figures include the revenues and contributions to gross margin from other merchandise sales?

How quickly can Bodies be ramped from 11 shows?

How will SG&A expense grow in relation to future growth in exhibits and gross profit?

What are the value maximizing opportunities for Titanic assets?

Current and Planned Bodies Shows

From their 10-Q, filed July 3, 2007, and re-categorized by me:

The following is a list of our “Bodies...The Exhibition” and “Bodies Revealed” exhibition locations during the three months ended May 31, 2007:

• “Bodies...The Exhibition,” South Street Seaport, New York, New York (November 19, 2005 to an undetermined date);

• “Bodies...The Exhibition,” The Tropicana Resort and Casino, Las Vegas, Nevada (June 23, 2006 to an undetermined date);

• “Bodies Revealed,” OCA Ibirapuera Park, Sao Paulo, Brazil (February 28, 2007 to July 29, 2007);

• “Bodies...The Exhibition,” The Streets at Southpoint, Durham, North Carolina (April 5, 2007 to an undetermined date);

• “Bodies...The Exhibition,” 1101 Wilson Boulevard (the former Newseum site), Arlington, Virginia (Washington, D.C. Metro Area) (April 14, 2007 to an undetermined date);

• “Bodies...The Exhibition,” Westfield UTC, San Diego, California (May 12, 2007 to an undetermined date);

• “Bodies...The Exhibition,” Palacio dos Condes do Restelo, Lisbon, Portugal (May 5, 2007 to an undetermined date); and

• “Bodies...The Exhibition,” Lucerna, Prague, Czech Republic (May 5, 2007 to an undetermined date).

Ran exhibited and ended during three months ended May 31, 2007, but now closed:

• “Bodies...The Exhibition,” The Shops at Sunset Place, Miami, Florida (September 22, 2006 to March 25, 2007);

• “Bodies...The Exhibition,” 800 Pike Street (across from the Washington State Convention Center), Seattle, Washington (September 30, 2006 to April 29, 2007);

• “Bodies...The Exhibition,” Beurs van Berlage Concert and Conference Hall, Amsterdam, The Netherlands (November 25, 2006 to April 14, 2007);


Opened subsequent to the three months ended May 31, 2007:

• “Bodies...The Exhibition,” 9 Treasure Lake Drive, adjacent to the IMAX Entertainment Complex, Branson, Missouri (June 30, 2007 to an undetermined date); and

• “Bodies...The Exhibition,” Easton Market, Columbus, Ohio (June 30, 2007 to an undetermined date).

Announced subsequent to May 31, 2007:

• “Bodies...The Exhibition,” Carnegie Science Center, Pittsburgh, Pennsylvania (October 1, 2007 to an undetermined date);