Very rarely do you get a skewed investment opportunity like this: a guaranteed catalyst set to occur within a specific period that will likely double or triple the value of a company. Such a catalyst is the reason I've been buying boatloads of Premier Exhibitions (PRXI) shares for more than a year.
This is not the first time Real Money readers have been introduced to Premier; fellow value guru Jon Heller and I have written about this stock before. But this is the first time that readers have been given a specific blueprint as to how and when Premier's valuation will finally catch up with the company's intrinsic value.
Premier is a provider of high-quality museum-type exhibitions. The company's two best-known exhibits are BODIES and RMS Titanic artifacts. The value-creating catalyst resides in the Titanic assets. Premier's subsidiary owns approximately 6,000 Titanic artifacts, acquired through years of diving and exploration. It is those assets that provide the current catalyst that will drive the company's valuation higher in the very near future.
Last week, Premier announced that it was finally ready to auction off its Titanic assets. For more than 10 years, Premier has been involved in litigation regarding the title to those artifacts. Last August, a court finally awarded Premier the remaining set of artifacts it did not own. During that legal process, professional appraisers valued those artifacts in excess of $110 million. Those artifacts, along with the others in Premier's possession, are collectively worth more than $180 million.
Premier is debt free and has a market cap approaching $90 million. News of the Titanic auction did not move shares much -- a signal that the market believes that the auction will not even fetch appraised value for the assets. I believe the market has it wrong; in fact, it's likely that the auction will result in a sale price in excess of the appraised value.
Premier has retained New York auction house Guernsey's. Like many, I'm only familiar with the two most popular names, Sotheby's (BID) and Christie's. Yet Guernsey's is considered one of the industry's top auction houses and an expert in one-of-a-kind artifacts. It sold the $3 million Mark McGuire baseball, JFK artifacts, and conducted the largest auction in history: the contents of the ocean liner SS United States.
When it comes to Titanic, there is no rival. While Premier is the exclusive owner of the single largest collection of salvaged artifacts, other Titanic artifacts, from survivors, have been auctioned off over the years. If the results of those auctions are any indication of value, PRXI's assets could fetch closer to $300 million as opposed to the $189 million appraised value. Consider the following:
• In October 2011, Phillip Weiss Auctions offered artifacts from a couple who were honeymooning on the Titanic. Those artifacts were estimated to fetch between $30,000 and $50,000. Those artifacts sold for $100,570.
• That same month, England's Henry Aldridge & Son auctioned several Titanic artifacts, including a deck plan of First Class Accommodations used by a survivor. It was estimated that the deck plan would fetch between $50,000 and $80,000. The final sale price was more than $150,000.
Further research reveals the same pattern of strong demand and attractive prices. In fact, Guernsey's auctioned off some Titanic assets in 2004 at an incredibly successful offering. Premier will announce the results of the auction in April 2012, coinciding with 100th anniversary of the Titanic sinking. Premier's entire collection must be sold as a whole, and due to the historical significance of the collection, the buyer has to be qualified regarding purpose. In other words, a potential buyer would not be able to buy the entire collection, then break it up, and sell off the individual pieces.
In all likelihood, the small-cap company is going to reside over one of the most highly publicized and significant auctions in decades. PRXI shares closed Tuesday at $1.85, with an $87 million market cap. At the appraised price of $189 million, shares are worth $4 before you include the company's intellectual property or exhibition business. That's 120% upside in four months. If the auction goes better than expected, then you can see how incredible the upside is.
Because Premier's share price is below $5, institutional funds are ignoring this multibagger. This auction will occur regardless of whatever crises happen in the world. Trading at $1.85, the share price is significantly discounting even the most conservative appraisal of the company's Titanic artifacts. Between know and April, I expect the gap between the share price and artifact value to close quickly and investors today can participate in an opportunity that seldom arises in today's marketplace.
