The recent PGR share price performance highlights just how short term focused the market is. PGR remains significantly under-priced given:
- Despite cyclically weak earnings, EV/EBITDA is less that 3x, compared to say Noni B at 9x;
- The company has no debt and is well run;
- There are enough minority holders to prevent a successful clean up bid at the current share price;
- PGR can use Amazon marketplace to its advantage as another distribution channel, and its existing online strategy is performing well;
- Hedge fund owners usually operate on a timeframe of 3-5 years, so they will be looking to crystallize upside over this period (and currently have a strategic review underway to do this);
- If you conservatively assume that PGR can return EBITDA to $25m over 5 years (and they could do it in 2, or get a lot higher than $25m), they pay a dividend of 60% of NPAT, and the market rerates the stock to a conservative 6x EV/EBITDA, you should be able to achieve IRR of ~30% per annum or more with little downside risk.
Obviously the hedge fund owners will want to capture this upside so will look to pick up the minorities cheaply, but if your downside risk is another bid at 51c which is an 18% premium to the current share price, its not a bad risk to take. But it may take longer than a few weeks.....
PGR Price at posting:
44.5¢ Sentiment: Buy Disclosure: Held
