This morning, aviation leasing and maintenance company PTB Group (ASX: PTB) announced it had entered a scheme of arrangement to sell the entire company for a price of $1.595 per share, plus a 3 cent fully franked dividend. This brings the total consideration including franking credits to about $1.637 per share. The board supports the PTB Group Takeover offer by competitor Precision Aviation Group.
The takeover of PTB Group is notable because it means the ASX is losing a decent quality profitable business run by honest and competent management. The takeover price is at about a 60% premium to the prevailing share price when I discussed my (continuing) shareholding and explained why PTB Group looks interesting to me, in December last year.
PTB Group is also a notable stock because it was not often discussed by the big end of town, who often considered it too illiquid, and apparently did not understand why the business had a competitive advantage. Rather, the stock was highlighted by micro-cap fund manager Peter Johns who had invested a chunk of his outperforming Westferry fund at well below current prices. Prior to the PTB Group takeover offer, Westferry had around 14% of its assets in PTB Group stock.
As I wrote after the half year results, PTB Group’s specific know-how means that they can keep engines in the air more safely and efficiently due to 20 years of experience with engines in tough coastal or mountainous environments. This means it is difficult for anyone else to set up shop as a competitor. On top of that, maintainers need to have local regulatory approvals in the jurisdictions in which they operate, creating yet another barrier for entry.
PTB Group Beats Guidance In FY 2022
Over the last year PTB Group has consistently upgraded guidance. The most recent guidance was for $21m – $22m earnings before interest, tax, depreciation, amortisation and foreign exchange gains/losses. In classic PTB style, the actual result has come in at $23.3m. Therefore, the purchase price of about $200m is probably around 16 – 17 times FY 2022 earnings. This might not be mindblowingly cheap but it does seem a little on the low side, given that PTB is a profitable dividend paying business operating in a defensible, growing niche.
Vale PTB Group (ASX: PTB)
The takeover is not expected to be finalised until the beginning of December, meaning that shareholders have a while to wait if they want to benefit from the full value of the acquisition consideration. I’m not sure if I’ll be active in the shares yet. I may sell or I may buy, since the stock will likely become a takeover arbitrage.
That said, I believe that if PTB Group had stayed as a listed company, in the end it would have traded at a higher price than this takeover offer. Generally speaking growth by acquisition doesn’t create that much value, however, with PTB Group, there was a moat deepening element to the growth, since each maintenance shop has significant market power in its general region. On top of that, additional scale allows PTB Group to offer subscription maintenance packages which increases the predictability of revenue. This in turn would probably have generated a higher market multiple.
As a shareholder I am very happy to receive some strong returns today, since PTB Group was already a decent size position for me. However, as a small cap investor I am slightly sad that this decent quality business with honest and competent management looks likely to leave the bourse.
For further coverage and discussion of the company, check out the coverage of PTB Group on Ausbiz.
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Disclosure: the author owns shares in PTB and will not trade for 2 days following this article. This article is not intended to form the basis of an investment decision. Any statements that are advice under the law are general advice only. The author has not considered your investment objectives or personal situation. Any advice is authorised by Claude Walker (AR 1297632), Authorised Representative of Equity Story Pty Ltd (ABN 94 127 714 998) (AFSL 343937).
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