This stock write up is part of the Guru Focus April 2011 Contest:
This is not the first article written about PRXI. My friend, Ryan O’Connor did a fantastic write-up of the company on his blog http://www.aboveaverageodds.com, in August 2010. Many readers, who follow the value blogs, have probably seen some other write-ups on PRXI.
However, no one has written up about PRXI on Guru Focus (in over a year), and more importantly, I believe I have some new and insightful information. I relied on my own research for this article instead of taking tid-bits from other write-ups. The only write-up I read on PRXI was by Ryan.
Additionally, the catalyst is getting closer every day with the court decision due by August 12th 2011 the latest. I am submitting this idea for the April contest. With the market overvalued, and value stocks hard to find, PRXI seems to offer a compelling value.
This is a special situation, which IMHO is based almost entirely on the court ruling issued in August 2010 and some scuttlebutt that has been done to find out what is the most likely scenario. Therefore, most of the discussion will focus on valuation and the court decision, and there will be less attention on the company’s margins, competitors’ etc. However, I will get more into the company description later in the article.
Premier Exhibitions, Inc. develops and tours museum quality exhibitions worldwide. The company creates, designs, markets, and presents educational and entertaining exhibitions; sells apparel, posters, and Titanic-related jewelry; publishes exhibition catalogs; and provides ancillary services, such as audio tours and photographs. It operates and promotes various exhibitions, including Titanic, the artifact exhibition, which features the artifacts recovered from the wreck site; Bodies Revealed and Bodies, The Exhibition, the exhibition that display multiple human anatomy sets, which contain a collection of whole human body specimens, single human organs, and body parts; and Dialog in the Dark that is intended to provide insight and experience to the paradox of learning to see without the use of sight. The company’s exhibition products are presented to the public in exhibition centers, museums, and non-traditional venues, as well as other venues with high traffic, such as hotels and casinos. Premier Exhibitions, Inc. was founded in 1987 and is based in Atlanta, Georgia.
I could write a lengthy piece but I will make it as succinct as possible while providing the most relevant information. As, it turned out this piece was a lot longer than I expected, and I did not cover a lot of the business aspects, but I am not posting to win the prize (I doubt I will since special situations are hard to fit into the criteria for Guru Focus outlines), but to give people interested a chance to ask more questions or research the company in more detail.
There has been numerous litigation cases since the first assets of the titanic were discovered in 1985. In 1987, TVLP – Titanic Ventures Limited Partnership recovered 1800 artifacts. TVLP was purchased by RMS Titanic Inc. The 1987 assets were not included in the recent court decision stated below.
RMS started to salvage further assets of the wreckage in 1994, and was therefore considered salvager in possession of the assets. They made several other journeys over the ensuing years, uncovering over 5,000 artifacts.
There were numerous court cases over whether RMS had rights to the Titanic wreckage. In the most recent ruling Judge on August 12th 2010, Judge Rebecca Smith, a federal judge for the United States District Court for the Eastern District of Virginia ruled that RMS (now a wholly owned subsidiary of Premier Exhibitions), ruled that PRXI was entitled to 100% of the fair market value of the titanic assets.
This is an important point: This is the final ruling, by August 12th 2011, the company will be receiving the assets or the cash value.
The judge strangely stated that the decision about whether to award the actual assets or the cash value would be decided within a year (August 12th 2011).
Why is it taking the judge so long to make the decision, why does it take a year, she should have ruled on the spot? The judge is likely trying to assemble a buyer since the judge wants the assets protected and stated that they should all be kept together.
This means that either the court is arranging to find a buyer for the assets from Premier, or the court will sell it and award the cash to Premier. The buyer might be a Government, a large museum, or a consortium of buyers that will host the assets in one place.
First, let us look at the value of the Titanic assets, according to the appraisers they are worth $110m (which would also “likely” be the cash awarded). One could argue the assets are worth nothing, but I would bet any museum would die to have them. The Titanic has historical significance to three nations, France, the UK, and America. It also got enormous publicity from the 1997 film by director James Cameron, which has grossed close to $2 billion. The movie is being released in next year, which coincides with the 100 year anniversary of the sinking of the ship. Just for comparison, the Mona Lisa was assessed at $100m in 1962!
Now for the less speculative aspects, let us examine the appraisal with numbers. The appraisers, Paul Zerler and Stephen Rogers came up with an appraisal of $110m. They began the appraisal in 2000, and therefore, have ten years of experience with the assets of the titanic. They individually inspected every single article, and used “the character of the object, its state of conservation, the scarcity of the item, and other relevant factors.” The appraisers additionally took into account assets sold by the survivors of the Titanic in the valuation. Another independent appraiser testified before the court and stated that he agreed with Zerler and Rogers’ estimates. Zerler was not able to testify in court due to health issues, but Rogers stated that Zerler’s estimates usually sell within 10-12% of their appraisal value.
There is another factor, which I have considered based on recent events. The appraisal was made over the course of several years, and the court decision was on August 2011. Since August 2011, nearly every asset class has gone up tremendously in value. There was a great WSJ article from August 29, 2011 giving some data about fine arts. Here are some of the important quotes from the article:
“Just as the stock market is setting new postcrash highs, the art market has largely recovered from the recession.”
“Record prices are being paid for individual favorites like Pablo Picasso, whose “Nude, Green Leaves and Bust” sold at Christie’s last May for $106.5 million, the most ever paid at auction for a work of art.”
“What’s selling overall? Auction houses say newcomers are asking for large-scale pieces—possibly wanting to get their money’s worth on an inch-by-inch basis.”
While, this is could be a sign of a bubble, it is great for Premier if they are awarded the assets, as the Titanic assets have almost surely gone up in value as well since the appraisal.