Clarus research on Discovery Air
With the pending closing of Discovery’s (DA.A:TSX) acquisition of Top Aces, a Wellington Financial Fund II portfolio company, we are interested in every word written these days on the putative acquiror of one of our favourite companies. Here is this morning’s note from Clarus Securities:
Discovery’s share price, market value and valuation multiples have fallen by a greater margin relative to its peers in the midst of recent market conditions. Most importantly, the Company’s EV/EBITDA (FY2009E) multiple declined by 8.7% over the period compared to just a 6.8% drop for the peer group.
Exhibit 1. DA.A Valuation
DA.A-T July-20/07 July-27/07 % change
Closing Price $1.88 $1.65 -12.2%
EV/EBITDA (FY2009E) 6.9x 6.3x -8.7%
P/E (FY2009E) 11.6x 10.2x -12.1%
EV/EBITDA (FY2009E) 6.7x 6.3x -6.8%
P/E (FY2009E) 12.6x 11.7x -7.1%
Source: Thomson ONE, Clarus Securities
The Company is currently closing its first Q2 (ends July) inclusive of three key operating segments (Great Slave Helicopters, Air Tindi, Hicks & Lawrence). We point out that Discovery’s Q2 and Q3 represent ~75% of annual revenue and Q2 results (expected release in September-07) could prove to be a catalyst for the Company. The recent addition of Top Aces helps diversify Discovery’s natural resource risk, reduce seasonality and exposes the Company to the growing niche market of defence flight training that is estimated to be worth over $1.5 billion annually. We reiterate our BUY recommendation and 12-month target price of $2.30 per share.