Street Capitalist: Event Driven Value Investments

The best time to buy is when there’s blood on the street. Air Transport Services Group (ATSG) or better known as ABXA has been on my radar for a while. A few great investors have owned this company, patiently waiting for a cloud of uncertainty brought on by a shaky relationship with DHL to go away.

In a couple weeks, that happened. DHL announced that they were going to break the contract and source their flights out to UPS and sent ATSG off a cliff. So far, the company’s stock price has declined nearly 60%. When I witnessed this happening, I suspected that there may have been an overreaction.

The company’s complex arrangement with DHL made it quite complicated to concretely peg its value. My best estimate is that even without DHL, ATSG will be able to survive and generate $30 million in FCF. Right now, the company is trading at $72.71M or 2.4x FCF. My own purchase price was $1.70 but with my valuation I believe I paid was less than 50% the company’s true value, which is a strong enough margin of safety.

News has been sparse from management, but i did find this reassuring gem:

Air Transport Services Group said it has the liquidity to meet its debt terms even if a possible deal between DHL Express and UPS takes a large chunk of its business.

“Our preliminary view based upon what we know at this time, which we have shared with our principal creditors, is that our financial strength, marketable asset base and projected cash flow should allow us to remain in compliance with our financial covenants and required debt amortization under our credit agreement for the remainder of their terms,” said CEO Joe Hete in a news release.