JET's and PGR Breakup Valuation

It’s not hard to see why PGR is so focused on growing the JET’s swimwear business. Competitor Tigerlilly was recently sold by BBG for $60m. According to media reports, at the time of sale the business had EBITDA of about $7.5m (and sales of c$35m), valuing it at 8x EBITDA. In addition, Seafolly was a larger swimwear business with about $120m in sales that sold to LV a couple of years ago for $100m or 0.83x revenue (I couldn’t find any earnings numbers).

According to Taylor Collison, PGR's JET’s swimwear business had revenues of about $14m in 2017, and is well positioned to generate $25m-30m by YE 2019 (based on recent investments in agents/online/distribution). If we assume JET’s EBITDA margins are 15% (Tigerlilly’s were >20%), then this business should be able to generate an EBITDA run-rate of $3.75m-4.5m by YE 2019. At the lower end of this range, at an 8x EBITDA multiple, this equates to $30m or 22c a share (or more than 3 quarters of PGR’s current market cap).

This is even more interesting when we consider this in the context of a sum of the parts/breakup of the broader PGR group. If we assume that the company is broken up and sold in parts, I can readily get to a valuation of PGR of more than 80c, as follows:

-         JETS/swimwear of 22cps as above

-         Designworks (after delivering the new contracts) valued at $35-40m, or 26-29cps, based on EBIT of $6-7m and an EBIT multiple of 6x

-         Remaining Review/other businesses  valued at c$40m, or $29cps, based on EBITDA of  $6.5-7m and conservative EBITDA multiple of 6x (could be higher if Review can return to growth).

In my view, these are not very demanding valuation metrics for the non JET’s businesses, given recent trade sales and the cyclically depressed state of the group’s earnings. While breakup analysis is usually of little value, given the nature of the current owner and their typical 3-5 year investment horizon (they have been in for 3 years to date), this could make for a very interesting next 1-2 years for patient shareholders.